Collection Agency Licensing Requirements

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Collection agencies play an important part in commerce, acting on behalf of creditors to collect money that they are owed. Most states require that a debt collection agency be licensed in the state to perform collections within its borders. Some cities even have their own licensing standards for agencies operating within city limits. The collection agency must operate according to state laws and comply with the federal Fair Debt Collection Practices Act to maintain its license.


Debt collection agencies must be properly organized according to state law. All incorporation paperwork and licenses must be approved before the agency applies for a debt collection license. The licensing board may require a copy of the agency's articles of incorporation or other organizational documentation as part of the licensing process.


Most states require that debt collection agencies be bonded against loss to receive a license. By requiring bonding insurance, these states guarantee that the creditors who hire collection agencies are protected against loss resulting from fraud or incompetence on the part of the agency.

Investigation and Disclosure

Background checks are typically required as part of the collection agency licensing process. The cost of any background checks or investigations is often included in the licensing application fee, though some states may require that it be paid separately. The agency applying for a license must disclose the identity of every member of the agency at the time of application to assist in these investigations.


Some states require that license applicants provide business references. This is most often required when an out-of-state company applies for a license to expand its operating area; clients in other states are used as references to ensure that the agency operates fairly on behalf of its clients.

Federal Compliance

All collection agencies applying for licensing must comply to the standards set forth at the federal level by the Fair Debt Collection Practices Act. The FDCPA ensures that agencies will not contact third-party individuals for collection attempts, harass or threaten debtors, or otherwise act inappropriately or unethically while attempting to collect a debt.

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