"CLOSED STATE" means that if an agency has a debtor who is not located in the same state as the agency, the collection agency must be licensed in the state where the debtor resides in order to collect in a CLOSED BORDER STATE.
The agency may "forward" the account to another collection agency located in the debtor's state if they are not licensed in the "closed border" state. The reason they prefer not to do this is that they lose part of their commission percentage to the "forwarding" agency. Many agencies will take the chance of attempting to collect the account, knowing that most debtors have no knowledge of the closed state/border laws.
If you are in a "required license" or closed border state and an out-state-collection agency is sending you letters and/or calling you, you can contact the office of licensing for your state to inquire whether or not they are licensed.
Better still, when the collector calls you or you call them from a letter you received, tell them the State Statute in your state and ask if they are licensed there. Watch them squirm or hang up on you.
Click on your state to assess the collection law links:
ALABAMA
There are no licensing or bond requirements for conducting collection activities in the State of Alabama. There is, however, a license tax to be paid in the town or city in which the collection agency's place of business is located.
Alabama Law/Statute Section 40-12-80
ALASKA
Sec. 08.24.090. License required.
(a) A person other than a collection agency licensed and authorized under this chapter may not for compensation(1) conduct a collection agency business in this state;(2) collect claims for others in this state;(3) solicit the right to collect or receive payment of a claim for another;(4) advertise or solicit either in print, by letter, in person or otherwise, the right to collect or receive payment of a claim for another;(5) seek to make collection or obtain payment of a claim on behalf of another.(b) This chapter does not apply to the following when engaged in the regular course of their respective businesses:(1) attorneys at law;(2) persons regularly employed on a regular wage or salary in the capacity of credit men or a similar capacity, except as an independent contractor;(3) banks, including trust departments of banks, fiduciaries and financing and lending institutions;(4) common carriers;(5) title insurers and abstract companies while doing an escrow business;(6) licensed real estate brokers;(7) employees of licensees under this chapter;(8) substation payment offices employed by or serving as independent contractors for public utilities.(c) A violation of this section is a misdemeanor punishable by imprisonment in a jail for not to exceed one year, or by a fine of not more than $1,000, or by both.Alaska Law/Statute Sec. 08.24.090
ARIZONA
32-1024. Licensing out-of-state collection agents
The superintendent shall issue a license to operate a collection agency to a person who holds and presents with the person's application a valid and subsisting license to operate a collection agency issued by another state or an agency of another state if:
1. Requirements for securing the license were, at the time of issuance, substantially the same or equal to requirements imposed by this chapter.
2. The state concerned extends reciprocity under similar circumstances to licensed collection agents of this state.
3. The application is accompanied by the fees and financial and bonding requirements set forth in this chapter.
Arizona Law/Statute 32-1024
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