California Court Rejects Refund Claim in DCLA Fee Lawsuit, Broader Challenge Remains

Case Snapshot

• Court: Superior Court of California, County of San Francisco
• Case: Receivables Management Association International, et al. v. California Department of Financial Protection and Innovation, et al., Case No. CPF-26-519661
• Decision Date: July 24, 2026
• Core Issue: Whether the plaintiffs could pursue their fourth cause of action seeking refunds of DCLA assessments after filing suit before expiration of the Government Claims Act’s 45-day period.
• Key Allegation: The plaintiffs allege California’s DCLA assessment structure imposes unlawful fees, including an unconstitutional tax under Proposition 26.
• Court Holding: The plaintiffs did not comply with the Government Claims Act’s claims-presentation requirement before filing their refund claim.
• Outcome: DFPI’s demurrer to the fourth cause of action was sustained without leave to amend.
• Notable Detail: The order addresses the refund cause of action and does not decide the merits of the plaintiffs’ broader challenge to the legality of the DCLA assessment structure.

A California judge has rejected the refund portion of an industry lawsuit challenging assessments imposed under the state’s Debt Collection Licensing Act, finding that the plaintiffs filed suit before completing a mandatory government claims process. The July 24 ruling does not decide the lawsuit’s broader allegations that California’s debt collection licensing assessment structure violates state law and the California Constitution.

San Francisco Superior Court Judge Christine Van Aken sustained a demurrer filed by the California Department of Financial Protection and Innovation, or DFPI, to the fourth cause of action brought by Receivables Management Association International, ACA International and R.M. Galicia Inc., doing business as Progressive Management Systems. The court sustained the demurrer without leave to amend.

The ruling turns on the timing requirements of California’s Government Claims Act rather than the merits of the plaintiffs’ underlying challenge to the DCLA assessments.

Court Finds Refund Claim Was Filed Prematurely

The dispute over refunds stems from the timing of a government claim presented before the lawsuit was filed.

According to the court’s order, the plaintiffs filed a government claim on or about March 31 and filed their lawsuit April 7. California’s claims-presentation statutes generally prohibit a suit for money or damages against a public entity until a written claim has been presented and acted upon or deemed rejected. The public entity generally has 45 days to act on the claim.

Because the lawsuit was filed before that 45-day period expired, the court concluded that the refund claim was premature and did not comply with the Government Claims Act.

That conclusion is consistent with the California Court of Appeal’s recent decision in Harland v. City of West Hollywood. In Harland, the appellate court held that compliance with the Government Claims Act’s claim-presentation requirements is a condition that must be satisfied before filing suit against a public entity. The court also found that filing prematurely could not be cured under the circumstances by later amending or refiling the complaint.

The San Francisco Superior Court cited Harland in reaching its decision.

Substantial Compliance Argument Falls Short

The plaintiffs argued that they had substantially complied with the claims-presentation requirement, relying in part on the 2023 decision Malear v. State of California.

The court distinguished the circumstances in Malear. There, the prematurely filed original complaint had not been served before an amended complaint alleging the required denial of the government claim was filed.

In the DCLA case, DFPI was served with the petition before the 45-day claims period ended. The court therefore found that the plaintiffs could not establish substantial compliance.

The court also addressed whether the refund request could escape the Government Claims Act because monetary relief was incidental to the plaintiffs’ broader requests for equitable relief. The order noted a division in California appellate authority on that issue but adopted DFPI’s interpretation, concluding that the claims-presentation requirement applied.

A separate argument that the DCLA itself provides a functionally equivalent claims process was also rejected. The court found that the licensing statute does not contain a claims-presentation requirement equivalent to the Government Claims Act.

Finally, the court accepted the plaintiffs’ general argument that California must provide taxpayers with a remedy to recover taxes that were wrongfully paid. However, it found that the existence of such a remedy was not incompatible with requiring compliance with the Government Claims Act before seeking monetary relief.

Broader Challenge to California Licensing Assessments Remains

The July 24 order is specifically directed at the fourth cause of action for a refund. It does not determine whether DFPI’s debt collection assessments are lawful under the DCLA, Proposition 26 or other provisions challenged in the litigation.

The lawsuit was filed in April as a putative class action on behalf of approximately 1,243 licensed debt collectors. The plaintiffs allege that DFPI’s annual assessments violate the DCLA, Proposition 26 and the California Administrative Procedure Act. They also allege that the assessment structure does not provide a sufficiently clear formula for determining annual fees.

Under Proposition 26, certain state-imposed charges can constitute taxes unless they fall within specified exceptions. The plaintiffs contend that the DCLA assessments exceed the reasonable costs of regulation and are not sufficiently related to the regulatory burden attributable to individual licensees. Those allegations remain disputed and have not been resolved by the July order.

Among the allegations underlying the case is that DFPI developed program costs around a significantly larger expected licensee population than ultimately materialized. The complaint alleges the department anticipated more than 7,000 licensees while approximately 1,243 businesses became licensed, without sufficiently recalibrating the program’s costs.

How California Calculates DCLA Assessments

California Financial Code Section 100020 requires DCLA licensees to pay a pro rata share of the costs and expenses reasonably incurred in administering the licensing program. The pro rata component is based on the proportion of net proceeds generated by California debtor accounts during the preceding year.

DFPI explains that every licensee first pays a $250 minimum annual assessment. The remaining amount needed to fund the program is then allocated among licensees according to their reported net proceeds.

The department describes the methodology as a means of having all licensees contribute a minimum amount while allocating additional costs according to the size of their California business activity.

The statute also gives the assessment significant compliance consequences. Licensees that fail to pay by the statutory deadline can face penalties as well as suspension or revocation of their DCLA licenses.

DFPI has demonstrated that those consequences are more than theoretical. In January, the department issued an order summarily revoking a DCLA license after alleging that the licensee failed to pay its annual assessment by the deadline.

What the Decision Means for ARM Companies

The immediate effect of the July 24 decision is narrower than a ruling upholding California’s assessment system.

The court did not determine whether the assessments challenged by the plaintiffs constitute unlawful taxes or otherwise violate the DCLA. Instead, it concluded that the plaintiffs had not satisfied a procedural prerequisite for pursuing the fourth cause of action seeking refunds.

For receivables management companies licensed in California, the distinction matters. The statutory assessment obligations remain in effect while the litigation continues, and DFPI states that failure to pay can result in penalties, suspension, or revocation.

The remaining litigation could have broader implications for how California funds its debt collection licensing program and how regulatory costs are allocated among licensees of substantially different sizes.

The July ruling also demonstrates that obtaining monetary relief from a state agency can raise procedural issues separate from the merits of a challenge to the underlying regulatory program. Any future refund efforts will have to account for the Government Claims Act requirements emphasized by both the Superior Court and the recent Harland decision.