Summary of CA AB 0350 – “Debt Settlement Services Act
http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0301-0350/ab_350_bill_20090623_amended_sen_v95.pdf
Synopsis: Provides for the licensing, regulation, and supervision of debt
settlement service providers.
· “Debt settlement services” means services as an intermediary between an individual and one or more creditors of the individual for the purpose of obtaining concessions on behalf of the individual, but without receiving money from the individual for distribution to the individual’s creditor.
· This division does not apply to the following (or their employees):
o A judicial officer, a person acting under a court order or an administrative agency, or an assignee for the benefit of creditors
o A bank, bank holding company, or the subsidiary, agent, or affiliate of either, or a credit union or other financial institution licensed under state or federal law.
o A title insurer, escrow company, or other person that provides bill paying services if the person does not provide debt settlement services.
o Financial planning services provided in a financial planner-client relationship by a member of a financial planning profession whose members the commissioner of corporations (“commissioner”) determines are licensed under chapter 3.
o A person licensed or registered to originate loans secured by real property
· Debt settlement services licensing
o No person may provide debt settlement services to a resident of California, unless the person is licensed by the state
o The Commissioner will maintain and publicize a list of the names of all licensed providers
o Application for licensure will be on a form prescribed by the Commissioner
§ Accompanied by the established fee
§ With evidence of a surety bond or minimum coverage of insurance, in an amount specified by the commissioner, which must be maintained during the term of the license
§ The address of each location in at which the applicant will provide debt settlement services
§ The name of each executive officer and director, and each person that own at least 10% of the applicant
§ Any material civil or criminal judgment (or administrative action) relating to financial fraud or misuse against the applicant or any of its officers, directors, owners, or agents.
§ Evidence of accreditation/certification by an independent accrediting/certifying organization approved by the commissioner (or a schedule of its plans to obtain accreditation/certification)
§ Costs of a national criminal history records check submitted to the Commissioner
§ Fingerprint images and related information for the commissioner to submit to the USDOJ
o Commissioner will set an annual application deadline
o All information supplied to the commissioner in connection with the application will be held confidential by the commissioner
o Changes to any of application information must be made within 14-days
o The commissioner will issue licensure (within 60-days, but a 45-day extension is available if he requests additional information) to anyone who applies except:
§ The commissioner may deny licensure for a materially erroneous or incomplete application
§ The applicant, an officer, director, or owner has been convicted of a crime or civil judgment involving fraud, deceit, or dishonesty or violated securities or consumer protection laws
§ An applicant made a false statement or representation to the commissioner
§ An applicant has become insolvent
§ An applicant refuses to reasonably comply with an investigation or examination by the commissioner.
§ An applicant has improperly withheld, misappropriated, or converted business funds
§ An applicant has used fraudulent, coercive, or dishonest practices, or demonstrated incompetence regarding debt settlement services, or financial irresponsibility
§ An applicant has been shown to have engaged in a pattern of failing to perform promised services.
o Appeal: an applicant may appeal the decision of a commissioner who denies his application.
o A provider license must be renewed annually (w/fee)
o A licensed provider must maintain a toll-free communication system that reasonably permits an individual to contact them during business hours
· Before an individual assents to an agreement to engage in a program, the provider must:
o Prepare and provide a written financial analysis specific to the individual
o Provide a written good faith estimate of the time it will take to complete the program and the total amount of debt owed to each creditor in the program.
o Make a determination that the individual is qualified for a debt settlement program and can reasonably meet its requirements
o Inform the individual in writing of:
§ The name and business address of the provider
§ That some programs are not suitable for some individuals
§ That the conduct of a program may negatively affect credit rating or scores.
§ That nonpayment of debt may lead creditors to increase charge or undertake collection or litigation
§ That if the creditor settles, it may create taxable income for the individual (despite not receiving any money), unless the individual is insolvent.
§ That results cannot be predicted or guaranteed
§ That a program requires meeting certain savings goals in order to maximize settlement results.
§ That a provider who is not otherwise licensed cannot provide accounting or legal advice to individuals
§ That a provider does not receive compensation from an individual’s creditors, banks, or third-party collection agencies
§ That a provider cannot force negotiations or settlements with creditors, but will act solely on behalf of the individual
§ That using debt settlement services may not stop a creditor from filing or pursuing a lawsuit
§ That the consumer may owe fees upon signing an agreement even if debts are not reduced
§ That complaints regarding the agreement may be addressed to the department of corporations at 866-ASK-CORP or www.corp.ca.gov
· The provider must maintain a website with the following content:
o It’s name, business address, phone, and email
o Its license number and a link to the department’s web site
o All other disclosures required by law
· Agreement requirements:
o Must be in writing, dated, and signed
o Include the contact information of both parties
o Be delivered immediately to the individual
o Include all disclosures required above
o Disclose that:
§ The amount, and method of determining the amount, of all fees, individually itemized, to be paid by the individual
§ How the provider will comply with its obligations
§ That the individual may contact the Department of Corporations with any questions or complaints regarding the provider.
o Display the following provisions prominently and clearly on the front page:
§ The total amount of debt brought into the program
§ The setup fee amount to be paid by the individual
§ The monthly fee to be paid by the individual
§ The estimated number of months for which a monthly fee is required
§ An estimate of the total amount of fees reasonably anticipated over the term of the agreement
§ The total amount of fees that may be charged under the contract
o That the individual has a right to terminate the agreement at any time by giving the provider written or electronic notice, effective immediately upon receipt.
o That the individual may cancel the agreement and receive a full refund before midnight of the 5th business day (which must be refunded within 10 business days).
o That any power of attorney only authorizes the provider to communicate with creditors for the purposes of negotiating settlement offers and to initiate the transfer of funds.
o That the provider will notify the individual within 3 business days after learning of a creditor’s decision to cease final negotiations.
o An agreement may not:
§
Provide for application of the law of any
jurisdiction other than
§ Contain a provision that modifies or limits available forums or procedural rights that are generally available to the individual under law
§ Contains a provision that restricts the individual’s remedies under law
§ Contains a provision that
· Limits or releases the liability of any person for not performing or for violation this act
· Indemnifies any person for liability under the agreement or this act
· Requires the individual to be responsible for payment of attorney’s fees of the provider.
o All these provisions exist even if not provided in the agreement
· The total of all fees charged by a provider must not exceed 20% of the principal amount of debt; and the total fees + settlements cannot exceed the principal amount of the debt.
· A provider must not impose charges or receive payment for debt settlement services until the provider and individual have signed a valid agreement
· An agreement with a non-licensed provider is void.
· If a person fails to make payments within 60-days, a provider may terminate the agreement.
· Providers must maintain records for each individual for 5-years after the final payment
· A provider must not, directly or indirectly:
o Exercise or attempt unauthorized power of attorney
o Exercise or attempt to exercise power of attorney after the agreement ends
o Initiate a transfer of funds to or from an individual’s bank unless it is:
§ A return of money to the individual
§ Properly authorized by the agreement and by law for payment of a fee
§ A transaction that has been expressly approved by the individual after the transaction has been presented to the individual for approval
§ A transaction expressly directed by the individual
o Settle a debt or lead an individual to believe a payment is in settlement of a debt unless a certification/confirmation by the creditor that the payment is in full settlement is received
o Represent that:
§ The provider will furnish money to pay bills or prevent attachments
§ Payment of a certain amount will guarantee satisfaction of a certain amount or range of indebtedness
§ Participation in a program will or may prevent litigation, garnishment attachment, repossession, foreclosure, eviction, or loss of employment
o Represent that it is a not-for-profit entity unless it really is
o Knowingly employ an unfair, unconscionable, or deceptive act or practice
o Fail to respond to and research any complaint initiated by the individual within 20-days of receipt of the complaint.
o Require an individual participating in a program to utilize additional ancillary services
o Receive financial incentives or additional compensation based on the outcome in excess of the fee cap
o Pay referral fees to creditors or potential creditors
o Purchase a debt or obligation of the individual
o Receive from or on behalf of, the individual the following:
§ A promissory note or other negotiable instrument other than a check
§ A postdated check
o Lend money or provide credit, except as a deferral of a fee
o Obtain a mortgage or other security interest from any person in connection with the services provided
o Force or otherwise require an individual to deposit with a specific financial institution.
o Disclose the identity or identifying information of the individual or creditors, except to:
§ The commissioner
§ A creditor of the individual
§ The extent necessary to administer the program
o Provide an individual less than the full benefit of a compromise of a debt arranged by the provider (except as elsewhere provided)
o Charge the individual for any matter not directly related to debt settlement services or education services concerning personal finance.
o Furnish legal advice or perform legal services (unless otherwise authorized)
o Advise individual to stop payment on any of the accounts
o Hold an individual’s funds in trust
o Include a secured debt in any debt settlement services agreement.
· Each provider must have an internal formal complaint policy
· No later than 30-days after a provider has been served with notice of a civil action for violation of this act, the provider must notify the commissioner.
· Advertising concerning debt settlement services must not contain any false, misleading, or deceptive statement
· The commissioner may act on his own initiative or in response to complaints, and otherwise ensure compliance
o The commissioner may investigate and examine once every two years by subpoena or otherwise the activities books, accounts, and records of a person that provides or offers to provide debt settlement services, including requesting statements and charging for expenses.
o Penalties: ordering desist and refrain, require restitution, impose an administrative penalty of up to $2,500, or prosecute a civil action to enforce an order or obtain restitution or equitable relief
o The commissioner may impose an administrative penalty of up to $10,000 on a person who knowingly violates or final order.