BILL NUMBER: AB 350 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Lieu
FEBRUARY 19, 2009
An act to add Division 21 (commencing with Section 60000) to the
Financial Code, relating to debt.
LEGISLATIVE COUNSEL'S DIGEST
AB 350, as introduced, Lieu. Debt management and settlement.
Existing law, the Check Sellers, Bill Payers and Proraters Law,
provides for licensure and regulation by the Commissioner of
Corporations of persons engaged in, among other activities, the
business of receiving money as an agent of the obligor for the
purpose of paying bills, invoices, or accounts for the obligor.
The bill would enact the Debt Settlement Services Act and would,
commencing January 1, 2011, provide for the licensing and regulation
by the commissioner of providers, defined as persons who provide,
offer to provide, or agree to provide debt settlement services, as
defined, directly or through others. The bill would require a
provider to submit specified fees and an application for licensure
with the commissioner. An applicant who knowingly misrepresents or
submits any material matter that is false, or who otherwise willfully
violates a provision of the act, would be guilty of a misdemeanor.
The bill would specify the conditions under which the commissioner
may issue or deny licensure as a provider, would require renewal of a
provider's license on an annual basis, and would require a provider
to satisfy certain requirements before entering into an agreement
with an individual for the provision of debt settlement services,
including providing specified disclosures. The bill would require an
agreement for debt settlement services to contain specified terms and
would impose limits on the fees charged by providers. The bill would
prohibit providers from engaging in specified practices. The bill
would authorize the commissioner to take enforcement actions against
a provider for violations of the bill's provisions and would also
authorize an injured individual to recover specified damages from a
provider that violates the bill's provisions. The bill would enact
other related provisions.
Because the bill would create a new crime, it would impose a
state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Division 21 (commencing with Section 60000) is added to
the Financial Code, to read:
DIVISION 21. DEBT SETTLEMENT SERVICES ACT
CHAPTER 1. SHORT TITLE
60000. This division shall be known and may be cited as the Debt
Settlement Services Act.
CHAPTER 2. DEFINITIONS
60001. As used in this division, the following definitions shall
apply:
(a) "Agreement" means an agreement between a provider and an
individual for the performance of debt settlement services.
(b) "Applicant" means any person who submits an application to the
department for the purpose of seeking licensure to become a debt
settlement provider.
(c) "Commissioner" means the Commissioner of Corporations.
(d) "Concessions" means assent to repayment of a debt on terms
more favorable to an individual than the terms of the contract
between the individual and a creditor.
(e) "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, but without receiving money
from the individual for distribution to the individual's creditor.
(f) "Good faith" means honesty in fact and the observance of
reasonable standards of fair dealing.
(g) "Person" means an individual, corporation, business trust,
estate, trust, partnership, limited liability company, association,
joint venture, or any other legal or commercial entity. The term does
not include a public corporation, government, or governmental
subdivision, agency, or instrumentality.
(h) "Principal amount of the debt" means the amount of a debt at
the time of the execution of the agreement.
(i) "Program" means a program or strategy in which a provider
furnishes debt settlement services.
(j) "Provider" means a person that provides, offers to provide, or
agrees to provide debt settlement services directly or through
others. "Provider" does not include either of the following:
(1) The services of a person licensed to practice law in this
state, when the person renders services in the course of his or her
practice as an attorney-at-law.
(2) The services of a person licensed as a certified public
accountant or a public accountant in this state, when the person
renders services in the course of his or her practice as a certified
public accountant or a public accountant.
(3) A family member of an individual that negotiates financial
concessions, with or without compensation, from the creditors of the
individual.
(k) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
CHAPTER 3. GENERAL PROVISIONS
60002. This division shall not apply to the following persons or
their employees when the person or the employee is engaged in the
regular course of the person's business or profession:
(a) A judicial officer, a person acting under an order of a court
or an administrative agency, or an assignee for the benefit of
creditors.
(b) A bank, bank holding company, or the subsidiary or affiliate
of either, or a credit union or other financial institution, licensed
under state or federal law.
(c) A title insurer, escrow company, or other person that provides
bill-paying services if the provision of debt settlement services is
incidental to the bill-paying services.
(d) Financial-planning services provided in a financial
planner-client relationship by a member of a financial-planning
profession whose members the commissioner determines are licensed
under Chapter 3 (commencing with Section 25230) of Part 3 of Division
4 of the Corporations Code.
60003. All fees collected by the commissioner pursuant to this
division shall be deposited in the State Treasury to the credit of
the State Corporations Fund. The administration of this division
shall be supported out of the State Corporations Fund upon
appropriation by the Legislature.
60004. The commissioner may adopt rules and regulations necessary
to implement this division in accordance with the provisions of the
Administrative Procedure Act (Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code).
CHAPTER 4. LICENSING
60005. (a) No person shall provide debt settlement services to an
individual who it reasonably should know resides in this state at
the time it agrees to provide the services, unless the provider is
licensed under this division.
(b) The commissioner shall maintain and publicize a list of the
names of all licensed providers, which shall be published by the
commissioner within 180 days of the operative date of this division.
60006. (a) An application for licensure as a provider shall be in
a form prescribed by the commissioner.
(b) Subject to adjustment of dollar amounts pursuant to
subdivision (a) of Section 60007, an application for licensure as a
provider shall be accompanied by the following:
(1) The fee established by the commissioner.
(2) Evidence of a surety bond or minimum coverage of insurance, in
an amount specified by the commissioner, which bond or insurance
shall be maintained by the provider during the term of the license.
(3) Proof that the applicant has filed appropriate documents with
either the Secretary of State or the county in which the applicant is
located to conduct a business in California.
60007. (a) The commissioner shall set an annual deadline for the
submission of applications for licensure. The commissioner shall set,
prior to the annual application deadline, based on its estimates of
the cost of administering the program and the estimated number of
license applicants, an application fee. Sixty days after the
licensing deadline for the initial license, the commissioner shall
determine, if necessary, a surcharge to cover the estimated costs for
the remainder of the year, plus any deficit, if any, from the year
prior, for administering this division. The surcharge shall be
charged as a pro rata share to each applicant granted a license
during that year based on the number of active enrolled California
residents in that licensee's debt settlement program, with a
reasonable minimum and maximum charge as determined by the
commissioner.
(b) The commissioner shall notify each licensee by mail of the
amount of the surcharge assessed against it and that the amount shall
be paid within 30 days thereafter. If the licensee fails to pay the
assessment on or before the 30th day upon which payment is due, the
commissioner may by order summarily suspend or revoke the license
issued to the licensee.
(c) Any applicant that files its application after the deadline
shall be charged the initial application fee plus the pro rata
surcharge specified in subdivision (a), and the application fee for
that applicant shall not be adjusted to account for any partial year.
60008. Every application for licensure shall be signed by the
applicant and shall declare as true any material matter pursuant to
this application for licensure. Any applicant who knowingly
misrepresents or submits any material matter that is false is guilty
of a misdemeanor. The application form shall contain a statement
informing the applicant that a false or dishonest answer to a
question may be grounds for denial or subsequent suspension or
revocation of the applicant's license. An application for licensure
shall be in a form prescribed by the commissioner and shall include
the following:
(a) The applicant's name, principal business address and telephone
number, and all other business addresses in this state, e-mail
addresses, and Internet Web site addresses.
(b) All names under which the applicant conducts a debt settlement
business or a business for which licensure by the Department of
Corporations is required.
(c) The address of each location in this state at which the
applicant shall provide debt settlement services or a statement that
the applicant will have no such location.
(d) The name and home address of each executive officer and
director of the applicant and each person that owns at least 10
percent of the applicant.
(e) A statement describing, to the extent it is known or should be
known by the applicant, any material civil or criminal judgment
relating to financial fraud or misuse and any material administrative
or enforcement action by a governmental agency relating to financial
fraud or misuse in any jurisdiction against the applicant, any of
its officers, directors, owners, or agents.
(f) Evidence of accreditation or certification by an independent
accrediting or certification organization approved by the
commissioner. If the applicant has not had the opportunity to obtain
accreditation or certification, the applicant shall provide proof of
registration with a recognized accrediting or certifying organization
along with a schedule under which it plans to obtain accreditation
or certification. The applicant shall obtain accreditation or
certification within six months of the date of its application.
(g) At the applicant's expense, via the process in Section 60009,
the results of a national criminal history records check, including
fingerprints, provided pursuant to the Federal Bureau of
Investigation appropriation of Title II of Public Law 92-544 (28
U.S.C. Sec. 534) conducted within the immediately preceding 12
months, covering every executive officer of the applicant. The
commissioner shall be the authorized agency to receive information
regarding the results of the national criminal history records check
under Title II of Public Law 92-544 (28 U.S.C. Sec. 534).
(h) Any other information that the commissioner reasonably
requires to issue a license.
60009. (a) An applicant for licensure shall provide to the
commissioner, and the commissioner shall submit to the Department of
Justice, fingerprint images and related information required by the
Department of Justice of applicants for licensure for purposes of
obtaining information as to the existence and content of a record of
state or federal convictions and state or federal arrests and also
information as to the existence and content of a record of state or
federal arrests for which the Department of Justice establishes that
the person is free on bail or on his or her own recognizance pending
trial or appeal.
(b) The Department of Justice shall provide a response to the
commissioner pursuant to paragraph (1) of subdivision (p) of Section
11105 of the Penal Code.
(c) The commissioner may request from the Department of Justice
subsequent arrest notification service, as provided pursuant to
Section 11105.2 of the Penal Code, for a person described in
subdivision (a).
(d) The Department of Justice shall charge a fee, to be paid by an
applicant for licensure, that is sufficient to cover the cost of
processing the request described in this section.
(e) All information supplied to the commissioner in connection
with the application for licensure shall be held confidential by the
commissioner.
60010. An applicant or licensed provider shall notify the
department within 30 days after a change in the information specified
in paragraph (2) of subdivision (b) of Section 60006 or in
subdivision (a), (c), or (e) of Section 60008, or any other
information as required, by rule, by the commissioner.
60011. (a) Except as otherwise provided in subdivisions (b) and
(c), the commissioner shall issue a certificate of licensure as a
provider to a person that complies with this article.
(b) The commissioner may deny registration for either of the
following:
(1) An application that contains information that is materially
erroneous or incomplete.
(2) An officer, director, or owner of the applicant has been
convicted of a crime, or suffered a civil judgment, involving fraud,
deceit, or dishonesty or the violation of state or federal securities
laws.
(c) The commissioner shall deny licensure if the application is
not accompanied by the fee established by the commissioner.
60012. (a) The commissioner shall approve or deny an initial
license as a provider within 60 days after a complete application is
filed. In connection with a request pursuant to subdivision (h) of
Section 60008 for additional information, the commissioner may extend
the 60-day period for not more than 45 days. Within 10 business days
after denying an application, the commissioner, in a record, shall
inform the applicant of the reasons for the denial.
(b) If the commissioner denies an application for licensure as a
provider or does not act on an application within the time prescribed
in subdivision (a), the applicant may appeal and request a hearing
pursuant to the California Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code).
60013. (a) A provider shall obtain a renewal of its license
annually.
(b) An application for renewal of licensure as a provider shall be
in a form prescribed by the commissioner and be filed no fewer than
30 and no more than 60 days before the license expires.
(c) Application for renewal shall be accompanied by the fee
established by the commissioner in an amount reasonably necessary for
the administration of this division. The commissioner may, if
necessary, also include a surcharge to the licensure renewal fee that
shall be determined by the amount of the deficit, if any, for
reasonable expenses and costs incurred greater than the revenue
collected, in the administration of this division in the year
immediately preceding the renewal year. The surcharge shall be
charged to providers on a pro rata share based on the number of
California residents enrolled in the provider's debt settlement
services program.
(d) The commissioner, by rule, may require a provider to submit
specific business information with the annual renewal application.
60014. A person or entity licensed as a provider under this
division shall be exempt from the requirements of Division 3
(commencing with Section 12000).
CHAPTER 5. REGULATIONS
60015. A provider that is required to be licensed under this
division shall maintain a toll-free communication system, staffed at
a level that reasonably permits an individual to speak to a debt
specialist or customer service representative, as appropriate, during
ordinary business hours.
60016. (a) Before providing debt settlement services, a licensed
provider shall give the individual an itemized list of goods and
services and the charges for each. The list shall be in no less than
12 point font.
(b) A provider shall not furnish debt settlement services unless
the provider has prepared a financial analysis.
(c) A written good-faith estimate of the length of time it will
take to complete the program and a statement of the total amount of
debt owed to each creditor included in the program shall be provided
to the individual. The estimate shall be provided prior to the first
payment made by the individual to creditors pursuant to the program.
(d) Before an individual assents to an agreement to engage in a
program, the provider shall inform the individual in writing of all
of the following:
(1) The name and business address of the provider.
(2) That some programs are not suitable for some individuals.
(3) That the conduct of a program may affect the individual's
credit rating or credit scores.
(4) That nonpayment of debt may lead creditors to increase finance
and other charges or undertake collection activity, including
litigation.
(5) That unless the individual is insolvent, if a creditor settles
for less than the full amount of the debt, the program may result in
the creation of taxable income to the individual, even though the
individual does not receive any money.
(6) That specific results cannot be predicted or guaranteed.
(7) That a program requires an individual to meet certain savings
goals in order to maximize settlement results.
(8) That a provider, who is not otherwise authorized or
professionally licensed, does not provide accounting or legal advice
to individuals.
(9) That a provider does not receive compensation from an
individual's creditors, banks, or third-party collection agencies.
(10) That a provider cannot force negotiations or settlements with
creditors but will advocate solely on behalf of an individual.
(11) That if an individual terminates an agreement pursuant to
paragraph (1) of subdivision (b) of Section 60019, no additional fees
will be due.
(e) The provider shall insert the following statement, in not less
than 10-point type, in its debt settlement program agreements:
"Complaints related to this agreement may be directed to the
Department of Corporations."
60017. (a) For purposes of this section, the following
definitions apply:
(1) "Consumer" means an individual who seeks or obtains goods or
services that are used primarily for personal, family, or household
purposes.
(2) "Federal act" means the Electronic Signatures in the Global
and National Commerce Act (15 U.S.C. Sec.7001 et seq.).
(b) A provider may satisfy the requirements of Section 60016,
60019, or 60024 by means of the Internet or other electronic means if
the provider obtains a consumer's consent in the manner provided by
Section 101(c)(1) of the federal act (15 U.S.C. Sec. 7001(c)(1)).
(c) The disclosures and materials required by Section 60016,
60019, or 60024 shall be presented in a form that is capable of being
accurately reproduced for later reference.
(d) With respect to disclosure by means of an Internet Web site,
the disclosure of the information required by subdivision (d) of
Section 60016 shall appear on one or more screens that satisfy both
of the following:
(1) The screen contains no other information.
(2) An individual shall be able to see the screen before
proceeding to assent to formation of a program.
(e) At the time of providing the materials and agreement required
by subdivisions (a), (b), and (c) of Section 60016, Section 60019,
and Section 60024, a provider shall inform the individual that upon
electronic, telephonic, or written request, it will send the
individual a written copy of the materials, and shall comply with a
request as provided in subdivision (f).
(f) If a provider is requested, before the expiration of 90 days
after a program is completed or terminated, to send a written copy of
the materials required by subdivisions (b) and (c) of Section 60016,
Section 60019, and Section 60024, the provider shall send them at no
charge within three business days after the request, but the
provider shall not be required to comply with a request more than
once per calendar month or if it reasonably believes the request is
made for purposes of harassment. If a request is made more than 90
days after a program is completed or terminated, the provider shall
send within a reasonable time a written copy of the materials
requested.
(g) Subject to subdivision (h), if a consumer who has consented to
electronic communication in the manner provided by Section 101(c) of
the federal act (15 U.S.C. Sec. 7001(c)) withdraws consent as
provided in the federal act, a provider may terminate its agreement
with the consumer.
(h) If a provider wishes to terminate an agreement with a consumer
pursuant to subdivision (g), it shall notify the consumer that it
will terminate the agreement unless the consumer, within 30 days
after receiving the notification, consents to electronic
communication in the manner provided in Section 101(c) of the federal
act (15 U.S.C. Sec. 7001(c)).
60018. A provider shall maintain an Internet Web site and shall
disclose all of the following on the home page of its Internet Web
site or on a page that is clearly and conspicuously connected to the
home page by a link that clearly reveals its contents:
(a) Its name, business address, telephone number, and e-mail
address, if any.
(b) Its license number under this division and a link to the
department's Internet Web site.
(c) All other disclosures required by law.
60019. (a) An agreement under this division shall satisfy all of
the following requirements:
(1) Be in writing, dated, and signed by the individual.
(2) Include the name of the individual and the address where the
individual resides.
(3) Include the name, business address, and telephone number of
the provider.
(4) Be delivered to the individual immediately upon formation of
the agreement. For purposes of this paragraph, delivery of an
electronic record occurs when it is made available in a format in
which the individual may retrieve, save, and print, and the
individual is notified that it is available.
(5) Include all disclosures required under Section 60016.
(6) Disclose all of the following:
(A) The list required under subdivision (a) of Section 60016.
(B) The amount, and method of determining the amount, of all fees,
individually itemized, to be paid by the individual.
(C) How the provider will comply with its obligations under
subdivision (a) of Section 60024.
(D) That the individual may contact the commissioner with any
questions or complaints regarding the provider, provided the
individual first attempts to address any and all grievances with the
provider pursuant to Section 60026.
(b) An agreement under this division shall provide the following:
(1) That the individual has a right to terminate the agreement at
any time by giving the provider written or electronic notice.
Termination of the agreement becomes effective immediately upon
receipt by the provider, at which time all powers of attorney granted
by the individual to the provider are revoked and ineffective.
(2) That the individual can cancel an agreement and receive a full
refund of any moneys paid to the provider before midnight of the
third business day after the individual assents to it. Notice of
cancellation is effective upon proof of sending such notice prior to
the deadline.
(3) That any power of attorney only authorizes the provider, as
reasonably necessary, to communicate with creditors for the purposes
of negotiating settlement offers and to initiate transfer of funds in
accordance with Section 60025.
(4) That the provider shall notify the individual within three
business days after learning of a creditor's decision to cease final
negotiation with the provider. This notification shall include both
of the following:
(A) The identity of the creditor.
(B) The right of the individual to modify or terminate the
agreement.
(C) The terms and conditions of the agreement modification
process.
(c) An agreement shall not do any of the following:
(1) Provide for application of the law of any jurisdiction other
than the United States and this state.
(2) Except as permitted by the California Arbitration Act (Title 9
(commencing with Section 1280) of Part 3 of the Code of Civil
Procedure), contain a provision that modifies or limits otherwise
available forums or procedural rights, including the right to trial
by jury, that are generally available to the individual under law
other than as provided in this division.
(3) Contain a provision that restricts the individual's remedies
under this division or under another law of this state.
(4) Contain a provision that does either of the following:
(A) Limits or releases the liability of any person for not
performing the agreement or for violating this division.
(B) Indemnifies any person for liability arising under the
agreement or this division.
(d) All rights and obligations specified in subdivision (b) exist
even if not provided in the agreement. A provision in an agreement
that violates subdivision (b) or (c) is void.
60020. If a provider communicates with an individual primarily in
a language other than English, the provider shall furnish a
translation into the other language of the disclosures and documents
required by this division.
60021. (a) The total of all fees charged by a provider shall not
exceed 20 percent of the amount of debt brought into the program
which includes a maximum of a 5-percent setup fee. The total fees
must be spread over at least half the length of the program, unless
accelerated by the individual or until offers of settlement by
creditors are obtained on at least half of the debts enrolled to
provider. In no case shall total fees exceed 20 percent of the
principal debt, and the total fees plus settlements cannot exceed the
principal amount of the debt.
(b) A provider shall not impose, directly or indirectly, a fee or
other charge on an individual or receive money from or on behalf of
an individual for debt settlement services except as permitted by
this section.
(c) A provider shall not impose charges or receive payment for
debt settlement services until the provider and the individual have
signed an agreement that complies with Sections 60016 and 60019.
(d) If a payment to a provider by an individual under this
division is dishonored, a provider may impose a reasonable charge on
the individual, not to exceed the amount permitted by paragraph (1)
of subdivision (a) of Section 1719 of the Civil Code.
60022. (a) If a provider imposes a fee or other charge or
receives money or other payments not authorized by Section 60021, the
agreement is void and the individual shall first seek a remedy
pursuant to Section 60026, but, if no remedy is obtained, may recover
as provided in Section 60032.
(b) If a provider is not licensed as required by this division
when an individual assents to an agreement, the agreement shall be
void.
(c) If an agreement is void pursuant to subdivision (a) or (b),
the provider shall not have a claim against the individual for breach
of contract or for restitution.
(d) Subdivision (a) shall not apply to an error in computation if
(1) the provider shows by a preponderance of evidence that the
violation was not willful and resulted from a good-faith error,
notwithstanding the maintenance of procedures reasonably adapted to
avoid that error, and (2) within 60 days of discovering the error the
provider notifies the individual of the error and makes whatever
adjustments in the account are necessary to correct the error.
60023. If an individual who has entered into a fee agreement
fails for 60 days to make payments required by the agreement, a
provider may terminate the agreement.
60024. (a) A provider shall provide the accounting required by
subdivision (b), as follows:
(1) Upon settlement of a debt.
(2) Within five business days after a request by an
individual, but the provider shall not be required to comply with
more than one request in any calendar month.
(3) Upon cancellation or termination of an agreement.
(b) A provider, in a record, shall provide the following to each
individual for whom it has established a program if a creditor has
agreed to accept as payment in full an amount less than the principal
amount of the debt owed by the individual:
(1) The total amount and terms of the settlement.
(2) The amount of the debt when the individual assented to the
program.
(3) The amount of the debt when the creditor agreed to the
settlement.
(4) The fee, and the calculation of the fee, if any, charged to
the individual based on a percentage of the settlement of debt or
based on a percentage of the savings realized by the individual.
(c) A provider shall maintain records for each individual for whom
it provides debt settlement services for three years after the final
payment made by the individual. A provider shall produce a copy of
those records and provide them to the individual within a reasonable
time after a request for the records. The provider may use electronic
or other means of storage of the records.
60025. (a) A provider shall not, directly or indirectly, do any
of the following:
(1) Exercise or attempt to exercise a power of attorney after an
individual has terminated an agreement.
(2) Initiate a transfer of funds to or from an individual's bank
or other financial institution, unless the transfer is one of the
following:
(A) A return of money to the individual.
(B) Before termination of an agreement, properly authorized by the
agreement and this division, for payment of a fee.
(C) A transaction that has been expressly approved in writing, or
recorded statement, by the individual after the transaction has been
presented to the individual for approval.
(D) A transaction expressly directed by the individual to the bank
or financial institution.
(3) Settle a debt or lead an individual to believe that a payment
to a creditor is in settlement of a debt to the creditor unless, at
the time of settlement, the individual or provider receives a
certification or confirmation by the creditor that the payment is in
full settlement, or is part of a payment plan that is in full
settlement, of the debt.
(4) Make a representation that:
(A) The provider will furnish money to pay bills or prevent
attachments.
(B) Payment of a certain amount will guarantee satisfaction of a
certain amount or range of indebtedness.
(C) Participation in a program will or may prevent litigation,
garnishment, attachment, repossession, foreclosure, eviction, or loss
of employment.
(5) Represent that it is a not-for-profit entity unless it is
organized and properly operating as a not-for-profit entity under the
law of the state in which it was formed or that it is a tax-exempt
entity unless it has received certification of tax-exempt status from
the Internal Revenue Service.
(6) Knowingly employ an unfair, unconscionable, or deceptive act
or practice, including the knowing omission of any material
information.
(7) Fail to respond to and research any complaint initiated by an
individual within 20 days of receipt of the complaint and resolve
each complaint in a prompt and reasonable manner.
(8) Require an individual participating in a debt settlement
program to utilize additional ancillary services.
(9) Receive financial incentives or additional compensation based
on the outcome of the debt settlement program in excess of the fee
cap.
(10) Pay referral fees to creditors or potential creditors who
refer new clients to the provider.
(b) If a provider furnishes debt settlement services to an
individual, the provider may not, directly or indirectly, do any of
the following:
(1) Purchase a debt or obligation of the individual.
(2) Except through a separately licensed affiliate, receive from
or on behalf of the individual either of the following:
(A) A promissory note or other negotiable instrument other than a
check or a demand draft.
(B) A postdated check or demand draft.
(3) Except through a separately licensed affiliate, lend money or
provide credit to the individual, except as a deferral of a fee at no
additional expense to the individual or advance a settlement payment
for the individual at no additional expense to the individual.
(4) Except through a separately licensed affiliate, obtain a
mortgage or other security interest from any person in connection
with the services provided to the individual.
(5) Force or otherwise require an individual to deposit his or her
funds into a specific financial institution. A provider must also
state to the individual that the individual is free to choose any
FDIC-insured financial institution. However, this shall not prevent a
provider from furnishing the individual with a list of FDIC-insured
financial institutions from which the individual may choose or
explaining the benefits of using any particular financial
institution.
(6) Except as permitted by federal and California law, disclose
the identity or identifying information of the individual or the
identity of the individual's creditors, except to:
(A) The commissioner, upon proper demand.
(B) A creditor of the individual, to the extent necessary to
secure the cooperation of the creditor in a program.
(C) The extent necessary to administer the program.
(7) Except as otherwise provided in Section 60021, provide the
individual less than the full benefit of a compromise of a debt
arranged by the provider.
(8) Charge the individual for or provide credit or other
insurance, coupons for goods or services, membership in a club,
access to computers or the Internet, or any other matter not directly
related to debt settlement services or educational services
concerning personal finance.
(9) Furnish legal advice or perform legal services, unless the
person furnishing that advice to or performing those services for the
individual is licensed to practice law.
(10) Advise individuals to stop payment on any of the accounts
being handled by the provider.
(11) Hold an individual's funds in trust.
(c) This division does not authorize any person to engage in the
practice of law.
60026. Each provider shall establish an internal formal complaint
policy that creates a process for the provider to receive, review,
and address or resolve formal complaints internally. The availability
of this process shall be communicated in writing to individuals
enrolled in the provider's program. This policy shall include a
provision that all consumers who file a formal complaint shall
receive a response from the provider within 20 days from the provider'
s receipt of the complaint. The provider shall maintain a file for
each formal complaint that documents the complaint, its handling, and
the resolution, if any, of the complaint and the provider shall
disclose the file to the commissioner upon request.
60027. No later than 30 days after a provider has been served
with notice of a civil action for violation of this division by or on
behalf of an individual who resides in this state at either the time
of an agreement or the time the notice is served, the provider shall
notify the commissioner in a record that it has been sued.
60028. Any advertising conducted by the provider shall not
contain any false, misleading, or deceptive statement or omit to
state any fact necessary to make the statements made, in light of
circumstances under which they are made, not false, misleading, or
deceptive.
60029. (a) The commissioner may act on his or her own initiative
or in response to complaints and may receive complaints, take action
to obtain voluntary compliance with this division, refer cases to the
attorney general, or any other law enforcement agency, and seek or
provide remedies as provided in this division.
(b) The commissioner may investigate and examine once every two
years, in this state or elsewhere, by subpoena or otherwise, the
activities, books, accounts, and records of a person that provides or
offers to provide debt settlement services, or a person to which a
provider has delegated its obligations under an agreement or under
this division, to determine compliance with this division.
Information that identifies individuals who have agreements with the
provider shall not be disclosed to the public. In connection with the
investigation, the commissioner may do either of the following:
(1) Charge the person the reasonable expenses necessarily incurred
to conduct the examination.
(2) Require or permit a person to file a statement under oath as
to all the facts and circumstances of a matter to be investigated.
(c) The commissioner may enter into cooperative arrangements with
any other federal or state agency having authority over providers and
may exchange with any of those agencies information about a
provider, including information obtained during an examination of the
provider.
60030. (a) The commissioner may enforce this division and rules
adopted under this division by taking one or more of the following
actions:
(1) Ordering a provider or a director, employee, or other agent of
a provider to desist and refrain from any violations.
(2) Ordering a provider or a person that has caused a violation to
correct the violation, including making restitution of money or
property to a person aggrieved by a violation.
(3) Imposing an administrative penalty not exceeding two thousand
five hundred dollars ($2,500) for each violation on a provider or a
person that has caused a violation.
(4) Prosecuting a civil action to do either or both of the
following:
(A) Enforce an order.
(B) Obtain restitution or an injunction or other equitable relief,
or both.
(b) If a person knowingly violates or knowingly authorizes,
directs, or aids in the violation of a final order issued under
paragraph (1) or (2) of subdivision (a), the commissioner may impose
an administrative penalty not exceeding ten thousand dollars
($10,000) for each violation.
(c) The commissioner may recover the reasonable costs of enforcing
this division under subdivisions (a) and (b), including attorney's
fees based on the hours reasonably expended and the hourly rates for
attorneys of comparable experience in the community.
(d) In determining the amount of a penalty to impose under
subdivision (a) or (b), the commissioner shall consider the
seriousness of the violation, the good faith of the violator, any
previous violations by the violator, the deleterious effect of the
violation on the public, the net worth of the violator, and any other
factor the commissioner considers relevant to the determination of
the civil penalty.
(e) Any penalties or other amounts recovered by the commissioner
under this section shall be paid into the State Corporations Fund.
60031. (a) In this section, "insolvent" means the following:
(1) The inability to pay debts in the ordinary course of business
other than as a result of good-faith dispute.
(2) Being unable to pay debts as they become due.
(3) Being insolvent within the meaning of the federal bankruptcy
law (11 U.S.C. Sec. 101 et seq.).
(b) The commissioner may suspend, revoke, or deny renewal of a
provider's license if:
(1) A fact or condition exists that, if it had existed when the
licensee applied for licensure as a provider, would have been a
reason for denying the license.
(2) The provider has committed a material violation of this
division or a rule or order of the commissioner under this division.
(3) The provider is insolvent.
(4) The provider or an employee or affiliate of the provider has
refused to permit the commissioner to make an examination authorized
by this division, failed to comply with paragraph (2) of subdivision
(b) of Section 60029 within 15 days after request, or made a material
misrepresentation or omission in complying with paragraph (2) of
subdivision (b) of Section 60029.
(5) The provider has not responded within a reasonable time and in
an appropriate manner to communications from the commissioner.
(6) The provider has been convicted of a crime that involves
dishonesty, fraud, or deceit, and that is substantially related to
the qualifications, functions, or duties of the licensed activity.
(c) If the commissioner suspends or revokes a provider's license,
the provider may appeal and request a hearing pursuant to the
California Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).
60032. (a) If an agreement is void pursuant to subdivision (a) or
(b) of Section 60022, the individual may recover in a civil action
all money paid by or on behalf of the individual pursuant to the
agreement, in addition to the recovery under subdivision (b).
(b) An individual with respect to whom a provider violates this
division may recover the following in a civil action from the
provider and any person that caused the violation:
(1) Compensatory damages for injury caused by the violation.
(2) Reasonable attorney's fees and costs.
(c) A provider shall not be liable under this section for a
violation of this division if the provider proves that the violation
was not willful and resulted from a good-faith error.
60033. If an act or practice of a provider violates both this
division and Chapter 5 (commencing with Section 17200) of Part 2 of
Division 7 of the Business and Professions Code, an individual may
not recover under both for the same act or practice.
60034. (a) An action brought under this division shall be
commenced within three years after the latest of one of the
following:
(1) The individual's last transmission of money to a provider.
(2) The date on which the individual discovered or reasonably
should have discovered the facts giving rise to the individual's
claim.
(b) The period prescribed in paragraph (2) of subdivision (a)
shall be tolled during any period during which the provider or, if
different, the defendant has materially and willfully misrepresented
information required by this division to be disclosed to the
individual, if the information so misrepresented is material to the
establishment of the liability of the defendant under this division.
60035. This division shall not apply to a debt settlement
agreement between an individual and a provider for the performance of
debt settlement services that was entered into prior to the
operative date of this division.
60036. The commissioner may make general rules and regulations
and specific rulings, demands, and findings for the enforcement of
this division.
60037. Any person, including a partner or officer of an entity
that is a licensee, who willfully violates any provision of this
division or who willfully violates any rule or order adopted pursuant
to this division, shall, upon conviction, be punished by a fine of
not more than ten thousand dollars ($10,000), or by imprisonment in a
county jail for not more than one year, or by both that fine and
imprisonment. However, no person may be imprisoned for the violation
of any rule or order unless he or she had knowledge of the rule or
order.
60038. A provider shall act in good faith in all matters under
this division.
60039. This division shall become operative on January 1, 2011.
CHAPTER 6. MISCELLANEOUS
60050. The provisions of this division are severable. If any
provision of this division or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
SEC. 2. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.