BILL NUMBER: SB 708 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 10, 2011
AMENDED IN SENATE APRIL 12, 2011
INTRODUCED BY Senator Corbett
FEBRUARY 18, 2011
An act to add Division 3.5 (commencing with Section 12500) to the
Financial Code, relating to debt settlement.
LEGISLATIVE COUNSEL'S DIGEST
SB 708, as amended, Corbett. Debt Settlement Consumer Protection
Act.
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 an obligor for the purpose
of paying bills, invoices, or accounts for the obligor.
This bill would enact the Debt Settlement Consumer Protection Act
and provide for the licensure and regulation by the commissioner of
debt settlement providers, defined as persons or entities engaging
in, or holding themselves out as engaging in, the business of
providing debt settlement services, as defined, to California
consumers in exchange for any fee or compensation. The bill would
establish criteria for issuance by the commissioner of a license to
engage in debt settlement services, would require an application for
licensure to contain specified information and include evidence of a
surety bond, would require a license to be renewed biennially, and
would require specified fees to be paid for a license. The bill would
make a person who knowingly provides false information in an
application for licensure subject to a civil penalty in a specified
amount. The bill would prohibit a debt settlement provider from
entering into an agreement with a consumer for debt settlement
services unless the provider retains on file specified written
determinations, and provides a copy to the consumer, that includes an
analysis indicating that the debt settlement program is suitable for
the consumer and that the consumer can reasonably expect to receive
a tangible net benefit from the program. The bill would require
specified disclosures from a provider to the consumer before entering
into an agreement for debt settlement services. The bill would
require a consumer entering into a debt settlement services agreement
to sign and date a specified consumer notice and rights form. The
bill would specify required contents of debt settlement services
agreements and would provide that a consumer has the right to
terminate an agreement at any time through oral, written, or
electronic notice to a provider. The bill would prohibit a provider
from engaging in specified practices and would regulate the fees and
charges imposed by a provider. The bill would authorize an injured
consumer to recover specified damages from a provider that violates
the bill's provisions and would make a violation of the bill's
provisions a crime and subject to specified civil penalties. Because
this bill would create a new crime, it would impose a state-mandated
local program. The bill would authorize the commissioner and the
Attorney General to enforce these provisions.
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 3.5 (commencing with Section 12500) is added
to the Financial Code, to read:
DIVISION 3.5. Debt Settlement Consumer Protection Act
CHAPTER 1. SHORT TITLE
12500. This division shall be known and may be cited as the Debt
Settlement Consumer Protection Act.
CHAPTER 2. DEFINITIONS
12501. As used in this division, the following definitions shall
apply:
(a) "Accretion rate" means the percentage increase in outstanding
debt, as measured against the principal amount of the debt, due to
the addition of fees and interest.
(b) "Commissioner" means the Commissioner of Corporations.
(c) "Consumer" means an individual who owes money to one or more
creditors for unsecured debt, including an individual who owes money
jointly with one or more other individuals, and who purchases or
contracts for the purchase of debt settlement services.
(d) (1) "Debt settlement provider" or "provider" means any person
or entity engaging in, or holding itself out as engaging in, the
business of providing debt settlement services to California
consumers in exchange for any fee or compensation, or any person who
solicits for or acts on behalf of any person or entity engaging in,
or holding itself out as engaging in, the business of providing debt
settlement services to California consumers in exchange for any fee
or compensation.
(2) "Debt settlement provider" or "provider" does not include any
of the following:
(A) Escrow agents, accountants, broker dealers in securities, or
investment advisors in securities, when acting in the ordinary
practice of their professions and through the entity used in the
ordinary practice of their profession.
(B) Any person who performs credit services for his or her
employer while receiving a regular salary or wage when the employer
is not engaged in the business of offering or providing debt
settlement services.
(C) A California licensed title insurer, or escrow company, or
other person in good standing that provides bill paying services if
the person does not provide debt settlement 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
1 of Title 4 of the Corporations Code, and who is not primarily
engaged in the business of debt settlement.
(E) An attorney who provides debt settlement services to a
consumer, and meets all of the following requirements:
(i) The attorney is licensed to practice law in the State of
California and is in good standing with the California Bar
Association.
(ii) The attorney personally provides debt settlement services
while acting in the ordinary practice of law, and is not primarily
engaged in the business of providing debt settlement services.
(iii) The attorney puts any advance fee received from the consumer
in a client trust account until earned in accordance with California
law and the California Rules of Professional Conduct, and pursuant
to the terms of a written agreement that details the work to be
performed by the attorney and the fee schedule for the attorney's
work.
(iv) The attorney does not share any fee received for the
provision of debt settlement services with a person who is not an
attorney.
(v) The attorney does not provide debt settlement services through
a partnership, corporation, association, referral arrangement, or
other entity or arrangement (I) that is directed or controlled, in
whole or in part, by an individual who is not an attorney; (II) in
which an individual who is not an attorney holds any interest; (III)
in which an individual who is not an attorney is a director or
officer of the entity or occupies a position of similar
responsibility; (IV) in which an individual who is not an attorney
has the right to direct, control, or regulate the professional
judgment of the attorney; or (V) in which an individual who is not an
attorney and who is not under the supervision and control of an
attorney, that delivers debt settlement services or exercises
professional judgment with respect to the provision of debt
settlement services.
(F) Any organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986 that is subject to Section 501(q) of,
and exempt from tax under Section 501(a) of, that code, that meets
all of the criteria in Section 12104, and that submits to the
commissioner all of the documentation specified in subdivisions (i)
and (j) of Section 12104.
(e) (1) "Debt settlement
services" means either of the following:
(A)
(1) Offering to provide advice or service, or acting as
an intermediary between or on behalf of a consumer and one or more
of a consumer's creditors, where the purpose of the advice, service,
or action, in whole or in part, is to obtain a settlement,
adjustment, or satisfaction of any of the consumer's unsecured debt
to a creditor in an amount less than the full amount of the principal
amount of the debt or in an amount less than the current outstanding
balance of the debt.
(B)
(2) Offering to provide, or providing, services related
to advising, encouraging, assisting, or counseling a consumer to
accumulate funds for the purpose, in whole or in part, of proposing,
obtaining, or seeking to obtain a settlement, adjustment, or
satisfaction of any of the consumer's unsecured debt to a creditor in
an amount less than the full amount of the principal amount of the
debt or in an amount less than the current outstanding balance of the
debt.
(2) "Debt settlement service" does not include services of an
attorney in providing information, advice, or legal representation
with respect to filing a case or proceeding under Title 11 of the
United States Code.
(f) "Financial institution" means any commercial bank, trust
company, credit union, industrial loan company, consumer finance
lender, residential mortgage lender, or any other person engaged in
the business of lending money.
(g) "Individualized financial analysis" means a review of a
consumer's budget, income, expenses, and debt in order to make a
determination about the consumer's qualification for a provider's
debt settlement program, the consumer's ability to make the savings
necessary to complete the debt settlement program, and whether it is
reasonable to expect the consumer will receive a tangible net benefit
from the debt settlement program offered by the provider.
(h) "Person" means an individual, corporation, business trust,
estate, trust, partnership, limited liability company, association,
joint venture, or any other legal or commercial entity.
(i) "Principal amount of the debt" means the total amount of debt
owed by a consumer to one or more creditors for the debt included in
an agreement for debt settlement services at the time that the
consumer enters into the agreement for debt settlement service.
(j) "Program" means a program or strategy in which a provider
furnishes debt settlement services.
CHAPTER 3. LICENSING AND OVERSIGHT
Article 1. Licensing Requirements
12505. (a) It shall be unlawful for any person to act as a debt
settlement provider without a valid license issued under this
division and except as authorized under this division.
(b) The commissioner shall maintain and publicize a list of the
names of all licensed providers and shall publish the list by July 1,
2012.
12506. (a) An application for licensure as a provider shall be
accompanied by a charge to cover the reasonable regulatory cost of
the commissioner incident to investigating an application for
licensure and issuing a license. The charge shall include an
investigation fee, not to exceed the sum of one thousand dollars
($1,000), an application fee, not to exceed the sum of one thousand
dollars ($1,000), and a fee to cover the cost of fingerprint
processing. The investigation fee and application fee are not
refundable.
(b) An application for licensure as a provider shall be
accompanied by the following:
(1) (A) Evidence of a surety bond in the amount of two
hundred thousand dollars ($200,000) fifty thousand
dollars ($50,000) , which bond or insurance shall be maintained
by the provider during the term of the license.
(B) Upon licensure as a provider, the bond shall be payable to the
commissioner and issued by an insurer authorized to do business in
this state. A copy of the bond, including any and all riders and
endorsements executed subsequent to the effective date of the bond,
shall be filed with the commissioner for review and approval within
10 days of execution. The bond shall be used for the recovery of
losses or damages incurred by consumers as the result of a licensee's
noncompliance with the requirements of this division or for the
recovery of expenses, fines, and fees levied by the commissioner, a
district attorney, city attorney, or the Attorney General.
(C) When an action is commenced on a licensee's bond, the
commissioner may require the filing of a new bond. Immediately upon
recovery of any action on the bond, the licensee shall file a new
bond. Failure to file a new bond within 10 days of the recovery on a
bond, or within 10 days after notification by the commissioner that a
new bond is required, constitutes sufficient grounds for the
suspension or revocation of the license.
(D) The bond shall remain in force and effect until the surety is
released from liability by the commissioner, or until the bond is
canceled by the surety.
(2) (A) Audited financial statements prepared in accordance with
generally accepted accounting principles and acceptable to the
commissioner.
(B) A licensee shall maintain a minimum net worth of one hundred
thousand dollars ($100,000) at all times as evidenced by the
financial statement.
(C) A licensee shall annually file audited financial statements
along with the annual report to the commissioner required under
Section 12521.
(D) The commissioner may by rule or order prescribe the form and
content of financial statements required under this law.
(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.
12507. (a) Each licensee shall pay to the commissioner its pro
rata share of all costs and expenses reasonably incurred in the
administration of this division, as estimated by the commissioner,
for the ensuing year and any deficit actually incurred or anticipated
in the administration of the program in the year in which the
assessment is made. The pro rata share shall be the proportion that a
licensee's total enrolled debt for debt settlement services in this
state bears to the aggregate total enrolled debt of all licensees as
shown by the audited financial statements filed with the commissioner
pursuant to subparagraph (A) of paragraph (2) of subdivision (b) of
Section 12506, for the costs and expenses remaining after the amount
assessed pursuant to subdivision (b).
(b) On or before the 30th day of May in each year, the
commissioner shall notify each licensee by mail of the amount
assessed and levied against it and that amount shall be paid within
30 days thereafter. If payment is not made within 30 days, the
commissioner may assess and collect a penalty, in addition to the
assessment, not to exceed 1 percent of the assessment for each month
or part of a month that the payment is delayed or withheld.
(c) If a licensee fails to pay the assessment on or before the
30th day of June following the day upon which payment is due, the
commissioner may by order summarily suspend or revoke the licensee's
license. If, after an order is made, a request for hearing is filed
in writing within 30 days, and a hearing is not held within 60 days
thereafter, the order is deemed rescinded as of its effective date.
During any period when its certificate is revoked or suspended, a
licensee shall not conduct business pursuant to this division except
as may be permitted by order of the commissioner. However, the
revocation, suspension, or surrender of a license shall not affect
the powers of the commissioner as provided in this division.
12508. Every application for licensure shall be signed by the
applicant and contain current information on all matters required in
an application for licensure. Any person who knowingly provides false
information in the application required by this division shall be
subject to a civil penalty in an amount up to fifty thousand dollars
($50,000) in addition to any other civil remedies available,
including, but not limited to, the remedies and penalties provided in
Section 12544. An action for a civil penalty under this section may
be brought by the commissioner or the Attorney General. 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 at minimum 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 all Internet Web site addresses.
(b) All names under which the applicant conducts a debt settlement
business or a business for which licensure by the commissioner 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 accompanied by a statement
of the locations from which debt settlement services will be provided
to persons in the state.
(d) The name of each executive officer and director of the
applicant and each person that owns or controls, directly or
indirectly, at least 10 percent or more of the outstanding equity
interests of the applicant and any other information necessary for
investigation in Section 12509.
(e) A statement describing, to the extent it is known or should be
known by the applicant, any civil or criminal judgment relating to
financial fraud or misuse, or relating to consumer protection laws;
any disposition of a criminal matter in the nature of a nolo
contendere plea and any significant civil settlement if either
relates to allegations of financial misconduct or fraud or consumer
protection laws; and any material administrative or enforcement
action by a governmental agency relating to financial fraud or misuse
or consumer protection laws in any jurisdiction against the
applicant, any of its officers, directors, owners, employees, agents,
or predecessor organizations.
(f) At the applicant's expense, fingerprint images and
related information pursuant to the process set forth
in Section 12510, 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).
(g) Disclosure of common ownership by any person owning or
controlling, directly or indirectly, 10 percent or more of the
outstanding interests or equity securities in the debt settlement
services provider with the following persons:
(1) Any person who advertises any service to assist consumers with
reducing or eliminating debt.
(2) Any person who provides banking or similar depository services
to consumers of debt settlement services providers.
(3) Any person, other than individuals employed by the debt
settlement services provider, with whom the debt settlement services
provider contracts to provide debt settlement services, or parts
thereof, to consumers of the debt settlement services provider.
(h) Disclosure of any other potential conflict of interest with
any person that facilitates, promotes, influences, or is involved
with the debt settlement process, as required by rule of the
commissioner.
(i) A copy of any agreement or evidence of any contractual
relationship with any entity listed in paragraph (2) of subdivision
(d) of Section 12501.
(j) An authorization for disclosure of financial records of the
applicant pursuant to Section 7473 of the Government Code.
(k) All sample agreements and disclosures intended to be used by
the provider in California.
(l) A statement listing the names of any other businesses or
entities through which the applicant does business as a debt
settlement organization or has done so within the five calendar years
immediately preceding the application.
(m) Any other information that the commissioner reasonably
requires to determine whether to issue a license.
12509. (a) Upon filing the application and payment of fees
pursuant to subdivision (a) of Section 12506 and approval of the bond
pursuant to paragraph (1) of subdivision (b) of Section 12506, the
commissioner shall investigate and examine the following:
(1) The background and experience of the applicant and of the
partners or members owning or controlling, directly or indirectly, 10
percent or more of the outstanding interests if the applicant is a
partnership, association, or limited liability company.
(2) The background and experience of the applicant and officers,
directors, and persons owning or controlling, directly or indirectly,
10 percent or more of the outstanding equity securities or interests
if the applicant is a corporation, trust, or association, including
an unincorporated organization.
(b) If the commissioner determines that the applicant has
satisfied the provisions of this division and does not find facts
constituting reasons for denial as specified in Section 12512, the
commissioner shall issue and deliver a license to the applicant to
engage in business in accordance with the provisions of this
division.
12510. (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 all 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) When received, the Department of Justice shall forward to the
Federal Bureau of Investigation requests for federal summary criminal
history information received pursuant to this section. The
Department of Justice shall review the information returned from the
Federal Bureau of Investigation and compile and disseminate a
response to the Commissioner of Corporations. The Department of
Corporations 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. Se c. 534).
(c) The Department of Justice shall provide state and federal
responses to the commissioner pursuant to paragraph (1) of
subdivision (p) of Section 11105 of the Penal Code.
(d) 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).
(e) 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.
12511. An applicant or licensed provider shall notify the
department in writing at least 10 days prior to any change in the
information specified in subparagraph (A) of paragraph (1) of
subdivision (b) of Section 12506 or in subdivision (a), (b), or (c)
of Section 12508, or within 14 days after any change in the
information specified in subdivision (d), (e), (g), (h), or (k) of
Section 12508, or any other information as required, by rule, by the
commissioner.
12512. (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 division.
(b) The commissioner may deny or revoke licensure for
any of the following:
(1) An application that contains any omission or false statement
of material fact or is incomplete.
(2) The applicant, an officer, director, general partner, member
or person owning or controlling, directly or indirectly, 10 percent
or more of the outstanding interests or equity securities, or a
predecessor organization of the applicant, has been convicted of or
pleaded nolo contendere to a crime; has incurred a significant civil
settlement; has suffered a civil judgment or any administrative
judgment by any public agency involving fraud, deceit, dishonesty, or
financial misconduct, or has violated state or federal securities or
consumer protection laws, or any regulatory scheme of the State of
California or another state; or has been convicted of any other
offense reasonably related to the qualifications, functions, or
duties of a person engaged in the business in accordance with the
provisions of this division.
(3) An applicant or any officer, director, general partner, member
or person owning or controlling, directly or indirectly, 10 percent
or more of the outstanding interests or equity securities or has made
any false statement or representation or material omission to the
commissioner.
(4) An applicant is or becomes insolvent.
(5) An applicant refuses to reasonably comply with an
investigation or examination of the debt settlement service provider
by the commissioner.
(6) An applicant has improperly withheld, misappropriated, or
converted funds received in the course of doing business.
(7) An applicant has used fraudulent, coercive, deceptive,
illegal, or dishonest practices, or demonstrated incompetence
regarding debt settlement services, or financial irresponsibility in
this state or elsewhere.
(8) An applicant has shown to have engaged in a pattern of failing
to perform services promised.
(9) An applicant or any officer, director, or general partner,
member or person owning or controlling, directly or indirectly, 10
percent or more of the outstanding interests or equity securities of
the applicant has violated any provision of this division or the
rules or any order thereunder or any similar regulatory scheme of the
State of California or a foreign jurisdiction.
(10) For good cause shown.
(c) The commissioner shall deny licensure if the application is
not accompanied by the fee established by the commissioner.
(d) The application shall be considered withdrawn within the
meaning of this section if the applicant fails to respond to a
written notification of a deficiency in the application within 90
days of the date of the notification.
12513. (a) The commissioner shall approve or deny an initial
license as a provider within 60 days after the receipt of a complete
application, the receipt of criminal history background information
from the Department of Justice, and the payment of required fees.
Within 30 calendar 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 Administrative Procedure Act (Chapter 4.5 (commencing
with Section 11400) of Division 3 of Title 2 of the Government
Code).
12514. (a) A provider shall obtain a renewal of its license
biennially.
(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 days 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.
12515. A license is not transferable or assignable.
12516. No licensee shall provide debt settlement services under
any other name or through an Internet Web site address other than
those named in the license or except pursuant to a currently
effective written order of the commissioner authorizing the other
name or Internet Web site address.
12517. A person or entity licensed as a provider under this
division shall be exempt from the requirements of Division 3
(commencing with Section 12000), except to the extent the person is
performing services and activities governed by Section 12000 that do
not constitute providing debt settlement services.
12518. In any proceeding under this division, the burden of
proving an exemption or exception is upon the person claiming it.
12519. 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 bank, bank holding company,
credit union, or the subsidiary or affiliate of a bank, bank holding
company, or credit union.
(b) Any other financial institution licensed under state or
federal law.
Article 2. Commissioner Oversight
12520. (a) Each licensee shall keep and use books, accounts, and
records in accordance with generally accepted accounting practices
and good business practice that will enable the commissioner to
determine if the licensee is complying with the provisions of this
division and with the rules and regulations promulgated by the
commissioner. Each licensee shall maintain any other records as
required by the commissioner.
(b) 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.
(c) For the purpose of discovering violations of this division or
securing information required by the commissioner in the
administration and enforcement of this division, the commissioner may
investigate and examine at any time, but not less than 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. For the
purpose of examination, the commissioner and the commissioner's
representatives shall have free access to the offices and places of
business, books, accounts, papers, records, and files of all these
persons. Information that identifies consumers who have agreements
with the provider shall not be disclosed to the public. In connection
with the investigation, the commissioner may require
do either of the following:
(1) Charge the person or provider the reasonable expenses
necessarily incurred to conduct the examination. The commissioner may
maintain an action for the recovery of expenses in any court of
competent jurisdiction.
(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.
(d) For the purpose of any investigation or proceeding under this
law, the commissioner or any officer designated by him or her may
administer oaths and affirmations, subpoena witnesses, compel their
attendance, take evidence, and require the production of any books,
papers, correspondence, memoranda, agreements, or other documents or
records which the commissioner deems relevant or material to the
inquiry. If the books, records, and supporting data are located out
of this state they shall be made available for examination by the
commissioner in this state within 10 days after a written demand.
This section does not limit or condition the requirement in
subdivision (c) that a licensee provide the commissioner with free
access to the licensee's offices, places of business, and records at
any reasonable time.
(e) A provider shall maintain all records for a minimum of five
years, and shall enable the commissioner to review the recordkeeping
and reconcile each individual debt settlement transaction with
documentation maintained in the consumer's debt settlement file
records. With respect to individual consumer records, this five-year
period shall begin from the later of the expiration of the consumer's
debt settlement services, the completion of the consumer's debt
settlement program, or the date of termination of the agreement.
Failure to keep the records for five years following the last entry
shall permit the commissioner to assess and collect a penalty of up
to ten thousand dollars ($10,000) for each year that the records are
not kept.
(f) 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.
12521. (a) On or before March 15 of each year, beginning March
2013, each licensee shall file an annual report with the commissioner
pursuant to procedures that the commissioner shall establish by
rule. The licensee shall submit with the annual report a declaration
that conforms to Section 2015.5 of the Code of Civil Procedure, is
executed by an official authorized by the licensee, and that states
that the licensee complies with this section. An annual report
summarizing the data reported by licensees shall be prepared by
the commissioner and made available to the public. Each licensee's
annual report shall include the following information for the
previous calendar year, except where indicated. Where data must be
reported by year of enrollment, the licensee shall report as to the
previous five years:
(1) The total amount of debt outstanding, including the
growth of debt since enrollment, as of December 31, for all
California residents for whom a licensee is providing debt settlement
services, broken down by year of enrollment.
(2) The total principal amount of debt of all California residents
for whom a licensee is providing debt settlement services as of
December 31, broken down by year of enrollment.
(3) The total number of California residents that entered into
agreements by year of enrollment.
(4) The total number of California residents with outstanding debt
settlement service agreements in California.
(5) The total number of California residents who terminated,
withdrew, abandoned, or were terminated from an agreement by year of
enrollment.
(6) With respect to California residents who completed a program
in the previous year by settling 100 percent of their principal
amount of debt, the following figures broken down by year of
enrollment:
(A) The total number of California residents falling into this
category.
(B) The total principal amount of debt.
(C) The total dollar amount of debt that was settled as measured
by the amounts outstanding at the time of settlement.
(D) The total dollar amounts paid to creditors to settle the
settled debts.
(E) The median, mean, lowest, and highest percentage of the
savings from the principal amount, as calculated by consumer and not
by debt.
(F) The total, median, mean, lowest, and highest fees paid by
these consumers to the provider.
(7) The total number of debts settled by the provider.
(8) The total dollar amount of debts settled by the provider, as
follows:
(A) The total principal amount of debt as to the settled debts.
(B) The total dollar amount of debt that was settled, measured by
the amounts outstanding at the time of settlement.
(C) The total dollar amounts paid to creditors to settle the
settled debts.
(9) With respect to California residents who canceled, became
inactive, or terminated the program during the reporting period, the
following figures broken down by year of enrollment:
(A) The total number of California residents falling into this
category.
(B) The total number who did not have any of their debt settled.
(C) The total number who had less than 75 percent of their debt
settled, with the 75 percent figure measured by calculating the
percentage of the principal amount of debt settled as compared to the
total principal amount of debt enrolled in the program.
(D) The total number who had 25 percent or less of their debt
settled, with the 25 percent figure measured by calculating the
percentage of the principal amount of debt settled as compared to the
total principal amount of debt enrolled in the program.
(E) The total principal amount of debt.
(F) The total dollar amount of debt that was settled, measured by
the principal amount of debt.
(G) The total dollar amounts paid to creditors to settle the
settled debts.
(H) The total, median, mean, lowest, and highest fees paid by
these consumers to the provider.
(10) The total amount of fees collected from California residents.
(11) The average accretion rate of debt that has been settled, as
of the date of settlement.
(12) The average accretion rate of debt that has not been settled,
as of December 31, broken down by year of enrollment.
(13) The number of consumers acquired from lead generators and the
identity of each of the lead generators. For the purposes of this
section, a "lead generator" is defined as a person that meets any of
the following:
(A) Solicits consumers to receive information or referrals on how
to reduce or eliminate the consumer's debt through telephone,
television, mail, in-person, or electronic Internet Web site-based
solicitation, or any other means.
(B) Acts as an intermediary or referral agent between a consumer
and a provider.
(C) Obtains a consumer's personally identifiable information for
the purpose of transmitting all or part of that information to a
provider.
(b) If a provider fails to do any of the following, the provider
shall forfeit to the people of the state a sum of up to one hundred
dollars ($100) for every day up to the 10th day: (1) to make any
report required by law or by the commissioner within 10 days from the
day designated for the making of the report, or within any extension
of time granted by the commissioner, or (2) fails to include therein
any matter required by law or by the commissioner. Thereafter, any
failure shall constitute grounds for the suspension or revocation of
the license held by the debt settlement service provider.
12522. The commissioner may, from time to time, make, amend, and
rescind rules, regulations, forms, findings, and orders as may be
reasonable or necessary to carry out the purposes and provisions of
this division, or for the enforcement of this division.
CHAPTER 4. REGULATIONS
Article 1. Pre-Agreement Requirements and Disclosures
12525. A person may not provide, or offer or attempt to provide,
debt settlement services in this state except as provided in this
division.
12526. (a) (1) Prior to entering into a written contract with a
consumer, a debt settlement provider shall prepare and provide all of
the following to the consumer in writing and retain a copy:
(A) An individualized financial analysis, including the consumer's
income, expenses, and debts.
(B) A statement containing a good faith estimate of the length of
time it will take to complete the debt settlement program, the total
amount of debt owed to each creditor included in the debt settlement
program, the total savings estimated to be necessary to complete the
debt settlement program, and the monthly targeted savings amount
estimated to be necessary to complete the debt settlement program.
(2) A debt settlement provider shall not enter into a written
contract with a consumer unless it makes written determinations,
supported by the financial analysis, and retained in the file with a
copy provided to the consumer, that indicates all of the following:
(A) The consumer can reasonably meet the requirements of the
proposed debt settlement program, including the fees and the periodic
savings amounts set forth in the savings goals.
(B) The debt settlement program is suitable for the consumer at
the time the contract is to be signed.
(C) The consumer is reasonably expected to receive a tangible net
benefit from the program.
(3) A provider shall consider all of the following in making the
determinations required by paragraph (2), and shall adopt reasonable
procedures describing its process for making the determinations:
(A) Whether the consumer's monthly income exceeds basic living
expenses and fixed obligations by an amount that permits the consumer
to meet the savings goals of the program.
(B) Whether each of the consumer's creditors are likely or
unlikely to agree to the settlement of the consumer's debts.
(C) Whether the consumer's credit score is likely to be harmed by
the requirements of the debt settlement program.
(D) Whether the consumer is current or delinquent on each of the
debts.
(E) Whether the consumer has other debt payment or debt concession
options that are more appropriate than a debt settlement program
given the consumer's financial situation.
(F) Whether the consumer is a candidate for bankruptcy.
(G) Any other consideration required by rule of the commissioner.
(4) The procedures adopted under paragraph (3) shall satisfy all
of the following:
(A) Ensure that persons offering or providing debt settlement
services are familiar with the determinations required to be made
under paragraph (2).
(B) Ensure that persons offering or providing debt settlement
services obtain the information required to make the determinations
required by paragraph (2).
(C) Ensure that persons offering or providing debt settlement
services comply with the limitations imposed by the determinations
required by paragraph (2).
(b) The responsibility for ensuring that debt settlement programs
are limited to persons meeting the qualification standards applicable
to the program is upon the provider and its agents.
(c) The commissioner may prescribe by rule qualification standards
for consumers in a debt settlement program.
12527. (a) A provider shall provide to the consumer, and retain a
copy, of the following documentation in not less than 12-point type:
(1) A description of the services to be provided by the debt
settlement provider, including a good faith estimate of the length of
time necessary to complete the program as represented by the
provider, and a statement of the monthly savings goals for the
consumer necessary to complete the program under that timeline.
(2) A statement of the total amount of debt owed to each creditor
included in the program, and a good faith estimate of the time by
which the debt settlement service provider will make a bona fide
settlement offer to each creditor.
(3) A good faith estimate of the total amount of all fees and
compensation, not to exceed the amounts specified in Section 12538,
to be collected by the debt settlement provider from the consumer for
the provision of debt settlement service contemplated. This shall
include an itemized list of fees and the approximate dates or
circumstances under which each fee will become due.
(b) Before the consumer signs a contract, the debt settlement
provider shall provide an oral and written notice to the consumer
that clearly and conspicuously discloses all of the following:
(1) The debt settlement provider does not send any money to the
consumer's creditors, unless there is a settlement. The consumer's
debts can grow bigger before any settlement.
(2) Debt settlement services are not suitable for all consumers.
(3) To the extent that any aspect of the debt settlement service
relies upon or results in the consumer's failure to make timely
payments to creditors or debt collectors, that the use of the debt
settlement service will likely adversely affect the consumer's
creditworthiness, may result in the consumer being subject to
collections or sued by creditors or debt collectors, and may increase
the amount of money the consumer owes due to the accrual of fees and
interest.
(4) Not all creditors will accept a reduction in the balance,
interest rate, or fees a consumer owes.
(5) The consumer may inquire about other means of dealing with
debt, including, but not limited to, nonprofit credit counseling and
bankruptcy.
(6) The consumer remains legally obligated to make periodic or
scheduled payments to creditors while participating in a debt
settlement plan, and that the debt settlement provider will not make
any periodic or scheduled payments to creditors on behalf of the
consumer.
(7) The amount of time necessary to complete the program as
represented by the provider.
(8) The amount of money or the percentage of debt the consumer
must accumulate before a settlement offer will be made to each of the
consumer's creditors.
(c) The consumer shall sign and date an acknowledgment form
entitled "Consumer Notice and Rights Form" that states: "I, the
debtor, have received from the debt settlement provider a copy of the
form entitled 'Consumer Notice and Rights Form'." The debt
settlement provider or its representative shall also sign and date
the acknowledgment form, which includes the name and address of the
debt settlement services provider. The acknowledgment form shall be
in duplicate and incorporated into the "Consumer Notice and Rights
Form". The original acknowledgment form shall be retained by the debt
settlement provider, and the duplicate copy shall be retained within
the form by the consumer.
(d) The requirements of this section are satisfied if the debt
settlement provider provides the following warning verbatim, both
orally and in writing, with the caption "CONSUMER NOTICE AND RIGHTS
FORM" in at least 20-point font and the remaining portion in at least
12-point font with the emphases indicated, to a consumer before the
consumer signs a contract for the debt settlement provider's
services:
""CONSUMER NOTICE AND RIGHTS FORM CAUTION
We CANNOT GUARANTEE that you successfully will
reduce or eliminate your debt.
If you stop paying your creditors, there is a
strong likelihood that some or all of the
following may happen:
CREDITOR
S MAY
STILL
- CONTACT
YOU AND
TRY TO
COLLECT.
CREDITOR
S MAY
STILL
- SUE YOU
FOR THE
MONEY
YOU OWE.
YOUR
WAGES
OR BANK
ACCOUNT
- MAY
STILL
BE
GARNISHE
D.
YOUR
CREDIT
RATING
AND
- CREDIT
SCORE
LIKELY
WILL BE
HARMED.
NOT ALL
CREDITOR
S WILL
AGREE
- TO
ACCEPT
A
BALANCE
REDUCTIO
N.
YOU
SHOULD
CONSIDER
ALL
YOUR
OPTIONS
FOR
ADDRESSI
- NG YOUR
DEBT,
SUCH AS
CREDIT
COUNSELI
NG AND
BANKRUPT
CY
FILING.
THE
AMOUNT
OF
MONEY
YOU OWE
MAY
INCREASE
DUE TO
CREDITOR
- IMPOSITI
ON OF
INTEREST
CHARGES,
LATE
FEES,
AND
OTHER
PENALTY
FEES.
WE DO
NOT
SEND
PAYMENT
TO YOUR
- CREDITOR
S
UNLESS
THERE
IS
SETTLEME
NT.
EVEN IF
WE DO
SETTLE
YOUR
DEBT,
YOU MAY
STILL
- BE
REQUIRED
TO PAY
TAXES
ON THE
AMOUNT
FORGIVEN
.
YOUR RIGHT TO CANCEL
If you sign a contract with a Debt Settlement
Provider, you have the right to cancel at any
time and receive a full refund of all unearned
fees you have paid to the provider and all funds
placed in your settlement fund that have not
been paid to any creditors.
IF YOU ARE DISSATISFIED OR YOU HAVE QUESTIONS
If you think you have been defrauded by a debt
settlement provider or have any
questions, please bring it to the attention of
the California Attorney General's Office or the
Department of Corporations.
Attorney General
Call toll-free: (800) 952-5225
Online Complaints:
http://ag.ca.gov/contact/complaint_form.php?cmplt
=CL
Contact by mail: Public Inquiry Unit Office of
the Attorney General P.O. Box 944255 Sacramento,
CA 94244-2550
Department of Corporations
Call toll-free: 1-866-ASK-CORP (1-866-275-2677)
Online Complaints:
http://www.corp.ca.gov/about/complaint.asp
Contact by mail:
Department of Corporations
Consumer Services Office
1515 K Street, Suite 200
Sacramento, CA 95814
Article 2. Debt Settlement Agreements
12530. (a) A debt settlement provider shall not provide debt
settlement service to a consumer without a written contract signed
and dated by both the consumer and the debt settlement provider.
(b) Any contract for the provision of debt settlement
service services entered into with a person
not licensed as a debt settlement provider and not exempt from
licensing under this division, or that is in violation of the
provisions of this section , is void.
(c) A debt settlement services agreement between a debt settlement
provider and a consumer for the provision of debt settlement
services shall satisfy all of the following requirements:
(1) Include the following information in at least 12-point type:
(A) The name, address, and telephone number of the consumer.
(B) The name, address, California license number, and telephone
number of the debt settlement services provider, and if this does not
include a street address in California, the name and address of its
California agent for service of process.
(C) The following information on the first page of the contract:
(i) A complete list of the consumer's accounts, debts, and
obligations to be included in the provision of debt settlement
service, including the name of each creditor and principal amount of
each debt.
(ii) A statement of how the fees will be calculated, and a good
faith estimate of the total amount of all fees and compensation, not
to exceed the amounts specified in Section 12538, to be collected by
the debt settlement provider from the consumer for the provision of
debt settlement service contemplated by the contract. This shall
include an itemized list of fees and the approximate dates and
circumstances under which each fee will become due.
(D) A description of the services to be provided by the debt
settlement provider, including the amount of time necessary to
achieve the represented results, and the time by which the debt
settlement service provider will make a bona fide settlement offer to
each creditor.
(E) A statement of the proposed savings goals for the consumer,
stating the amount to be saved per month or other period, the time
period over which the savings goal extends, and the total amount of
the savings expected to be paid by the consumer pursuant to the terms
of the contract.
(F) The amount of money or the percentage of each outstanding debt
that the consumer must accumulate before the debt settlement service
provider will make a bona fide settlement offer to each debt.
(G) If the debt settlement provider requests or requires the
consumer to place funds in an account at an insured financial
institution, a statement that the consumer owns the funds held in the
account, the consumer may withdraw from the debt settlement service
at any time without penalty, and that if the consumer withdraws, the
consumer must receive all funds in the account, other than funds
earned by the debt settlement service in compliance with Article 4
(commencing with Section 12538).
(H) The disclosures required by Section
12527.
(2) Be delivered to the consumer at the time of formation of the
agreement. For purposes of this paragraph, delivery of an electronic
record occurs when it is received by the consumer in a format in
which the consumer may retrieve, save, and print.
(d) A debt settlement services agreement under this division shall
not do any of the following:
(1) Provide for application of the law of any jurisdiction other
than California.
(2) 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 consumer under law other
than as provided in this division.
(3) Contain a provision that restricts the consumer's rights or
remedies or the provider's obligations under this division or under
another applicable law.
(4) Contain a provision that does any 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.
(C) Requires the consumer to be responsible for payment of any
attorney's fees of the provider.
(5) Contain a hold harmless clause.
(6) Contain a confession of judgment clause.
(7) Contain assignment of or order for payment of wages or other
compensation for services.
(8) Contain an acceleration provision.
(9) Contain an unconscionable term or provision.
(e) If a provider communicates with a consumer primarily in a
language other than English, the provider shall furnish a translation
of the disclosures and documents required by this division in that
language.
(f) 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.
Article 3. General Provisions
12533. (a) A consumer has the right to cancel a debt settlement
services agreement at any time by giving the provider oral, written,
or electronic notice. Cancellation of the agreement becomes effective
immediately upon receipt by the provider, at which time all powers
of attorney and all direct debit authorizations granted by the
consumer to the provider are revoked and ineffective. No fees may be
charged to cancel and no fees may be charged after cancellation, but
a debt settlement provider may collect a settlement fee that was
earned prior to cancellation of the agreement.
(b) Upon the cancellation of an agreement under this section, the
debt settlement provider shall provide timely notice of the
cancellation of the agreement to each of the creditors with whom the
debt settlement provider has had any prior communication on behalf of
the consumer in connection with the provision of any debt settlement
service.
12534. A debt settlement services provider shall not, directly or
indirectly, do any of the following:
(a) Misrepresent any material aspect of any debt settlement
service, including, but not limited to, the amount of money or the
percentage of the debt amount that a consumer may save by using the
service; the amount of time necessary to complete the program, as
described by the provider; the amount of money or the percentage of
each outstanding debt that the consumer must accumulate before the
provider of the debt settlement service will initiate attempts with
the consumer's creditors or debt collectors or make a bona fide offer
to settle the consumer's debt; the effect of the service on a
consumer's creditworthiness; or the effect of the service on
collection efforts of the consumer's creditors or debt collectors.
(b) Make any representation about the results that may be achieved
by debt settlement, including about the percentage or dollar amount
by which debt may be reduced or the amount a consumer may save or the
experience of its customers with respect to debt reduction.
(c) Advise, encourage, or require, directly or indirectly, a
consumer to stop making payments to any creditor of the consumer.
(d) Solicit or accept a voluntary contribution from a consumer.
(e) Acquire a power of attorney conferring any power except the
power to negotiate a proposed settlement of one or more debts to
which the consumer will be offered the opportunity to assent.
(f) Purchase a debt or obligation of the consumer or engage in the
practice or business of debt collection.
(g) (1) Require a consumer to deposit his or her funds into a
specific financial institution. A provider must also state to the
consumer that the consumer is free to choose any Federal Deposit
Insurance Corporation-insured or National Credit Union
Administration-insured financial institution.
(2) With respect to any financial institution account opened by or
for a consumer, take a power of attorney, exercise control over the
account, be named on the account, create a demand draft, or obtain
any information about the account from any person other than the
consumer.
(g) With respect to any financial institution account established
pursuant to subdivision (e) of Section 12538, take a power of
attorney, exercise control over the accounts, or be named on the
account.
(h) Charge the consumer for or provide credit or other insurance,
or charge the consumer for coupons for goods or services, membership
in a club, educational services or materials, access to computers or
the Internet, or any other ancillary product or service, or represent
or imply to a person participating in or considering debt settlement
that purchase of any ancillary goods or services is required.
(i) Employ any unfair, unconscionable, or deceptive act or
practice.
(j) Enter into any contract with one or more unconscionable terms.
(k) Misrepresent any material fact, including the knowing omission
of any material information, or make a false promise directed to one
or more consumers in connection with the solicitation, offering,
contracting, or provision of debt settlement service.
(l) Make loans or offer credit to a consumer or solicit or accept
any note, mortgage, or negotiable instrument other than a check.
(m) Take any release or waiver of any obligation to be performed
on the part of the debt settlement provider or any right or remedy of
the consumer.
(n) Change the mailing address on any of a consumer's creditor's
statements.
(o) Receive any cash, fee, gift, bonus, premium, reward, or other
compensation from any person other than the consumer explicitly for
the provision of debt settlement service to that consumer.
(p) Take any confession of judgment or power of attorney to
confess judgment against the consumer or appear as the consumer or on
behalf of the consumer in any judicial proceedings.
(q) Offer or provide gifts or bonuses to consumers for signing a
debt settlement service contract or for referring another
potential customer or customers. other potential
consumers.
(r) Seek or obtain a consumer's signature on an agreement that
contains any blank spaces to be filled in later.
(s) Disclose to anyone the name or any personal information of a
consumer for whom the debt settlement provider has provided or is
providing debt settlement services, without the prior consent of the
consumer, other than to a consumer's own creditors or the debt
settlement provider's agents, affiliates, or contractors for the
purpose of providing debt settlement services.
(t) Structure a program or settlement plan that would cause
negative amortization of a consumer's debt or debts.
(u) Represent that debt settlement will prevent wage garnishment,
litigation, debt collection efforts, attachment, repossession, or
other adverse consequences, or advise a consumer to ignore any such
activity.
12535. (a) A provider shall provide an accounting to a consumer,
as described in subdivisions (b) and (c), in each of the following
situations:
(1) Within five business days of the settlement of a debt.
(2) Within five business days after a request by a consumer, but
the provider shall not be required to comply with more than one
request in any three-month period.
(3) Upon cancellation or termination of an agreement.
(4) Every six months.
(b)
12535. (a) A provider, in a
record, shall provide all of the following to each consumer 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 consumer:
(1) The total amount and terms of the settlement.
(2) The amount of the debt when the consumer 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 consumer in connection with the settlement.
(c)
(b) A provider, in a record, shall provide the
following accounting to each consumer for whom it has established a
program every six months , and within five business days after a
request by a consumer : a statement showing all settlements
completed; all fees paid; for each remaining debt, the principal
amount of the debt and current amount of the debt; and any other
information identified by the commissioner by regulation. A
provider shall not be required to respond to more than one request
for an accounting in any three-month period.
(d)
(c) A provider shall provide the consumer with a copy
of the written documentation from the creditor of a debt that has
been successfully settled, unless that documentation has already been
provided directly by the creditor to the consumer. The written
documentation from the creditor showing that the debt is fully
released by the settlement shall be provided to the consumer no later
than when any fee associated with that settlement is charged.
12536. A debt settlement provider shall have a fiduciary duty to
a consumer in connection with the solicitation and provision of debt
settlement services.
Article 4. Fees and Charges
12538. (a) A debt settlement provider shall not impose any fees
or other charges on a consumer, or receive any funds or other
payments from a consumer or another person on behalf of a consumer,
except in compliance with all of the requirements of this section.
(b) A debt settlement provider shall not claim, demand, charge,
collect, or receive any fee until it has fully complied with Sections
12526 and 12527, the consumer has signed an agreement for debt
settlement services that complies with Section 12530, and the
conditions of subdivision (c) have been met.
(c) It is a violation of this section for any debt settlement
provider to request or receive payment of any fee or consideration
for any debt settlement service until and unless all of the following
conditions have been met:
(1) The debt settlement provider has settled at least one debt
pursuant to a settlement agreement.
(2) Documentation of the agreement is provided to the consumer.
(3) The funds to settle the debt in full have been paid to the
creditor.
(4) The fee or consideration shall not exceed 15
20 percent of the amount saved as a result of
the settlement of each debt settled. The percentage charged shall not
change from one individual debt to another. The amount saved shall
be calculated as the difference between the principal amount of the
debt and the amount paid by the debt settlement provider to the
creditor or negotiated by the debt settlement provider and paid by
the consumer to the creditor pursuant to a settlement negotiated by
the debt settlement provider on behalf of the consumer as full and
complete satisfaction of the creditor's claim with regard to that
debt.
(d) No fee or consideration may be charged or collected
under this subdivision at any time if the total fees, settlements,
and unsettled debt exceeds the principal amount of the debt.
(e) Nothing in this section prohibits a provider from requesting
or requiring the consumer to place funds in an account to be used for
the debt settlement provider's fees to be earned in the future as
provided under subdivision (c), and for payments to creditors or debt
collectors in connection with the settlement or future settlement of
a debt, provided that all of the following conditions are met:
(1) The funds are held in an account at an insured financial
institution freely chosen by the consumer .
(2) The consumer owns the funds held in the account and is
the owner of any paid accrued interest
on the account , if any .
(3) The entity administering the account is not owned or
controlled by, or in any way affiliated with, or under
contract with, the debt settlement service. the debt
settlement provider.
(4) The entity administering the account does not give or accept
any money or other compensation in exchange for referrals of business
involving the debt settlement service.
(5) The consumer may withdraw from the debt settlement service at
any time without penalty, and must receive all funds in the account,
other than funds earned by the debt settlement service in compliance
with the provisions of this section, within seven business days of
the consumer's request.
CHAPTER 5. ENFORCEMENT
12540. (a) If a provider imposes any fee or other charge, or
receives any money or other payments, not authorized by Section
12538, the agreement is void, and the debt settlement provider shall
automatically refund all fees paid within five business days upon
valid notice that the agreement is void. In addition, the consumer
may recover in a civil action all money paid by or on behalf of the
consumer pursuant to the agreement, in addition to the recovery under
subdivision (b).
(b) For any violation of this division, a consumer may recover any
or all of the following in a civil action from the debt settlement
provider and any person other than an employee of the provider that
caused the violation:
(1) Statutory damages in an amount determined by the court of no
less than one thousand dollars ($1,000) and no more than five
thousand dollars ($5,000) per violation. The consumer does not need
to establish any losses in fact in order to recover statutory
damages.
(2) Compensatory damages for any injury caused by the violation,
if applicable.
(3) Reasonable attorney's fees and costs.
12541. (a) An action brought under this division shall be
commenced within four years after the latest of the following dates:
(1) The last transmission of money to a provider by or on behalf
of the consumer.
(2) The date on which the consumer discovered or reasonably should
have discovered the facts giving rise to the consumer'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 misstated or omitted material
information required by this division to be disclosed to the
consumer, if the information is material to the establishment of the
liability of the defendant under this division.
12542. 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 a consumer 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 writing that it has been sued and provide
a copy of the complaint to the commissioner.
12543. The rights, remedies, and penalties established by this
division are cumulative to the rights, remedies, or penalties
established under other laws.
12544. (a) The provisions of this division are enforceable by the
commissioner and the Attorney General. Any person, including a
partner or officer of a provider, who violates any provision of this
division, shall, upon conviction, be punished by a fine of not more
than ten thousand dollars ($10,000) for each violation, or by
imprisonment in a county jail for not more than one year, or by both
that fine and imprisonment.
(b) The Attorney General may also bring a civil action for
injunctive relief, and may include in the action a claim for
restitution, disgorgement, or damages on behalf of the consumers
subject to the act or practice constituting the subject matter of the
action. The Attorney General may include in any action authorized by
this section a claim for costs, including reasonable attorney's fees
and expenses, and the court shall have jurisdiction to award relief,
authorized by this section and any other additional relief.
(c) Any person who violates or authorizes,
directs, or aids in the violation of any rule or order adopted
pursuant to this division shall be liable for an additional civil
penalty not exceeding ten thousand dollars ($10,000) for each
violation, which shall be assessed and recovered in a civil action
brought in the name of the people of the State of California by the
Attorney General in any court of competent jurisdiction, or by the
commissioner.
(d) Any debt settlement service provider who violates any
provision of this division shall be deemed to have violated that
person's licensing law.
SEC. 2. The Legislature finds and declares that Section 1 of this
act imposes a limitation on the public's right of access to the
meetings of public bodies or the writings of public officials and
agencies within the meaning of Section 3 of Article I of the
California Constitution. Pursuant to that constitutional provision,
the Legislature makes the following findings to demonstrate the
interest protected by this limitation and the need for protecting
that interest:
In order to allow the Department of Corporations to fully
accomplish its goals, it is imperative to protect the interests of
those persons submitting information to the department to ensure that
any personal or sensitive business information that this act
requires those persons to submit is protected as confidential
information.
SEC. 3. 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.