BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 708 (Corbett)
As Amended April 12, 2011
Hearing Date: May 3, 2011
Fiscal: Yes
Urgency: No
BCP:jg
SUBJECT
Debt Settlement Consumer Protection Act
DESCRIPTION
This bill would enact the Debt Settlement Consumer Protection
Act for the purpose of licensing debt settlement service
providers. That Act would, among other things:
prohibit acting as a debt settlement provider unless the
provider is licensed by the Department of Corporations, as
specified;
provide specific requirements that a provider must comply with
in offering debt settlement services, including the
preparation of an individualized financial analysis, and a
good faith estimate on the length of time it will take to
complete the program, prior to entering into an agreement with
a consumer; and
prohibit the charging of a fee not to exceed 20 percent of the
amount saved as a result of the settlement of each debt
settled, as specified.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
Debt settlement companies work on a consumer's behalf with the
consumer's creditors to reduce their overall debts. Consumers
who contract with a debt settlement company are typically
instructed to put money aside in a bank account, and add to that
account each month. The debt settlement company then negotiates
with the consumer's creditors to reach a settlement on the debt
(more)
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that the consumer then pays with funds that were set aside in
the bank account. Concerns have arisen about the arguably low
success rate for consumers who enter into debt settlement
programs, and, the fees charged by providers in exchange for
little or no services. If the debt is not repaid during the
settlement program, it continues to grow in amount and leaves
the consumer with substantial unsettled debts. In response to
nationwide concerns, the Federal Trade Commission (FTC)
promulgated amendments to the Telemarketing Sales Rule in 2010
that, among other things, prohibited the collection of advance
fees by debt settlement providers covered by that rule.
On the state level, several bills in the 2008-09 session,
sponsored by the debt settlement industry, sought to enact a
licensing scheme for debt settlement providers which would have
codified the ability to charge up-front fees- AB 2611 (Lieu,
2008) was double referred to the Senate Committee on Banking,
Finance and Insurance (and this Committee) but never was heard
in that committee; SB 1678 (Florez, 2008) contained similar
provisions as AB 2611 but failed passage in the Senate Banking,
Finance and Insurance Committee. Last session, AB 350 (Lieu,
2010), also sponsored by the industry, similarly sought to enact
a licensing scheme for debt settlement providers but failed
passage in this Committee due to concerns that there would be no
fee cap on what a provider may charge for their services.
This bill, sponsored by Consumers Union and the Center for
Responsible Lending, seeks to enact a similar but more
comprehensive regulatory structure with a fee cap of twenty
percent of the savings achieved by the settlement.
CHANGES TO EXISTING LAW
Existing law , the Check Sellers, Bill Payers, and Proraters Law,
is administered by the Department of Corporations (DOC), and
defines a prorater as a person who, for compensation, engages in
whole or in part in the business of receiving money or evidences
thereof for the purpose of distributing the money or evidences
among creditors in payment or partial payment of the obligations
of the debtor. (Fin. Code Sec. 12000 et seq.)
Existing law limits the fees that may be charged by a prorater,
or by any other person for the prorater's services, to an
origination fee of up to $50, plus 12 percent of the first
$3,000 distributed by the prorater to the creditors of a debtor;
11percent of the next $2,000; and 10 percent of any of the
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remaining payments, except for payments made on recurrent
obligations, as defined. (Fin. Code Sec. 12314.)
Existing law provides that when a debtor has not canceled or
defaulted on the performance of his or her contract with the
prorater within 12 months after engaging in the contract with
the prorater, the prorater must refund the origination fee.
(Fin. Code Sec. 12314.)
Existing law prohibits a prorater from receiving any fee unless
he or she has the consent of at least 51 percent of the total
amount of indebtedness and of the number of creditors listed in
the prorater's contract with the debtor, or unless a like number
of creditors have accepted a distribution of payment. (Fin. Code
Sec. 12315.)
Existing law provides that if a prorater contracts for,
receives, or makes any charge in excess of the maximum allowed
under the Check Sellers, Bill Payers, and Proraters Law, except
as the result of an accidental and bona fide error, the
prorater's contract with the debtor is void, and the prorater is
required to return to the debtor all charges received from the
debtor. (Fin. Code Sec. 12316.)
Existing law provides an exemption from the Check Sellers, Bill
Payers, and Proraters Law for nonprofit community service
organizations, as specified, and limits the fees that may be
charged by these organizations, when providing services to a
debtor, to a one-time fee of up to $50, plus the lesser of $35
or 8 percent of the amount disbursed monthly for debt management
plans, or up to 15 percent of the amount of debt forgiven for
negotiated debt settlement plans. (Fin. Code Sec. 12104.)
Existing law provides for administrative penalties of up to
$2,500 per violation of the Check Sellers, Bill Payers, and
Proraters Law, and states that any licensee or person who
willfully violates any provision of the law, or any rule or
order adopted pursuant to the law, is liable for a civil penalty
of up to $10,000, enforceable by the Commissioner of the
Department of Corporations (the commissioner). (Fin. Code Sec.
12105.)
This bill would enact the Debt Settlement Consumer Protection
Act, administered by the Department of Corporations, and
prohibit any person from acting as a debt settlement provider
without a valid licensed issued by the Commissioner of the
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Department of Corporations (commissioner). The commissioner
would be required to maintain and publicize a list of all
licensed providers and publish that list by July 1, 2012.
This bill would provide that a debt settlement provider has a
fiduciary duty to a consumer in connection with the solicitation
and provision of debt settlement services.
This bill would prohibit a debt settlement provider from
entering into a contract with a consumer for debt settlement
services, unless the provider makes a written determination that
the consumer can reasonably meet the requirements of the
proposed debt settlement program, the debt settlement program is
suitable for the consumer at the time the contract is to be
signed, and the consumer is reasonably expected to receive a
tangible net benefit from the debt settlement program.
This bill would specify the following, with respect to fees that
may be charged by debt settlement providers:
No fee may be charged until the provider settles at
least one debt pursuant to a settlement agreement, provides
documentation of the agreement to the consumer, and the
funds to settle the debt in full have been paid to the
creditor.
The fee or consideration may not exceed 20 percent of
the amount saved by settling each debt. The percentage
charged may not change from one individual debt to another.
The amount saved must be calculated as the difference
between the principal amount of debt brought into the debt
settlement program and the amount paid to the creditor
pursuant to the settlement negotiated by the debt
settlement provider as full and complete satisfaction of
the creditor's claim with regard to that debt.
No fee may be charged or collected at any time, if the
total fees, settlements, and unsettled debt exceed the
principal amount of debt brought into the debt settlement
program.
This bill would authorize a provider to request or require that
a consumer place funds in an account to be used for the
provider's fees and for payments to creditors or debt
collectors, provided that all of the following conditions are
met:
The funds are held in an account at an insured financial
institution;
The consumer owns the funds in the account and is paid
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accrued interest on the account, if any;
The entity administering the account is not owned or
controlled by, or in any way affiliated with the debt
settlement provider;
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
provider; and
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 provider in compliance with the law, within
seven business days of the consumer's request.
This bill would require applicants for licensure to submit
specified fees to the commissioner, include specified
information on their license applications, and submit to state
and federal background checks; would specify the conditions
under which the commissioner may issue, suspend, deny, or revoke
licensure; and would provide applicants with an opportunity to
appeal the commissioner's decision, as specified.
This bill would require licensees to satisfy several
requirements and provide specified disclosures before entering
into an agreement with an individual to provide debt settlement
services; maintain a minimum net worth of $100,000 and a surety
bond of $50,000 at all times; include specified items in each
agreement with a consumer; provide a specified "Consumer Notice
and Rights Form" to each consumer; furnish a foreign language
translation of the disclosures and documents required to be
provided under the bill, if a provider communicates with an
individual primarily in a language other than English; refrain
from engaging in certain enumerated "bad acts"; provide a
periodic accounting to consumers detailing debts brought into
the program, settlements completed, remaining outstanding debts,
and fees paid; and submit an annual report to the commissioner,
reporting information on for the preceding five calendar years,
as specified.
This bill would authorize consumers to cancel a debt settlement
services agreement at any time, by giving the provider oral,
written, or electronic notice. 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 it
earned prior to cancellation of the agreement.
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This bill would provide that an agreement is void, if a provider
imposes a fee or other charge or receives money or other
payments not authorized by the bill, and would provide that any
contract entered into in violation of the provisions of the bill
is void.
This bill would require licensees to maintain books, accounts,
and records intended to enable the commissioner to evaluate the
licensee's compliance with the bill, and to retain those
documents for at least five years, beginning from the later of
the date that a consumer's debt settlement services agreement
expires, is completed, or is finalized. This bill would
authorize the commissioner to examine the books, records,
accounts, and activities of each licensee at any time, but not
less than once every two years.
This bill would allow individuals, the commissioner, and the
Attorney General to bring actions against licensees for
violations of the bill, and would subject violators to
administrative, civil and criminal penalties for failure to
comply with the bill's provisions. This bill would additionally
provide that if an agreement is void, an individual may recover
all money paid by or on behalf of that individual, and may also
recover compensatory damages for injury caused by a violation of
the bill, together with reasonable attorney's fees and costs.
Any enforcement action brought for a violation of the bill would
have to commence within four years of the later of: a) the date
that money was last transmitted to a provider by or on behalf of
a consumer or b) the date on which the consumer discovered or
reasonably should have discovered the facts giving rise to the
consumer's claim, as specified.
This bill would exclude the following persons and entities from
the requirement to be licensed under the Debt Settlement
Consumer Protection Act: (1) an attorney providing debt
settlement services, as specified; (2) a 501(c)(3) organization,
as specified; (3) a bank, bank holding company, credit union,
the subsidiary or affiliate of a bank, bank holding company, or
credit union, or any other financial institution licensed under
state or federal law, when these institutions are engaged in the
regular course of their business; (4) escrow agents,
accountants, broker dealers in securities, or investment
advisors in securities, when acting in the ordinary practice of
their professions; (5) 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
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offering or providing debt settlement services; (6) a California
licensed title insurer, escrow company, or other person in good
standing that provides bill paying services, if the person does
not provide debt settlement services; and (7) financial planning
services provided in a financial planner-client relationship, as
specified.
This bill would exempt a person or entity licensed as a debt
settlement provider from the Check Sellers, Bill Payers, and
Proraters Law, except to the extent that person is performing
services and activities governed by that law, which do not
constitute debt settlement services.
COMMENT
1. Stated need for the bill
According to the author:
Debt settlement companies commonly tout their ability to
reduce debts for pennies on the dollar, aiming to attract
consumers who are dealing with overwhelming debt loads.
However, many of these companies collect substantial fees up
front, have a poor track record of settling significant
debt, and often leave clients financially worse off after
their services are complete. Moreover, recent research by
the Center for Responsible Lending shows that without a
strong fee cap . . . consumers will be better off paying
off their cards directly through a payment plan than
enrolling in a debt settlement program.
On July 29, 2010, the FTC issued amendments to its
Telemarketing Sales Rule that bans advance fees for some
debt settlement providers and puts in place a prohibition on
misleading representations, as well as disclosure
requirements and escrow account requirements. After an
extensive investigation with input from all interested
parties, the FTC concluded that advance fees cause
"substantial harm" to consumers. Because the FTC's
jurisdiction under the TSR is limited to telephone sales,
however, the rule has significant loopholes that some
providers are using to avoid application of the advance fee
ban. In particular, the following are exempted from the
rule: (1) non-profit entities; (2) intrastate phone calls;
(3) certain transactions including face-to-face contact; and
(4) "internet only" transactions.
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Additionally, because the FTC rule does not address the
amount and type of fees that may be charged, providers can
still charge unreasonably high fees that fail to align the
incentives of the provider and consumer. For example, the
FTC does not limit fees to a percentage of the amount saved
for consumers, but also allows providers to charge fees
based on the amount of the enrolled debt, to be collected as
debts are settled. This type of fee presents perverse
incentives for the provider. First, with such a fee, the
provider is guaranteed a set fee regardless of the quality
of the settlement, thereby incentivizing quick low quality
settlements. Second, this fee structure provides an
incentive for providers to include as much debt as possible
in the program (even if they know that certain creditors
will not engage with debt settlement providers) because
doing so would increase the fees paid for other settlements.
Third, under this fee structure, a provider may be paid a
fee that is larger than the net savings to the consumer from
the settlement.
The Debt Settlement Consumer Protection Act fills gaps in
the FTC rule, because its requirements would apply to all
debt settlement companies operating in California. SB 708
also goes beyond the FTC rule by providing a strong fee cap
tied to savings, and establishing common-sense rules to
prevent companies from taking advantage of consumers
struggling with debt.
2. Amendments from the Senate Banking & Financial Institutions
Committee
The author committed to the following amendments in the Senate
Banking & Financial Institutions Committee with the
understanding that the amendments would be taken in this
Committee due to time constraints:
Broaden the attorney exemption to include attorneys who
provide limited debt settlement services to a consumer,
subject to certain requirements, as specified
Exempt from the bill's provisions 501(c)(3) non-profit
credit counseling agencies who already comply with the
advance fee ban, 15% fee cap, and other provisions in the
Prorater's Law.
Reduce the surety bond requirement from $200,000 to
$50,000.
Increase the fee cap from 15 to 20 percent of the
savings.
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Conform trust account language to the FTC's TSR Rule.
Other technical, clarifying language.
3. SB 708 addresses Committee's prior concerns regarding AB 350
(Lieu, 2010)
When this Committee heard AB 350 (Lieu, 2010) last session,
numerous issues were raised regarding the criteria imposed by
that bill. This committee's analysis for AB 350 also noted
that, at that time, the Federal Trade Commission (FTC) had
proposed amendments to the Telemarketing Sales Rule (TSR) that
would, among other things, prohibit debt relief services from
charging fees until they have provided the offered services
(settling debts). The FTC issued its final rule to regulate
certain practices of for-profit companies in July 2010. All of
the provisions of the rule other than the advance fee ban became
effective September 27, 2010; the advance fee ban became
effective October 27, 2010. It should be noted that the FTC's
final rule addressed only when fees may be charged, not the
amount of fee charged.
This bill, sponsored by Consumers Union and the Center for
Responsible Lending, seeks to fill gaps in the above FTC rule,
provide a fee cap tied to savings, and establish other
restrictions intended to "prevent companies from taking
advantage of consumers struggling with debt."
a. Fees
Much of the debate over the past several years has focused on
the amount of the fee that can be charged, and when that fee
can be charged. Last session, AB 350 proposed a setup fee of
up to five percent of the principal amount of debt brought
into the program and capped fees at 20 percent of that debt,
but was later amended to remove any cap on fees. This
Committee expressed concern about the amount of the fee and
the ability to charge that fee prior to services being
performed, and, after the bill was amended to remove any cap
on fees, raised concerns about enacting a comprehensive
regulatory scheme without addressing the key issue of fees.
In contrast, this bill (as proposed to be amended) would
prohibit a debt settlement provider from receiving any fee or
consideration for any debt settlement unless the fee does not
exceed 20 percent of the amount saved as a result of each debt
settled. Staff notes that 20 percent represents a compromise
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amendment, and that the issue of amount of the fee is
important to ensure that an average person with average debts
is able to realistically pay the settled amount, plus the fee
charged by the debt settlement company. For example, if a
consumer enlists the services of a debt settlement provider
and that provider secures an agreement from a creditor to
settle a $20,000 debt for $5,000. The consumer must come up
with sufficient funds to pay the $5,000, and to pay the
provider's fee (under the bill, $3,000) for their services.
Freedom Debt Relief, in opposition, notes that a law with
almost identical fee restrictions went into effect in Illinois
last year and, as a result, contends that "every company in
our industry stopped servicing new clients in Illinois after
the law went into effect." CareOne Services, Inc., a national
debt relief services company, expresses similar concern that
while the percentage savings model is the best approach for
calculating fees, the proposed fee level is unworkable and
that "Ŭi]n states that have this level of fee cap, no
legitimate providers are operating under the law . . . This
fee level must be at least 30% of the savings." Staff notes
that using the above example, increasing the fee to 30 percent
would, instead, result in the consumer paying a $4,500 fee to
the debt settlement company for reducing their debt from
$20,000 to $5,000. From a policy standpoint, it is unclear
whether a consumer of average income would have the capacity
to pay such a fee and still come up with the amount to pay off
the $5,000, an amount only $500 greater than the provider's
fee. It is also unclear whether debt settlement providers
can, or cannot, continue to operate based upon a fee of 20
percent. Even if most providers do not have a business model
that is compatible with such a fee, the policy question
remains whether or not a consumer of average income and
average debt could receive an average settlement and pay the
associated fee - Center for Responsible Lending's research
indicates that around 15 percent may be the target number for
achieving that goal. In an effort to address some of the
above concerns regarding the fee, the author agreed to
amendments in the Senate Banking & Financial Institutions
Committee to increase the allowable fee from 15 to 20 percent.
(See Comment 2.) Staff notes that that increase would provide
additional funds to debt settlement providers while arguably
maintaining the affordability of the product.
This bill would also prohibit payment of a fee until: (1) the
debt settlement provider has settled at least one debt
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pursuant to a settlement agreement; (2) documentation of the
agreement is provided to the consumer; and (3) the funds to
settle the debt have been paid to the creditor. CareOne
Services, Inc. contends that the third requirement (no payment
until funds have been paid to the creditor) "is inconsistent
with the FTC Rule requirements which allow the collection of
fees after a creditor accepts a settlement payment . . . It is
common for installment plans to be established for the payment
of agreed upon settlements Ŭand] suggest this language track
the FTC Rule requirements." While installment plans would
allow consumers to accept settlement agreements in
circumstances where not enough cash is on hand, permitting a
fee before the debt is actually paid off would allow providers
to receive payment even where consumers are later unable to
complete the plan. The Center for Responsible Lending notes
that installment plans are permitted, but fees cannot be
collected until the debt is paid off, and that:
The whole idea behind the pay for success model is that
the debt should be completely paid and released before
the company gets paid a fee. If only one installment has
been paid, then the debt has not been resolved, there has
been no success, and the company hasn't earned its fee.
Such a structure could also incentivize companies to
structure installment plans that are not workable for
consumers, allowing companies to get paid after the first
payment, even if the consumer is unable to make later
payments and get the debt released. Moreover, the
provider shouldn't get paid more quickly than the
creditor.
b. Suitability of debt settlement program
The debate surrounding prior debt settlement bills also
focused on the importance of ensuring that the actual debt
settlement program is suitable for a specific consumer. That
determination is important to ensure that the consumer has a
reasonable chance of success in the program, and, after the
ban on advance fees, would actually serve to protect the
company from investing time in a customer where settlement is
unlikely (or where the consumer would be unlikely to meet the
terms of any settlement agreement). To ensure that consumers
are screened before entering the program, this bill would
require a written determination of the following: (1) that the
consumer can reasonably meet the requirements of the proposed
debt settlement program; (2) the debt program is suitable for
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the consumer at the time the contract is to be signed; and (3)
that the consumer is reasonably expected to receive a tangible
net benefit from the program.
The Center for Responsible Lending, in support, notes that the
"data shows that debt settlement programs are unsustainable
for a large percentage of consumers struggling with debt.
Moreover, for many consumers, enrolling in a debt settlement
program causes harmful impacts relating to debt growth,
collections, credit scores and the like. The bill would
require that providers not enroll a consumer until determining
that a program is suitable for the consumer, and that the
consumer is likely to gain a net financial benefit from
participating."
c. Trust account
To ensure that consumer funds are protected, this bill would
provide that a debt settlement provider may request the
consumer to place funds in an account to be used for the
provider's fees, and payments to creditors or debt collectors
in connection with the settlement or future settlement of a
debt, provided that: (1) funds are held in an account at an
insured financial institution; (2) the consumer owns the funds
in the account and is paid accrued interest; (3) the entity
administering the account is not owned or controlled by the
debt settlement service; (4) the entity does not give or
accept any money in exchange for referrals of business; and
(5) the consumer may withdraw the funds at any time, as
specified. From a policy perspective, that provision serves
to protect the consumer's savings from improper abuse while
still creating a debt settlement model where the consumer
places funds in account for purposes of paying creditors.
CareOne, in opposition to the bill as currently in print,
notes that the provision currently requiring funds to be in an
account that is freely chosen is inconsistent with the FTC
rule that allows a provider to direct a consumer to a specific
institution. The stated rationale for that direction is that
a provider may have a preexisting contract with an institution
that provides for the movement of funds on a settlement plan.
To address that concern, the author agreed to amendments in
the Senate Banking & Financial Institutions Committee to,
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among other things, strike "freely chosen by the consumer,"
thus allowing the provider to direct a consumer to deposit his
or her funds in a specific insured financial institution.
Staff notes that the above amendment is consistent with the
FTC Rule which provides that "to the extent that the debt
relief service requests or requires the customer to place
funds in an account at an insured financial institution, that
the customer owns the funds held in the account, the customer
may withdraw from the debt relief service at any time without
penalty, and, if the customer withdraws, the customer must
receive all funds in the account, other than funds earned by
the debt relief service . . .." 16 CFR 310.3.
d. Reporting requirements
The Center for Responsible Lending, co-sponsor, notes that the
availability of complete and "robust" data on the debt
settlement industry is lacking. To address that lack of
information, this bill would require annual reporting of
numerous pieces of information, including: (1) total amount of
debt enrolled in the program; (2) total number of agreements
entered into; (3) total number of California residents who
terminated, withdrew, abandoned, or were terminated from an
agreement; and (4) specific information about California
residents who completed a program by settling 100 percent of
the principal amount of debt. Those comprehensive reporting
requirements would allow for the Department of Corporations to
have greater information about licensees, and, enable the
commissioner to create an annual public report summarizing the
data reported by licenses. As a result, the information would
not only be valuable to the entity regulating these providers,
but also would provide the public, and Legislature, with
information about the successes, or failures, of these
providers.
CareOne, in an oppose unless amended position, contends that
the above reporting requirements "go well beyond those
typically included in other state laws" and that some of the
reporting requirements are unnecessary to ensure the provider
is in compliance with this bill. Despite those concerns, it
should be noted that comprehensive data regarding the
performance of the debt settlement industry is arguably
lacking, and that greater information would better inform the
public, and the Legislature, about the industry.
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e. Remedies
This bill would state that if a provider imposes any fee or
other charge not authorized by this bill, the agreement is
void, the debt settlement provider shall automatically refund
all fees paid, and the consumer may recover all fees paid by
or on behalf of the consumer. In addition, for any violation
of this bill, a consumer may recover any or all of the
following in a civil action: (1) statutory damages of between
$1,000 to $5,000 per violation; (2) compensatory damages; and
(3) reasonable attorney's fees and costs.
The bill would also permit the commissioner and Attorney
General (AG) to enforce the provisions of this bill, and
permit the AG to seek injunctive relief and include in the
action a claim for restitution, disgorgement, or damages on
behalf of the affected consumers.
4. Opposition's remaining concerns
The United States Organization for Bankruptcy Alternatives
(USOBA), in opposition, notes that as a result of the FTC's ban
on advance fees, "65% to 70% of the companies operating in the
industry have gone out of business in the six months since the
FTC regulations went into effect." USOBA further contends that
this bill "does nothing to address the real problems that still
exist with respect to bad actors in this industry. It does not
address non-profits or attorneys operating in this arena," and
imposes fees on a licensing population too small to cover the
costs of the program.
CareOne, in an oppose unless amended position, notes support for
the licensing and bonding requirements of the bill but
"believeŬs] that to the greatest extent possible, California law
should mirror the FTC Rule" and argues that "Ŭa]s currently
drafted, the bill will create an environment where legitimate
providers will not serve the state while rogue companies operate
outside the law and its intended protections." In addition to
the amendments discussed above, CareOne recommends numerous
changes to make the bill more consistent with the FTC rule.
Several individuals also express concern about the lack of a
complete exemption for attorneys. Staff notes that while the
author's amendments broaden the bill's attorney exemption, the
amended provision would exempt attorneys who provide debt
settlement services while acting in the ordinary practice of law
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as long as the attorney is not primarily engaged in the business
of providing settlement services, as specified.
5. Controversy surrounding licensing of for-profit debt
settlement service providers
The Department of Corporations has previously taken the position
that for-profit debt settlement service providers should be
licensed under the Check Sellers, Bill Payers, and Proraters
Law, and brought enforcement actions against certain debt
settlement service providers who do not have a proraters
license.
On July 15, 2008, the Court of Appeal, Third Appellate District,
upheld the DOC's position regarding the application of the
proraters law to certain debt settlement service providers.
(Nationwide Asset Services, Inc. v. DuFauchard (2008) 164
Cal.App.4th 1121.) In affirming the Superior Court's judgment,
the Court of Appeal held: "If plaintiffs indeed have managed to
'receive' the money of their customers in all but name, then
their conduct is precisely that which the statute has targeted.
There would not be any reason to permit them to evade the
statute's salutary requirement of subjecting their practices to
defendant's licensing oversight for the protection of
consumers." (Id. at 1126.)
This bill would resolve the above issue by specifically
exempting individuals licensed under the Debt Settlement
Consumer Protection Act from the proraters law.
Support : Association of Independent Consumer Credit Counseling
Agencies; California Association of Collectors; Cambridge Credit
Counseling; ClearPoint Financial Solutions, Inc.; Coalition for
Quality Credit Counseling; Consumer Attorneys of California;
Consumer Credit Counseling Service of the North Coast; Consumer
Action; Consumer Recovery Network; Money Management
International, Inc.; Novadebt; Springboard Nonprofit Consumer
Credit Management; Surepath Financial Solutions; UCSB, Inc.;
U.S. Debt Resolve (USDR); Visa, Inc.
Opposition : CareOne; Freedom Debt Relief; United States
Organization for Bankruptcy Alternatives; several individuals
HISTORY
SB 708 (Corbett)
Page 16 of ?
Source : Consumers Union; Center for Responsible Lending
Related Pending Legislation : None Known
Prior Legislation :
AB 2611 (Lieu, 2008), see background.
SB 1678 (Florez, 2008), see background.
AB 350 (Lieu, 2010, see background.
Prior Vote : Senate Banking & Financial Institutions (Ayes 4,
Noes 2)
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