BILL ANALYSIS
AB 350
Page 1
Date of Hearing: May 13, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 350 (Lieu) - As Amended: March 31, 2009
Policy Committee: Banking and
Finance Vote: 8-1
Judiciary 9-1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill provides for the regulation and licensure by the
Department of Corporations (DOC) of providers of debt settlement
services. Specifically, this bill:
1)Defines "debt settlement services" as services provided as an
intermediary between an individual and his or her creditors
for the purpose of obtaining concessions on behalf of the
debtor.
2)Requires providers of debt settlement services to be licensed
annually, and to maintain evidence of a surety bond or minimum
coverage of insurance in an amount specified by the
commissioner.
3)Requires the approval or denial of an initial license within
60 days of submission of a complete application. If an
application is denied the applicant may appeal and request a
hearing pursuant to the California Administrative Procedure
Act.
4)Allows the DOC to conduct investigations and otherwise enforce
the licensing provisions.
5)Requires certain disclosures and other information be included
on consumer contracts and allows a consumer or the provider to
cancel the contract in certain situations within specified
time periods.
6)Establishes caps on fees, and requires numerous disclosures.
AB 350
Page 2
FISCAL EFFECT
1)According to DOC, the new regulatory program required by bill
would result in annual costs to DOC of at least $2.5 million
per year. These costs are related to 18 positions and overhead
needed for licensing, examination, compliance, enforcement,
rulemaking, and handling consumer complaints.
2)These costs would be fully covered by licensing fees charged
to the industry.
COMMENTS
1)Background . Existing law regulates "Bill Payers and Proraters"
(the "Prorater's Law"), providing for licensing and regulation
by the Department of Corporations of proraters - that is,
entities that receive money from a debtor for the purpose of
distributing the money among the debtor's creditors in full or
partial payment of the debtor's obligations. The Department of
Corporations has issued orders for many debt settlement
companies to comply with the Prorater's Law. However, some
industry participants have argued that because they do not
directly control the consumer's money they are not proraters
as defined in law. Thus, DOC does not currently license or
enforce regulations related to the debt settlement industry.
2)Rationale . This bill is intended to regulate the growing debt
settlement industry. It is sponsored by two industry trade
associations (The Association of Settlement Companies and
United States Organization for Bankruptcy Alternatives.) who
state that consumer debt settlement is a relatively new
industry in need of an appropriate regulatory scheme to
provide certainty for the industry and protection for
consumers.
3)Opponents (including the Center for Responsible Lending and
Consumer Federation of America), believe that the fee caps
established in the bill are too high, and that the measure
allows percentage fees to be collected even in the event that
negotiations with creditor fail to produce a settlement.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081