BILL NUMBER: SB 1188 AMENDED
BILL TEXT
AMENDED IN SENATE MARCH 25, 2010
INTRODUCED BY Senator Wright
FEBRUARY 18, 2010
An act to add Division 24 (commencing with Section 90000) to the
Financial Code, relating to debt negotiation
settlement .
LEGISLATIVE COUNSEL'S DIGEST
SB 1188, as amended, Wright. Debt negotiation
settlement organizations.
Existing law, the Check Sellers, Bill Payers and Proraters Law,
provides for licensure and regulation by the Commissioner of
Corporations of persons engaged in, among other activities, the
business of receiving money as an agent of the obligor for the
purpose of paying bills, invoices, or accounts for the obligor.
This bill would make it unlawful for a person to provide debt
negotiation settlement services, as
defined, unless it, among other things, obtains and maintains
insurance coverage, as specified, and files a form establishing proof
of this required insurance coverage with the Commissioner of
Financial Institutions Corporations
along with a filing fee, to be established by the commissioner. The
bill would require a debt negotiation
settlement organization, prior to providing debt
negotiation settlement services, to enter into a
specified written contract with an individual, including, but not
limited to, a full and detailed description of the debt
negotiation settlement services to be performed
by the debt negotiation settlement
organization as well as the estimated date or length of time by which
the services are to be performed, and a notice of the right to
cancel. The bill would prohibit a debt negotiation
settlement organization from, among other things,
imposing any fees or charges or receiving any money for debt
negotiation settlement services until the
individual agrees in writing to those fees or charges and the plan,
as defined. The bill would also specify how those fees or charges are
to be determined and when they may be collected. The bill would
exempt various entities from these provisions. The bill would specify
that a violation of these provisions would constitute unfair
competition and would authorize any injured individual to bring an
action to enjoin and restrain any violation of these provisions and
to recover damages. The bill would make these provisions operative on
January 1, 2012.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Division 24 (commencing with Section 90000) is added to
the Financial Code, to read:
DIVISION 24. Credit Card Debt Negotiation
DEBT SETTLEMENT ORGANIZATIONS
CHAPTER 1. DEFINITIONS
90000. As used in this division, the following terms shall have
the following meanings:
(a) "Concessions" means the assent to repayment of an unsecured
credit card debt in on
terms more favorable to an individual than the terms of the
contract between the individual and a creditor.
(b) "Creditors" means persons to whom an individual owes unsecured
credit card debts.
(c) "Debt negotiation settlement
organization" or "organization" means a person that provides debt
negotiation settlement services.
"Debt settlement organization" or "organization" does not include any
of the following:
(1) The services of a person licensed to practice law in this
state, when the person renders services in the course of his or her
practice as an attorney-at-law and that practice does not primarily
consist of providing debt settlement services.
(2) The services of a person licensed as a certified public
accountant or a public accountant in this state, when the person
renders services in the course of his or her practice as a certified
public accountant or a public accountant and that practice does not
primarily consist of providing debt settlement services.
(3) A family member of an individual who negotiates concessions,
with or without compensation, from the creditors of the individual.
(d) "Debt negotiations settlement
services" or "services" means acting as an intermediary between an
individual and one or more of the individual's creditors in order to
obtain concessions for that individual's credit card debt
unsecured debts , but without holding or
disbursing funds to the individual's creditors, for a fee to be paid
by the individual.
(e) "Debt principal" means the total amount of debt, including
unpaid interest and fees, owed by the individual to a creditor as of
the date of the initial enrollment by the individual in a plan.
(f) "Individual" means a natural person.
(g) "Multiple pay settlement" means a settlement paid in
installments.
(h) "Person" shall have the same meaning as in Section 18.
(h) "Person" means an individual, corporation, business trust,
estate, trust, partnership, limited liability company, association,
joint venture, or any other legal or commercial entity. The term does
not include a public corporation, government, or governmental
subdivision, agency, or instrumentality.
(i) "Plan" means a program or strategy of debt
negotiation settlement services that
contemplates that creditors will settle credit card
unsecured debts for less than the full amount
owed by the individual.
(j) "Settlement" means an arrangement where a creditor agrees to
accept concessions on an individual's account resulting from
negotiations conducted on the individual's behalf by the debt
negotiation settlement organization and
the funding of that arrangement is provided by the payment of funds
from the individual to the creditor.
CHAPTER 2. REQUIREMENTS
90010. It shall be unlawful for a person to provide debt
negotiation settlement services unless it does
all of the following:
(a) Obtains and maintains at all times insurance coverage for
employee dishonesty, depositor's forgery, and computer fraud, in an
amount not less than one hundred thousand dollars ($100,000). The
deductible on this coverage shall not exceed 10 percent of the face
amount of the insurance policy coverage.
(b) Is prepared to provide a copy of the insurance coverage
required by this section to any party requesting a copy for a fee
that does not exceed the cost of copying.
(c) Files a form establishing proof of the required insurance
coverage with the Commissioner of Financial Institutions
Corporations along with a fee, to be established
by the commissioner, in an amount not to exceed the cost of filing
the form. These fees shall be deposited in the Financial
Institutions State Corporations Fund established
in Section 265. 13978.6 of the Government
Code.
CHAPTER 3. CONTRACTS
90020. (a) Prior to providing debt negotiation
settlement services to an individual, a debt
negotiation settlement organization shall enter
into a written contract with that individual that shall be signed and
dated by the individual and shall include all of the following:
(1) A full and detailed description of the debt
negotiation settlement services to be performed
by the debt negotiation settlement
organization for the individual and the estimated date by which or
length of time in which the services are to be performed.
(2) All terms and conditions of payment, including the estimated
total of all payments to be made by the individual.
(3) The organization's principal business address and the name and
address of its agent in the state authorized to receive service of
process.
(4) A clear and conspicuous statement in boldface type, in the
immediate proximity to the space reserved for the individual's
signature, that states: "You may cancel this contract within 5
business days after the date the contract is signed."
(5) A copy of the following "Notice of Right to Cancel" shall be
provided to the individual:
NOTICE OF RIGHT TO CANCEL
YOU MAY CANCEL THIS CONTRACT FOR DEBT
NEGOTIATION SERVICES WITHIN 5 BUSINESS DAYS
SETTLEMENT SERVICES WITHIN 5 BUSINESS DAYS
AFTER THE DATE THE CONTRACT IS SIGNED BY YOU
WITHOUT INCURRING ANY PENALTY OR OBLIGATION. TO
CANCEL THIS CONTRACT, MAIL OR DELIVER A SIGNED
AND DATED COPY OF THIS CANCELLATION NOTICE OR
ANY OTHER WRITTEN NOTICE CLEARLY INDICATING
YOUR DESIRE TO CANCEL YOUR CONTRACT.
To:_____________________________________________
(Name of Debt Negotiation Organization)
(Name of Debt Settlement Organization)
At:_____________________________________________
(Address)
BY SIGNING AND DATING THIS NOTICE, I HEREBY
CANCEL
MY CONTRACT, EXECUTED ON:________________________
(Date Contract Signed)
(Signature of Individual)
(Date)
(Address)
(Phone Number)
(b) The debt negotiation settlement
organization shall provide the individual, at the time the documents
are signed, a copy of the completed written contract and all other
documents the debt negotiation settlement
organization requires the individual to sign.
CHAPTER 4. FEES
90030. (a) No debt negotiation settlement
organization shall impose directly or indirectly a fee or
other monetary charge on an individual or receive money from or on
behalf of an individual for debt negotiation
settlement services until the individual agrees in writing to
the fees or other monetary charges and to the plan negotiated by the
debt negotiation settlement
organization.
(b) The settlement fees and other monetary settlement charges
imposed by a debt negotiation settlement
organization shall not exceed one-half
30 percent of the difference between the debt principal and the
concession agreed upon with the individual's creditor.
(c) In the event of a multiple pay settlement, a debt
negotiation settlement organization shall only
collect a fee that is based on the amount of the multiple installment
payment at the time that the multiple installment payment is made.
(d) A debt negotiation settlement
organization shall not collect any fees other than those fees
specified in this section and shall collect those fees only after a
settlement of an account with the individuals
individual's creditor has been agreed upon and documentation
memorializing the funding of the settlement has been executed.
CHAPTER 5. PROHIBITIONS
90040. No debt negotiation settlement
organization shall do any of the following:
(a) Make or use any false or misleading representations or omit
any material fact in the offer or sale of services offered, or
engage, directly or indirectly, in any fraudulent, false, misleading,
unconscionable, unfair, or deceptive act or practice in connection
with the offer or sale of any of its services.
(b) Provide services to an individual without executing a written
contract that complies with this division.
(c) Fail to provide copies of all contracts and other documents
that the individual is required to sign.
(d) Fail to obtain insurance coverage or fail to make that
coverage information available for public inspection.
CHAPTER 6. EXEMPTIONS
90050. This division shall not apply to any of 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 person who engages in debt adjustment to adjust the
indebtedness owed to that person.
(b) A title insurer, escrow company, or other person that provides
bill paying services if the person does not provide debt settlement
services.
(b)
(c) The following entities or their subsidiaries:
(1) The Federal National Mortgage Association.
(2) The Federal Home Loan Mortgage Corporation.
(3) A bank, bank holding company, trust company, savings and loan
association, credit union, credit card bank, or savings bank that is
regulated and supervised by the Office of the Comptroller of the
Currency, the Office of Thrift Supervision, the Federal Reserve, the
Federal Deposit Insurance Corporation, the National Credit Union
Administration, or any state banking regulator.
(c)
(d) A consumer reporting agency as defined in the
Federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681(a)).
(d)
(e) Any subsidiary or affiliate of a bank holding
company, its employees and its exclusive agents acting under written
agreement.
90051. A debt settlement organization shall be exempt from the
requirements of Division 3 (commencing with Section 12000), except to
the extent that the organization is performing services and
activities governed under that division.
CHAPTER 7. VIOLATIONS
90060. (a) A violation of this division is an act of unfair
competition within the meaning of Chapter 5 (commencing with Section
17200) of Part 2 of Division 7 of the Business and Professions Code.
(b) In addition, any individual injured by a violation of this
division may bring an action to enjoin and restrain any violation of
this division and to recover damages. Judgment shall be entered for
actual damages. However, in no case shall the judgment be for less
than the amount paid by the individual to the debt
negotiation settlement organization plus
reasonable attorney's fees and costs.
CHAPTER 8. OPERATION
90070. This division shall become operative on January 1, 2012.