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UNIFORM DEBT-MANAGEMENT SERVICES ACT - debt management services birmingham al

UNIFORM DEBT-MANAGEMENT SERVICES ACT-debt management services birmingham al

19063 Prepared by the North Dakota Legislative Council
staff for the Judiciary Committee
September 2009
House Concurrent Resolution No. 3006 (attached been sought and attempted. This shifts a highly
as an appendix) directs the Legislative Management significant burden upon private services to perform
to study the Uniform Debt-Management Services Act, honestly and effectively. Because the new bankruptcy
including consideration of the most appropriate rules are federal and apply in every state, the National
administrator of the law, how the Uniform Act would Conference of Commissioners on Uniform State Laws
impact existing state laws, and what issues other recommends that the regulation of the counseling and
states have addressed in enacting the Uniform Act. management services in every state should be
The Uniform Act, which was completed by the uniform in character for the new bankruptcy rules to
National Conference of Commissioners on Uniform be effective and for consumers to be protected.
State Laws in 2005, provides guidance and regulation
to the debt counseling industry. The Uniform Act Summary of Uniform
applies to consumer debt-counseling services and Debt-Management Services Act
debt-management services. The Uniform Act is a As discussed previously, the National Conference
comprehensive statute that provides rules for, among of Commissioners on Uniform Law Commissioners
other things, registration requirements, bond completed the Uniform Debt-Management Services
requirements, disclosure requirements, and penalties Act in 2005. In 2008, the North Dakota Commission
for noncompliance. on Uniform State Laws recommended the enactment
The Uniform Debt-Management Services Act has of the Uniform Act. The Uniform Act provides the
been adopted in Colorado, Delaware, Missouri, states with a comprehensive act governing these
Nevada, Rhode Island, Tennessee, and Utah. services that will mean national administration of debt
counseling and management in a fair and effective
History of Debt Counseling The Uniform Debt-Management Services Act may
and Management Services be divided into three basic parts: registration of
Consumer debt counseling and management services, service-debtor agreements, and
services have been available to individuals with enforcement.
serious credit problems going back to the 1950s.
There are generally two kinds of services that have Registration
been available. Some of these services have The Uniform Debt-Management Services Act
provided counseling coupled with assisting debtors in provides that a service may not enter an agreement
establishing programs to pay off debts over an with any debtor in a state without registering as a
extended time. Others have provided consolidation consumer debt-management service in that state.
and management services in which agreements are Under the Uniform Act, registration requires
reached with creditors to settle on a percentage of submission of detailed information concerning the
debt. Most of these services have collected a periodic service, including its financial condition, the identity of
amount from the debtors from which payment to principals, locations at which service will be offered,
creditors has been made. The general objective of forms for agreements with debtors, and business
these services has been debt satisfaction without history in other jurisdictions. To register, a service
resorting to bankruptcy. must have an effective insurance policy against fraud,
The history of debt counseling and management dishonesty, theft, and the like in an amount no less
services is checkered. There have been numerous than $250,000. The service also must provide a
abuses and efforts to counter abuses statutorily in security bond of a minimum of $50,000 which has the
many states. These services have been criticized for state administrator as a beneficiary. If a registration
their efforts to steer debtors away from bankruptcy substantially duplicates one in another state, the
when it may have been more advantageous and less service may offer proof of registration in that other
costly to debtors to file. Many states prohibit for-profit state to satisfy the registration requirements in a state.
debt-management services while permitting nonprofit A satisfactory application results in a certificate to do
debt-counseling services. One of the continuing business from the administrator. A yearly renewal is
controversies is whether for-profit services should be required.
allowed even if regulated.
Federal bankruptcy reform effective in 2005 Agreements
changed the perspective on debt-management In order to enter agreements with debtors, the
services. For an individual to file for Chapter 7 Uniform Act requires a disclosure requirement
bankruptcy, that individual in most cases has to show respecting fees and services to be offered and the
that consumer debt counseling/management has risks and benefits of entering such a contract. The
19063 2 September 2009
service must offer counseling services from a certified performing credit and financial adjusting
counselor and a plan must be created in consultation service in the regular course of their principal
by the counselor for debt-management service to business.
commence. The contents of the agreements and fees 3. Title insurers and abstract companies, while
that may be charged are set by the statute. The doing an escrow business.
Uniform Act provides for a penalty-free three-day right 4. Judicial officers or others acting under court
of rescission on the part of the debtor. The debtor orders.
also may cancel the agreement after 30 days, but may 5. Nonprofit or charitable corporations or
be subject to fees if that occurs. The service may associations engaged in debt adjusting.
terminate the agreement if required payments are 6. Situations involving debt adjusting incurred
delinquent for at least 60 days. incidentally in connection with lawful practice
Any payments for creditors received from a debtor as a certified public accountant and licensed
must be kept in a trust account that may not be used public accountant.
to hold any other funds of the service. The Uniform 7. Bona fide trade or mercantile associations in
Act contains strict accounting requirements and the course of arranging adjustment or debts
periodic reporting requirements respecting funds held. with business establishments.
8. Employers for their employees.
Enforcement 9. Any person who, at the request of a debtor,
The Uniform Act prohibits specific acts on the part arranges for or makes a loan to the debtor,
of a service, including misappropriation of funds in and who, at the authorization of the debtor,
trust, settlement for more than 50 percent of a debt acts as an adjuster of the debtor's debts in the
with a creditor without a debtor's consent, gifts or disbursement of the proceeds of the loan,
premiums to enter an agreement, and representation without compensation for services rendered in
that settlement has occurred without certification from adjusting the debts.
a creditor. Enforcement of the Uniform Act occurs at 10. Licensed and bonded collection agencies.
two levels--the administrator and the individual level. Chapter 13-07, which was enacted in 1993,
The administrator has investigative powers, power to provides for the regulation of consumer credit
order an individual to cease and desist, power to counseling services. Under Section 13-07-01, a
assess a civil penalty up to $10,000, and the power to consumer credit counseling service is defined as "a
bring a civil action. An individual may bring a civil nonprofit corporation engaged in the business of debt
action for compensatory damages, including triple adjusting as defined in section 13-06-01." Section
damages if a service obtains payments not authorized 13-07-02, which sets forth the contract requirements
in the Uniform Act, and may seek punitive damages in an agreement between the consumer credit
and attorney's fees. A service has a good-faith counseling service and the debtor, provides that a
mistake defense against liability. The statute of consumer credit counseling service may not enter an
limitations pertaining to an action by the administrator agreement with a debtor unless a thorough written
is four years and two years for a private right of action. budget analysis indicates that the debtor can
Banks as regulated entities under other law are not reasonably meet the requirements of the financial
subject to the Uniform Act, as are other kinds of adjustment plan and that the debtor will be benefited
activities that are incidental to other functions by the plan. Section 13-07-06 authorizes the
performed. For example, a title insurer that provides consumer credit counseling service to charge an
bill-paying service that is incidental to title insurance is origination fee of up to $50. Section 13-07-07
not subject to the Uniform Act. prohibits a consumer credit counseling service from
taking a confession of judgment or a power of attorney
North Dakota Statutory Provisions to confess judgment against the debtor or appear as
There are several areas of North Dakota law which the debtor in any judicial proceeding. This section
may be impacted by the enactment of the Uniform also authorizes the Attorney General to receive and
Debt-Management Services Act. North Dakota laws investigate complaints against a consumer credit
regarding debt adjustment and consumer credit counseling service. The remaining sections in this
counseling services are contained in Chapters 13-06 chapter set forth the surety bond, trust account, and
and 13-07. Chapter 13-06, which relates to debt accounting requirements for a consumer credit
adjusting, provides that unless exempted, any person counseling service.
who engages in the business of debt adjusting is
guilty of a Class A misdemeanor. Section 13-06-03 RECOMMENDATION OF NORTH DAKOTA
provides for the following exemptions from the COMMISSION ON UNIFORM STATE LAWS
prohibition on debt adjusting: The North Dakota Commission on Uniform State
1. Situations involving debt adjusting incurred Laws consists of 10 members. The primary function
incidentally in the lawful practice of law in this of the commission is to represent North Dakota in the
state. National Conference of Commissioners on Uniform
2. Banks and fiduciaries, as duly authorized and State Laws. The national conference consists of
admitted to transact business in this state and
19063 3 September 2009
representatives of all states and its purpose is to Management Services Act be conducted to address
promote uniformity in state law on all subjects on these concerns before introduction.
which uniformity is desirable and practicable and to
serve state government by improving state laws for SUGGESTED STUDY APPROACH
better interstate relationships. Under Sections The committee, in its study of the Uniform Debt-
54-35-02 and 54-55-04, the state commission may Management Services Act, may wish to approach this
submit its recommendations for enactment of uniform study as follows:
laws or proposed amendments to existing uniform ? Receive information from the National
laws to the Legislative Management for its review and Conference of Commissioners on Uniform State
recommendation during the interim between Laws regarding the adoption of the Uniform
legislative sessions. Debt-Management Services Act and the issues
The Uniform Debt-Management Services Act was that have arisen in other states that have
among the 2008 recommendations of the North adopted the Act.
Dakota Commission on Uniform State Laws for ? Receive information, testimony, and
introduction in the 2009 legislative session. Before recommendations from the Attorney General,
the 2009 legislative session, concerns were the director of banking and financial institutions,
expressed by members of the commission, the and other interested parties regarding the
Attorney General, and the director of banking and administration and enforcement of the Uniform
financial institutions that before the Uniform Act is Debt-Management Services Act.
introduced for adoption in North Dakota, a ? Review current state law to determine the
determination should be made as to which state impact the Uniform Debt-Management Services
agency would be the most appropriate agency for the Act would impact those laws.
administration and enforcement of the Uniform Debt- ? Develop recommendations and prepare
Management Services Act. It was also noted that the legislation necessary to implement the
Uniform Debt-Management Services Act is a recommendations.
complicated Act that will require additional staffing and
budget to implement. Because of these concerns, it ATTACH:1
was recommended that a study of the Uniform Debt-

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