ASSEMBLY, No. 4124

STATE OF NEW JERSEY

213th LEGISLATURE

 

INTRODUCED JUNE 22, 2009

 


 

Sponsored by:

Assemblyman JACK CONNERS

District 7 (Burlington and Camden)

 

 

 

 

SYNOPSIS

     Permits for-profit debt settlement services.

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act concerning debt settlement services, amending and supplementing P.L.1979, c.16, and repealing section 2 of P.L.1979, c.16 and section 3 of P.L.2005, c.287.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

     1.    Section 1 of P.L.1979, c.16 (C.17:16G-1) is amended to ready as follows:

     1.    As used in this act [,] :

     a.     "Nonprofit social service agency" or "nonprofit consumer credit counseling agency" means any corporation duly organized under Title 15 of the Revised Statutes or Title 15A of the New Jersey Statutes, no part of the assets, income or profit of which is distributable to, or enures to the benefit of its members, directors or officers, except to the extent permitted under this act [, and which is engaged in] with respect to providing services as a debt [adjustment] settlement provider.

     b.    "Credit counseling" means any guidance or educational program or advice offered by a nonprofit social service agency or nonprofit consumer credit counseling agency for the purpose of fostering the responsible use of credit and debt management.

     c.     (1) "Debt [adjuster] settlement provider" means a person who [either (a)] acts or offers to act [for a consideration] as an intermediary between a debtor and [his] one or more unsecured creditors of the debtor for the purpose of [settling, compounding, or otherwise altering the terms of payment of any debts of the debtor, or (b) who, to that end, receives] obtaining concessions regarding a debt owed by the debtor, including negotiating reductions in the amount to be paid in satisfaction of the debt, without receiving any money or other property from the debtor [, or on behalf of the debtor,] to be used for payment to, or distribution among, the creditors of the debtor.

     (2)   The following persons shall not be deemed debt [adjusters] settlement providers:  (a) an attorney-at-law of this State who is not principally engaged as a debt [adjuster] settlement provider; (b) a person who is a regular, full-time employee of a debtor, and who [acts as an adjuster of] negotiates or settles his employer's debts; (c) a person acting pursuant to any order or judgment of court, or pursuant to authority conferred by any law of this State or the United States; (d) a person who is a creditor of the debtor, or an agent of one or more creditors of the debtor, and whose services in [adjusting] settling the debtor's debts are rendered without cost to the debtor; or (e) a person who [, at the request of a debtor, arranges for or makes a loan to the debtor, and who, at the authorization of the debtor, acts as an adjuster of the debtor's debts in the disbursement of the proceeds of the loan,] provides services as a debt settlement provider without compensation for the services rendered in [adjusting] settling those debts.

     d.    "Debtor" means an individual or two or more individuals who are jointly and severally, or jointly or severally indebted.

     e.     “Debt settlement service” means performing a service or offering to perform a service as a debt settlement provider for compensation.

     f.     “Licensee” means a person licensed as a debt settlement provider pursuant to P.L.1979, c.16 (C.17:16G-1 et seq.).

(cf: P.L.1986, c.184, s.1)

 

     2.    (New section)  a.  On or after the effective date of P.L.    , c.   (C.        ) (pending before the Legislature as this bill), a person shall not engage in business as a debt settlement provider unless the person is licensed or exempt from licensure under P.L.1979, c.16 (C.17:16G-1 et seq.).  A person shall be deemed to be engaged in business as a debt settlement provider if the person solicits or enters into a contract with one or more debtors who reside in this State for the provision of debt settlement services.

     b.    A nonprofit social service agency or nonprofit consumer credit counseling agency that was licensed as a debt adjuster prior to the effective date of P.L.    , c.   (C.        ) (pending before the Legislature as this bill), may continue on and after that effective date to provide nonprofit services as a debt settlement provider, so long as the agency is licensed as a debt settlement provider pursuant to P.L.1979, c.16 (C.17:16G-1 et seq.) and the provision of those services do not result in the agency being disqualified as a nonprofit, tax-exempt entity pursuant to section 501(c)(3) of the federal Internal Revenue Code (26 U.S.C. s.501(c)(3)).

 

     3.    Section 5 of P.L.1979, c.16 (C.17:16G-5) is amended to read as follows:

     5.    a. (1)  [Any nonprofit social service agency or nonprofit consumer credit counseling agency] Any debt settlement provider licensed under this act shall maintain and provide to the Commissioner of Banking and Insurance adequate proof of insurance, of the type and amount required pursuant to regulation of the commissioner, to be not less than $500,000 of coverage and containing a deductible of not more than $10,000, issued by an insurer authorized to do business in this State.  The insurance shall not be cancellable without notice to the commissioner, and an effective policy available to replace the cancelled insurance.

     (2)   In lieu of insurance, the debt settlement provider may be bonded to the satisfaction of the commissioner [for each location], as set forth pursuant to regulation.  In setting the bonding requirements [for each location], the commissioner shall consider the number of debtors provided [credit counseling and] debt [adjustment] settlement services [at that location, and the balance of funds in the trust account required to be maintained pursuant to section 3 of P.L.2005, c.287 (C.17:16G-9)] , the financial condition and business experience of the provider, the history of the provider in performing debt settlement services, the risk to debtors, and any other factor the commissioner deems appropriate.

     b.    [The commissioner may require a licensee to file an annual report containing that information required by the commissioner by regulation concerning activities conducted as a licensee in the preceding calendar year.  The report shall be submitted under oath and in the form and within the time specified by the commissioner by regulation.] (Deleted by amendment, P.L.    , c.   ) (pending before the Legislature as this bill)

     c.     [The commissioner may require a high-cost home loan counselor to file an annual report containing that information required by the commissioner by regulation concerning activities conducted pursuant to subsection g. of section 5 of P.L.2003, c.64 (C.46:10B-26) as a registrant in the preceding calendar year.  The report shall be submitted under oath and in the form and within the time specified by the commissioner by regulation.]  (Deleted by amendment, P.L.    , c.    ) (pending before the Legislature as this bill)

     d.    Each licensee shall file with the commissioner on or before April 1 of each year a copy of its annual report, containing the information required by the commissioner by regulation pursuant to P.L.1979, c.16 (C.17:16G-1 et seq.) [and section 3 of P.L.2005, c.287 (C.17:16G-9)].  A licensee [or high-cost home loan counselor] that fails to make and file its annual report in the form and within the time provided in this section shall be subject to a penalty of not more than $100 for each day's failure, and the commissioner may revoke or suspend its authority to do business in this State. The penalty may be collected in a summary proceeding pursuant to the "Penalty Enforcement Law of 1999," P.L.1999, c.274 (C.2A:58-10 et seq.). A warrant may issue in lieu of a summons.

     e.     Each licensee shall have its financial records relating to debt [adjustment audited] settlement services reviewed annually by a certified public accountant or a public accountant, which [audit] written report shall be filed with the commissioner. [Such an audit shall certify that the salaries and expenses paid by the licensee are reasonable compared to those incurred by comparable organizations providing similar services.]

     f.     After reviewing the annual [report and audit] reports set forth in subsections d. and e. of this section, the Commissioner of Banking and Insurance may cause an audit of the financial records or an examination of the licensee to be made [, the actual expenses of such an examination shall be paid by the licensee, and the commissioner may maintain any action against any licensee to recover the fees and expenses herein provided for].

     g.     The licensee shall make a copy of the annual [report and audit] reports available for public inspection at each of the licensee's locations.

(cf: P.L.2007, c.81, s.25)

 

     4.    Section 6 of P.L.1979, c.16 (C.17:16G-6) is amended to read as follows:

     6.    a.   A licensee may charge a fair and reasonable fee to cover the cost of providing debt [adjustment and credit counseling] settlement services.  The commissioner is authorized to establish the maximum fee that may be charged for debt settlement services.

     b.    [The fee for debt adjustment shall not exceed 1% of the gross monthly income of the person to whom the service is rendered, but in no case more than $15.00 in any one month, except as may be otherwise provided by rule or regulation promulgated by the commissioner.  This fee may be waived in the discretion of the licensee.] (Deleted by amendment, P.L.    , c.   ) (pending before the Legislature as this bill)

     c.     [The commissioner is authorized to establish the maximum fee that may be charged for credit counseling.] (Deleted by amendment, P.L.    , c.   ) (pending before the Legislature as this bill)

(cf: P.L.1986, c.184, s.4)

 

     5.    Section 7 of P.L.1979, c.16 (C.17:16G-7) is amended to read as follows:

     7.    Every nonprofit social service agency or nonprofit consumer credit counseling agency licensed under this act as a debt settlement provider shall establish a board of directors whose function shall be to establish the policies of [such] the agency.  No more than 40% of the members of the board of directors shall have as their principal employer any corporation, association or institution which offers credit to the general public.

(cf: P.L.1979, c.16, s.7)

 

     6.    (New section)  Every licensee acting as a debt settlement provider shall provide a debtor with the licensee’s name and business address, and additionally shall:

     a.     Conduct a financial analysis of the debtor’s income and expenses to verify the debtor is able to afford any debt settlement plan proposed by the debt settlement provider;

     b.    Provide the debtor, as part of any debt settlement plan, a reasonable education about the management of personal finance;

     c.     Provide, prior to the debtor agreeing to any debt settlement service, a copy of the financial analysis conducted pursuant to subsection a. of this section and a written summary of the education to be provided pursuant to subsection b. of this section; and

     d.    Inform the debtor, prior to the debtor agreeing to any debt settlement service, that:

     (1)   agreeing to the debt settlement service may adversely affect the debtor’s credit rating or credit score;

     (2)   debt settlement services are not suitable for all debtors, and the debtor may inquire with the debt settlement provider regarding other means of dealing with indebtedness, including, but not limited to bankruptcy proceedings;

     (3)   the licensee’s services require that the debtor meet a certain saving goal in order to maximize debt settlement results;

     (4)   the licensee will advocate solely on behalf of the debtor, and does not receive compensation from any creditor, financial institution, or third party collection agency, unless otherwise notified pursuant to subsection b. of section 9 of this act;

     (5)   specific results cannot be predicted or guaranteed, and the licensee has no authority to require creditors to negotiate or settle any debt;

     (6)   unless the debtor is insolvent, if a creditor settles for less than the full amount of a debt owed, the debt settlement service may result in the creation of taxable income for the debtor, even though the debtor has not received any money;

     (7)   the licensee is not responsible for any payment to, or distribution of payments among, the creditors of the debtor;

     (8)   nonpayment of debt may lead creditors to increase finance or other charges, or undertake collection activity against the debtor, which may include litigation; and

     (9)   the licensee does not provide accounting or legal advice to debtors.

 

     7.    (New section)  Whenever a licensee contracts with a debtor to provide debt settlement services, and those services result in a creditor agreeing to accept as payment in full on a debt an amount less than the principal amount, the licensee shall inform the debtor in writing of:

     a.     The total amount to satisfy the debt under the settlement, and the terms of the settlement;

     b.    The amount of debt originally owed to the creditor at the time the debtor contracted for the debt settlement services;

     c.     The amount of debt owed to the creditor at the time the creditor agreed to the settlement for an amount less than that amount owed; and

     d.    The amount of, and method of calculating, any settlement fee, for any contract using a fee agreement that calculates any portion of the licensee’s fee based upon a percentage of savings realized by the debtor from the creditor’s settlement on the debt for less than the amount owed.

 

     8.    (New section)  Every licensee acting as a debt settlement provider shall maintain records, containing any information and stored in any manner, including electronically, required by the Commissioner of Banking and Insurance by regulation, regarding each debtor with whom it contracts to provide debt settlement services, for a period of not less than six years after the final payment made by the debtor to a creditor under a debt settlement plan negotiated by the debt settlement provider.  The licensee shall produce a copy of any records to the debtor or commissioner within a reasonable time after any request is made to obtain or otherwise examine the records.

 

     9.    (New section)  It shall be unlawful under the provisions of P.L.1979, c.16 (C.17:16G-1 et seq.) for any licensee acting as a debt settlement provider to:

     a.     Purchase from a creditor any debt obligation of a debtor;

     b.    Operate as a collection agent and a debt settlement provider as to the same debtor’s debt without first making a disclosure of this information in writing to both the debtor and creditor;

     c.     Execute any contract or other agreement to be signed by the debtor unless it is completed in full;

     d.    Receive or charge any fee in the form of a promissory note or other promise to pay, or accept any mortgage or other security for any fee, as to both real or personal property;

     e.     Pay any bonus, commission, or other consideration to any person for the referral of a debtor to the debt settlement provider, or to accept any bonus, commission, or other consideration for referring a debtor to any person for any reason, excluding consideration paid to lead generation providers;

     f.     Make or permit to be made any advertisement, display, distribution, transmittal, or other broadcast, in a false, misleading, or deceptive manner, or make or permit any misrepresentation of material fact in marketing debt settlement services;

     g.     Settle a debt, or represent to a debtor that payment to a creditor is in settlement of a debt, unless, at the time of settlement, the debtor receives a certification or other confirmation by the creditor that the payment is in consideration for the full debt amount, or is part of an agreed to payment plan that fully settles the debt;

     h.     Make any representation that:

     (1)   the licensee will furnish money to pay down the debtor’s debt or prevent enforcement action on that debt;

     (2)   payment of a certain amount to a creditor shall guarantee satisfaction of a certain amount or range of indebtedness to a creditor; or

     (3)   contracting with the licensee shall or may prevent litigation, garnishment, attachment, repossession, foreclosure, eviction, loss of employment, or any other collection activity related to the debt;

     i.      Misrepresent that the licensee is authorized or competent to provide legal advice or perform any legal services; and

     j.     Advise a debtor to stop payment to a creditor on any debt for which the licensee is contracted, or seeking contract, to provide services.

 

     10.  The following sections are repealed:

     Section 2 of P.L.1979, c.16 (C.17:16G-2); and

     Section 3 of P.L.2005, c.287 (C.17:16G-9).

 

     11.  This act shall take effect on the first day of the seventh month next following enactment, but the Commissioner of Banking and Insurance may take any anticipatory administrative action in advance thereof as shall be necessary for the implementation of this act.

 

 

STATEMENT

 

     This bill provides for for-profit debt settlement services in this State.  Under current law, at P.L.1979, c.16 (C.17:16G-1 et seq.), only nonprofit social service agencies or nonprofit consumer credit counseling agencies may engage in debt settlement activities on behalf of debtors.  The bill would replace the current non-profit practice with a for-profit model, but allow nonprofit agencies providing services under the previous scheme to continue to provide nonprofit debt settlement services if properly licensed in accordance with the bill.

     The bill would require any person engaging in business as a debt settlement provider to be licensed, with limited exceptions for: (1) an attorney-at-law who is not principally engaged as a debt settlement provider; (2) a person who is a regular, full-time employee of a debtor, and who negotiates or settles his employer’s debts; (3) a person acting pursuant to a court order or other legal authority; (4) a person who is a creditor of the debtor, whose services are rendered without cost to the debtor; and (5) a person who provides debt settlement services without compensation.

     Any debt settlement provider licensed under the bill shall maintain and provide to the Commissioner of Banking and Insurance adequate proof of insurance, of the type and amount required by the commissioner.  This insurance shall include not less than $500,000 of coverage and contain a deductible of not more than $10,000.  The insurance shall not be cancellable without notice to the commissioner, and an effective policy available to replace the cancelled insurance.  In lieu of insurance, the debt settlement provider may be bonded to the satisfaction of the commissioner.

     The bill provides the commissioner with the authority to establish the maximum fee that may be charged for debt settlement services, which the bill also states shall be fair and reasonable.

     Every licensee acting as a debt settlement provider shall, with respect to a debtor: conduct a financial analysis of the debtor to verify the debtor’s ability to afford any debt settlement plan proposed; provide a reasonable education about the management of personal finance; and inform the debtor about the nature of the services provided, the relationship between the debtor and debt settlement provider, and the lack of authority for the debt settlement provider to require creditors to negotiate or settle any debt.

     Whenever the services of a debt settlement provider result in a creditor agreeing to accept as payment in full on a debt an amount less than the principal amount, the debt settlement provider shall inform the debtor in writing of: the total amount to satisfy the debt under the settlement, and the terms of the settlement; the amount of debt owed to the creditor, at the time the debtor contracted for debt settlement services and at the time the creditor agreed to the settlement; and information concerning any settlement fee owed to the debt settlement provider, that calculates any portion of the fee based upon a percentage of savings realized by the debtor from the creditor’s settlement on the debt for less than the amount owed.

     The bill requires that every licensee acting as a debt settlement provider shall file with the commissioner, on or before April 1 of each year, a copy of its annual report, containing information specified in regulation.  The debt settlement provider shall have its financial records relating to debt settlement services reviewed annually by a certified public accountant or public accountant, and this report shall additionally be filed with the commissioner.  The commissioner, after reviewing these annual reports, may cause an audit of the financial records or an examination of the debt settlement provider to be made.

     Finally, the bill makes it unlawful for a debt settlement provider to engage in certain practices, including: purchasing from a creditor any debt obligation of a debtor; advertising in a false, misleading, or deceptive manner; and misrepresenting that the debt settlement provider is authorized or competent to provide legal advice or perform any legal services.