Senate Bill sb2582
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Florida Senate - 2002 SB 2582
By Senator Silver
38-1612-02
1 A bill to be entitled
2 An act creating the "Debt Management Services
3 Act"; defining terms; providing for licensure
4 by the Department of Banking and Finance;
5 providing license fees; providing restrictions
6 on marketing, promotion, and advertising;
7 providing for pre-contract information and for
8 contract terms; providing standards for advice
9 to be given by debt management companies;
10 providing criteria for debt management
11 services; providing penalties; providing an
12 effective date.
13
14 Be It Enacted by the Legislature of the State of Florida:
15
16 Section 1. Short title.--This act may be cited as the
17 "Debt Management Services Act."
18 Section 2. Definitions.--As used in this act, the
19 term:
20 (1) "Debt management services" means any of the
21 following when provided to debtors who are consumers under
22 consumer credit agreements:
23 (a) Advising how to restructure debts, how to alter
24 debt repayments, or how to achieve early resettlement of
25 debts;
26 (b) Contacting creditors in order to make any of the
27 arrangements in paragraph (a), whether that contact amounts to
28 negotiation or not;
29 (c) Providing a facility for the debtor to make a
30 single repayment that is then distributed on the debtor's
31 behalf to his or her creditors; and
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1 (d) Reviewing a debtor's financial circumstances or
2 payments.
3 (2) "Debt management company" means any person that is
4 licensed to provide debt management services under this act.
5 (3) "Department" means the Department of Banking and
6 Finance.
7 Section 3. License.--
8 (1) A debt management company may not provide debt
9 management services without a license under this section.
10 (2) An application for a license under this section
11 must be submitted to the department on a form as the
12 department may prescribe by rule together with a nonrefundable
13 application fee of $200. The license renewal fee is $200. The
14 department shall adopt by rule a biennial licensure period and
15 procedures for renewal of licenses.
16 (3) Each license must specify the location for which
17 it is issued and must be conspicuously displayed at that
18 location.
19 (4) Each debt management company shall designate and
20 maintain an agent for service of process in this state.
21 Section 4. Marketing, promotion, and advertisements.--
22 (1) The advertising or promotion of debt management
23 services, whether written or on television or radio, must be
24 accurate and clear and must not mislead, either expressly or
25 by implication or omission.
26 (2) Advertising of debt management services should
27 not:
28 (a) State or imply that the service will free the
29 consumer of the need to meet their debts;
30 (b) Emphasize the savings to be made by rescheduling
31 debts without making it equally clear that this will usually
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1 lead to an increase in the size of the sum to be repaid and
2 that rescheduling the debt may impair the consumer's credit
3 record. Where specific savings are quoted there must be a
4 similar indication of the likely increase in the total amount
5 of the sum to be repaid or the period of repayment and the fee
6 that will be charged; and
7 (c) Claim or imply that the debt management company
8 can guarantee an outcome favorable to the consumer in
9 negotiations with creditors.
10 (3) When the arrangements with the debt management
11 company will lead to a period in which contractual payments
12 are not made by the consumer, the consumer must be warned of
13 this in the marketing literature.
14 Section 5. Pre-contract information.--
15 (1) A consumer must be provided with adequate
16 information about the debt management service to be provided
17 and the consequences and costs of it before entering into an
18 agreement. All documentation must be clear and in plain
19 language and must state clearly the implications of entering a
20 debt-management program.
21 (2) When a debt management company contacts a
22 potential client after a referral from a credit broker or
23 lender, the debt management company must disclose at the
24 outset of the conversation how it has obtained the consumer's
25 details, what service they offer, and the fact that the
26 company cannot itself provide a loan.
27 (3) The nature of the service that is being offered,
28 the total cost to the consumer of the service, including any
29 initial or fixed charge fee or deposit, the periodic
30 management fee to be paid to the debt management company
31 multiplied by the estimated length of the contract, the amount
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1 to be repaid, and the likely duration of the contract must be
2 clearly explained to the consumer at the outset.
3 (4) When it is not possible to establish at the
4 pre-contract stage the cost or duration of the contract, the
5 consumer must be given a realistic estimate of the cost and
6 duration of the contract. This should be accompanied in close
7 proximity by a clear warning that it is an estimate. The
8 assumptions on which the estimate are based should be set out.
9 If during the pre-contractual stage it becomes clear that the
10 estimate does not adequately reflect the consumer's
11 circumstances, a revised estimate must be given.
12 (5) If an initial up-front fee or deposit is payable,
13 the consumer must be given a clear explanation of:
14 (a) What aspect of the service is covered by the fee
15 or for what reason the deposit is held;
16 (b) The manner in which it is to be calculated; and
17 (c) Whether it is refundable, with due regard to the
18 principles of contract law in relation to deposits and part
19 payments.
20 (6) The consumer must be advised that he or she will
21 be given the opportunity to withdraw from the contract if,
22 when informed of the total cost of the service, he or she
23 decides that the service is unsuitable.
24 (7) Consumers must be clearly warned in writing:
25 (a) When the first payment goes to the debt management
26 company and not to the creditors, whether as an initial
27 up-front fee, a deposit, or for some other reason, that they
28 will miss a payment to their creditors and will therefore go
29 into arrears or further into arrears;
30 (b) That creditors are not obliged to accept reduced
31 repayments or to freeze interest and that, unless they do so,
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1 repaying the same debt over a longer period of time will lead
2 to an increase in the total amount to be paid;
3 (c) That collection actions, including default notices
4 and litigation, can ensue and that there is no guarantee that
5 any existing or threatened proceedings will be suspended or
6 withdrawn. The possibility of default notices, including that
7 they may incur costs that are added to the debt, must be made
8 clear;
9 (d) Of the likely impact of the debt management
10 program on the consumer's credit rating. In particular it
11 should be stated that he or she might not be able to obtain
12 credit in the short term and that there is some likelihood
13 that medium-to-long-term credit will not be available either.
14 Consumers must not be misled into thinking that their credit
15 rating will improve before the payment of their debts is
16 completed or even immediately thereafter;
17 (e) Of the importance of meeting debts such as
18 mortgage, rent, and utility payments; and
19 (f) Not to ignore correspondence or other contacts
20 from creditors or those acting on behalf of creditors.
21 (7) The nature of those commitments that will and,
22 especially important, those that as a matter of the debt
23 management company's own decision will not be included within
24 the repayment plan must be made clear to potential clients.
25 The debt management company must exercise all due care to
26 ensure that debts that it says it cannot deal with are not
27 included in a program.
28 (8) When a debt management company is aware that a
29 particular creditor refuses to deal with it, for whatever
30 reason and whether or not the debt management company regards
31 this refusal as justified, the consumer must be informed as
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1 soon as the debt management company is aware that the consumer
2 has an account with that creditor.
3 Section 6. Contract terms.--Contract terms and
4 conditions should be fair, written in plain, intelligible
5 language and easily legible.
6 (1) COST AND DURATION OF CONTRACT.--
7 (a) The contract should set out the:
8 1. Nature of the services that are being supplied,
9 including the kinds of debt that will and will not be covered;
10 2. Total cost to the consumer of the service,
11 including any initial or fixed-charge fee or deposit and the
12 periodic management fee to be paid to the debt management
13 company multiplied by the estimated length of the contract;
14 3. Amount to be repaid; and
15 4. Duration of the contract.
16 (b) When it is not possible to state firmly the cost
17 or duration of the contract, the contract must include
18 realistic estimates of the cost and duration of the contract.
19 This should be accompanied in close proximity by a clear
20 warning that it is an estimate. The assumptions on which the
21 estimate is based should be set out.
22 (c) The contract should specify the circumstances in
23 which the consumer may withdraw and receive a refund of any
24 moneys paid to the debt management company.
25 (d) The contract must not include any term that states
26 or implies that there are circumstances in which a client is
27 not entitled to a refund. For example a refund, and in some
28 cases a full refund, may be due to a dissatisfied client if:
29 1. The debt management company has promised more than
30 it can deliver. This may be the case even when the debt
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1 management company's contract is appropriately worded, if it's
2 written or oral marketing is overly optimistic; or
3 2. The debt management company has failed to conduct
4 negotiations with reasonable care and skill; or
5 3. There has been a total failure of consideration.
6 (e) The contract should allow the client to withdraw
7 from the contract when, following signing of the contract, the
8 total fee differs significantly from the estimate given before
9 the contract was signed.
10 (2) HANDLING MONEY.--
11 (a) Any moneys held on behalf of consumers must be
12 kept in a client account not usable by the debt management
13 company for the purposes of its own business. This includes,
14 in particular, any deposit that under the contract may be
15 returned to the client at any date in the future and any
16 moneys received by the company for payment to creditors. Any
17 interest earned on this account should accrue to the benefit
18 of the client, not the company.
19 (b) The contract must specify a period within which
20 payments received from the client will normally be passed on.
21 Delays that adversely affect the individual consumer's
22 financial position and which exceed 5 working days from
23 receipt of cleared funds are unacceptable. If the debt
24 management company fails to disburse payments to creditors in
25 accordance with the contract, it must accept responsibility
26 and inform the client of the delay, together with the reason
27 for the delay. When the delay is not beyond its control, the
28 debt management company should take appropriate action to put
29 the consumer in the position in which he or she would have
30 been had the contract been fulfilled. This includes making
31 good any additional interest that has accrued and any default
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1 charges that have been applied to the account as a result of
2 the delay. In this respect, the debt management company must
3 have appropriate systems in place to deal with forseeable
4 problems and to minimize delays, even when the initial cause
5 is not its fault. As the consumer relies on the debt
6 management company to be made aware of any delay, the debt
7 management company must take reasonable steps to anticipate
8 delays and make good the losses.
9 (3) OTHER TERMS.--
10 (a) A contract must not prohibit clients from
11 corresponding with or responding to written or oral
12 communications from creditors or others acting on behalf of
13 creditors. However, in order to avoid duplicate or
14 contradictory action, contracts may reasonably require the
15 client to send to the debt management company a copy of any
16 communication from a creditor. When the contract requires or
17 suggests that the client should send such correspondence to
18 the debt management company, the company must deal with it
19 appropriately and promptly. The debt management company must
20 send to the client a copy of any written communication it
21 sends to or receives from the creditor, and unless the
22 creditor itself sends a copy to the client must keep the
23 client informed of other communications.
24 (b) A contract must not include declarations such as
25 "I fully understand the requirements of the contract" or
26 confirmation that certain provisions have been explained.
27 Section 7. ADVICE--All advice given to the client
28 should be in the best interests of the client. Debt management
29 programs are not suitable for all debtors, and debt management
30 companies must exercise all due discretion, in the best
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1 interests of the debtor, in deciding whether or not to take a
2 debtor as a client.
3 (1) FINANCIAL POSITION.--A realistic assessment of the
4 financial circumstances of the consumer, including both income
5 and expenses must be made before advice is given.
6 (a) Consumer income must be verified by appropriate
7 means, such as pay slips.
8 (b) Reasonable steps must also be taken to verify
9 regular expenses. Estimates of expenditures on certain items
10 are permitted, but only if precise figures are not available.
11 Standard expenditure guidelines may be used when there is no
12 better indication of the client's expenses if there is nothing
13 to suggest that they are inappropriate. A copy of any
14 financial statement sent to creditors must also be sent to the
15 client.
16 (2) PAYMENTS.--
17 (a) Any advice given to the client to cancel direct
18 debits or standing orders before the repayment plan being
19 agreed upon with creditors must be demonstrably in the best
20 interests of the client. Debt management companies must
21 clearly warn clients of the risks and consequences of this
22 course of action if they advise it. When this course is taken,
23 regular payments to creditors, even if lower than the
24 contractual ones, should continue to be made whenever
25 possible.
26 (b) The difficulties associated with stopping
27 contractual payments are especially acute when they are
28 accompanied by a period in which no payments at all are made
29 or if there is a delay in distributing payments to creditors.
30 If this will, or is likely to, happen under the plan the
31 consumer must be clearly informed and warned of the
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1 consequences. It is not sufficient for this purpose that a
2 statement is included to this effect in the small print of the
3 terms and conditions.
4 (c) Clients should not be advised to make payments to
5 accounts at a rate lower than the rate at which any interest
6 and other charges are accruing or may accrue, unless this is
7 demonstrably in their best interests. In such a case, a clear
8 explanation must be given to the client as to why this course
9 is necessary and its implications.
10 (d) If the client follows the plan in order to cancel
11 direct debits or reduce the level of contractual payments and
12 it becomes clear that the course of action is not producing
13 results in the client's interest, then the client must be
14 informed immediately so that he or she may be advised
15 appropriately and take whatever action is in his or her best
16 interests, including the possibility of withdrawing from the
17 plan.
18 (e) Clients must be advised of the importance of
19 meeting debts such as mortgages, rent, and utility payments.
20 More generally it should not be assumed that it is always in
21 the client's best interests simply to divide available income
22 between debts in proportion to their size. For example advice
23 should take into account the fact that some loans may lose the
24 benefit of a reduced rate of interest if payments are missed
25 or that there may be a benefit in settling a loan with a
26 higher rate of interest sooner than one with a lower rate of
27 interest.
28 Section 8. Debt management services.--
29 (1) A debt management company must inform the client
30 of the outcome of negotiations with creditors. This is not
31 limited to the situation when creditors have refused to deal
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1 with the debt management company, have returned payments to
2 the debt management company, or refused to freeze interest.
3 But it is especially important in those cases.
4 (2) A client must be kept informed of any developments
5 in the relationship with creditors, in particular the issue of
6 default notices or the threat of issue of legal proceedings.
7 (3) When the service provided by the debt management
8 company includes debt repayment, the debt management company
9 must:
10 (a) Take full account of debts such as mortgage
11 payments, rent, and utility payments, including any arrears
12 already incurred on those debts, in setting monthly
13 repayments; and
14 (b) Reassess the payment plan and consider any
15 necessary changes, including bringing the plan to an end, to
16 ensure that it remains in the client's best interests as soon
17 as it becomes aware of material changes in the client's
18 financial position. The client should be advised of any
19 recommended changes without delay. Repayment plans should in
20 any event be reassessed on at least an annual basis and the
21 client informed of the outcome of the reassessment.
22 (4) A client should be given at the outset a statement
23 of how his or her money is being disbursed. In addition, when
24 a plan has been agreed to, the balance owed or, if an accurate
25 figure is not known, the best estimate. The period of payment
26 needed to clear the debts and the fee charged by the debt
27 management company must be included in the statement. A client
28 must be kept informed of any material changes to these
29 arrangements at the time they occur. A debt management company
30 should meet any reasonable request by a client for a statement
31 of his or her position.
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1 (5) A debt management company should respond to
2 complaints promptly and fairly.
3 (6) All correspondence, statements, and other
4 paperwork sent to or received from the client or the client's
5 creditors and which has not already been copied to or returned
6 to the client should be retained by the debt management
7 company until such time as the contract is completed or
8 terminated. On termination or completion of the contract, all
9 retained paperwork should be returned to the client unless, at
10 that time, the client says that he or she does not want the
11 paperwork.
12 Section 9. Penalties.--If the department finds that
13 any person has violated this act, the department may take one
14 or more of the following actions:
15 (1) Revoke or suspend a license;
16 (2) Place a licensee on probation for a period of time
17 subject to conditions the department may specify;
18 (3) Issue a reprimand; or
19 (4) Impose an administrative fine not exceeding $250
20 for each violation.
21 Section 10. This act shall take effect October 1,
22 2002.
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25 SENATE SUMMARY
26 Creates the Debt Management Services Act providing for
the licensure and regulation of debt management services
27 by the Department of Banking and Finance. Provides for
fees and penalties.
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