HOUSE OF REPRESENTATIVES

H.B. NO.

1319

TWENTY-SEVENTH LEGISLATURE, 2013

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to debt settlement services.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

debt settlement services

     §   -1  Definitions.  As used in this chapter unless the context requires otherwise:

     "Affiliate" means any of the following:

     (1)  A person that controls, is controlled by, or is under common control with the provider.  For purposes of this chapter, "control" means the right to control ten per cent or more of the voting power of another person;

     (2)  An executive officer or director of the provider or an individual performing similar functions with respect to the provider; or

     (3)  An executive officer or director of a person described in paragraph (1) or an individual performing similar functions with respect to the provider.

     "Agreement" means an agreement between a provider and an individual for the performance of debt settlement services.

     "Bank" means a financial institution regulated under chapter 412.

     "Concessions" means an assent to repayment of a debt on terms more favorable to an individual than the terms of the contract between the individual and a creditor.

     "Debt settlement services" means services as an intermediary between an individual and one or more unsecured creditors of the individual for the purpose of obtaining concessions where the contemplated concessions involve a reduction in principal of the individual's unsecured debt but does not include the following; provided that the debt settlement services are not the primary business purpose of the person described herein:

     (1)  Legal services provided in an attorney-client relationship by an attorney licensed or otherwise authorized to practice law in this State;

     (2)  Accounting services provided in an accountant-client relationship by a certified public accountant licensed to provide accounting services in this State; or

     (3)  Financial planning services provided in a financial planner-client relationship by a licensed member of a financial planning profession.

     "Department" means the department of commerce and consumer affairs.

     "Good faith" means honesty in fact and the observance of reasonable standards of fair dealing.

     "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, a government or a governmental subdivision, agency, or instrumentality.

     "Principal amount of the debt" means the amount of a debt at the time of the execution of an agreement for debt settlement services.

     "Program" means a program or strategy in which a provider furnishes debt settlement services.

     "Provider" means a person required to be registered pursuant to this chapter who provides, offers to provide, or agrees to provide, debt settlement services.

     "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

     §   -2  Applicability of chapter.  This chapter 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:

     (1)  A judicial officer, a person acting under an order of a court or an administrative agency, or an assignee for the benefit of creditors;

     (2)  A bank, bank holding company or the subsidiary, agent, or affiliate of either the bank or the bank holding company, or a credit union or other financial institution licensed under chapter 412; or

     (3)  A title insurer, escrow company, or other person that provides bill-paying services if the provision of debt settlement services is incidental to the bill-paying services.

     §   -3  Registration required.  (a)  Except as otherwise provided in subsection (b), on or after July 1, 2013, no person shall act as a provider in providing debt settlement services to an individual who the person reasonably should know resides in this State at the time the person agrees to provide the services, unless the person is registered as a provider under this chapter.

     (b)  The department shall maintain and publicize a list of the names of all persons who are registered providers.

     (c)  The department shall charge fees for registration and renewals of registration, which shall be deposited to the credit of the compliance resolution fund established under section 26-9(o).

     §   -4  Application; form; fees; documentation.  (a)  An application for registration as a provider shall be in a form prescribed by the department.

     (b)  An application for registration as a provider shall be accompanied by the following:

     (1)  The fee as established by the department by rule;

     (2)  Proof of minimum required liability insurance coverage in an amount specified by the department;

     (3)  In lieu of the aggregate umbrella insurance, a surety bond filed with the department, in a form approved by the department, for a term that ends not earlier than the expiration of the term of registration and in an amount of not less than the greater of $10,000 or an amount that the department determines is warranted by:

         (A)  The financial condition and business experience of the provider;

         (B)  The history of the provider in performing debt settlement services; and

         (C)  The risk to individuals and any other factor the department considers appropriate,

          but in no event greater than $50,000.  The surety bond shall run to the State for the benefit of this State and of individuals who reside in this State when they agree to receive debt settlement services from the provider, as their interests may appear, payment of which is contingent upon the noncompliance of the provider or its agent with this chapter; and

     (4)  Proof that the provider is registered under title 23 to conduct business in this State.

     §   -5  Application; required information.  An application for registration shall be signed by the applicant and declare as true any material matter pursuant to the application for registration.  The application form shall contain a statement informing the applicant that a false or dishonest answer to a question may be grounds for denial, subsequent suspension, or revocation of the applicant's registration.  An application shall include the following:

     (1)  The applicant's name, principal business address and telephone number, and all other business addresses in this State, electronic mail addresses, and internet website addresses;

     (2)  All names under which the applicant conducts business in this State;

     (3)  The address of each location in this State at which the applicant will provide debt settlement services or a statement that the applicant will have no such location;

     (4)  A copy of each form of agreement that the applicant will use with individuals who reside in this State; and

     (5)  The schedule of fees and charges that the applicant will use with individuals who reside in this State.

     §   -6  Application information; updates.  An applicant or a provider shall notify the department within sixty days after a material change in the information required under section    -5.

     §   -7  Application information; government record.  The department shall make the information in an application for registration and renewal of registration as a provider available to the public as a government record under chapter 92F.

     §   -8  Certificate of registration; issuance; denial.  (a)  Except as otherwise provided in subsection (b), the department shall issue a certificate of registration as a provider to a person that complies with sections    -4 and    -5.

     (b)  The department shall deny registration if any of the following applies:

     (1)  The application contains information that is materially erroneous or incomplete;

     (2)  An officer, director, or owner of the applicant has been convicted of a crime, or received a civil judgment that involved dishonesty or the violation of federal or state securities laws; or

     (3)  The application is not accompanied by the required fee.

     §   -9  Procedure for registration.  (a)  The department shall approve or deny an initial registration as a provider within sixty days after an application is filed.  The department may extend the sixty-day period for not more than forty-five days.  Within seven days after denying an application, the department, in a record, shall inform the applicant of the reasons for the denial.

     (b)  If the department denies an application for registration as a provider or does not act upon an application within the time prescribed in subsection (a), the applicant may appeal and request an administrative hearing under chapter 91.

     (c)  Subject to section    -10(d), a registration as a provider shall be valid for one year.

     (d)  Upon submission of an application for registration and until such time as an application, or any appeal filed pursuant to subsection (b), is approved or denied, the applicant may continue to provide debt settlement services, but a denial of registration terminates any further right to provide services, unless approved by the department.

     §   -10  Renewal of registration.  (a)  A provider shall renew registration annually.

     (b)  An application to renew registration as a provider shall:

     (1)  Be in a form prescribed by the department;

     (2)  Signed under penalty of perjury;

     (3)  Be filed not less than thirty days and not more than sixty days before the registration expires;

     (4)  Be accompanied by the registration fee;

     (5)  Disclose any changes in the information contained in the applicant's application for registration or its immediately previous application for renewal, as applicable; and

     (6)  Provide any other information that the department reasonably requires to perform the department's duties under this section.

     (c)  If a provider files a timely and complete application for renewal of registration, the registration shall remain effective until the department, in a record, notifies the applicant of a denial and states the reasons for the denial.

     (d)  If the department denies an application for renewal of registration as a provider, the applicant, within thirty days after receiving notice of the denial, may appeal and request an administrative hearing under chapter 91.  While the appeal is pending, the applicant shall continue to provide debt settlement services to individuals with whom it has agreements.  If the denial is affirmed, the applicant shall continue to provide debt settlement services to individuals with whom it has agreements until, with the approval of the department, it transfers the agreements to another registered provider.

     §   -11  Registration or licensure in another state.  If a provider holds a license or certificate of registration in another state that authorizes the provider to provide debt settlement services, the provider may submit a copy of that license or certificate of registration and the application for that license or certificate of registration in lieu of an application in the form prescribed by section    -4(a),    -5, or    -10(b).  The department shall accept the application and the license or certificate from the other state as an application for registration as a provider or for renewal of registration as a provider, as appropriate, in this State if the following applies:

     (1)  The application from the other state contains information substantially similar to or more comprehensive than that required in an application under this chapter; and

     (2)  The applicant, under penalty of unsworn falsification to authorities under section 710-1063, certifies that the information contained in the application from the other states is current or, to the extent it is not current, supplements the application to make the information current.

     §   -12  Requirement of good faith.  A provider shall act in good faith in all matters under this chapter.

     §   -13  Prerequisites for providing debt settlement services.  (a)  Before an individual consents to pay for goods or services offered, a provider shall disclose truthfully, in a clear and conspicuous manner, all of the following material information:

     (1)  A good faith estimate of the amount of time necessary to achieve the represented results, and to the extent that the debt settlement services may include a settlement offer to any of the individual's creditors or debt collectors, a good faith estimate of the time by which the provider will start to make bona fide settlement offers to the individual's creditors, and the cost to the individual for providing debt settlement services;

     (2)  To the extent that the debt settlement services may include a settlement offer to any of the individual's creditors or debt collectors, a good faith estimate of the amount of money or the percentage of each outstanding debt that the individual shall accumulate before the provider will make a bona fide settlement offer to one or more of the creditors;

     (3)  To the extent that any aspect of the debt settlement services relies upon or results in the individual's failure to make timely payments to creditors or debt collectors, that the use of the debt settlement services will likely adversely affect the individual's creditworthiness, may result in the individual being subject to collection actions or sued by creditors or debt collectors, and may increase the amount of money the individual owes due to the accrual of fees and interest; and

     (4)  To the extent that the provider requests or requires the individual to place funds in an account at a bank, that the individual owns the funds held in the account, and that the individual may withdraw from the debt settlement services at any time without penalty.

     (b)  A provider shall not misrepresent, directly or by implication, any material aspect of any debt settlement services, including but not limited to:

     (1)  The amount of money or the percentage of the debt amount that an individual may save by using the service;

     (2)  The effect of the service on the individual's creditworthiness;

     (3)  The effect of the service on collection efforts of the individual's creditors or debt collectors;

     (4)  The percentage or number of individuals who attain the represented results; and

     (5)  Whether debt settlement services are offered or provided by a nonprofit entity.

     (c)  A provider shall not receive payment of any fee or consideration for any debt settlement services until and unless:

     (1)  The provider has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt under a debt settlement plan;

     (2)  The individual has made at least one payment to a creditor in furtherance of a settlement with that creditor; and

     (3)  The fee or consideration for settling each individual debt enrolled in a debt settlement plan shall either:

         (A)  Bear the same proportional relationship to the total fee for settling the entire debt amount as the individual debt amount bears to the entire debt amount.  The individual debt amount and the entire debt amount are amounts owed at the time the debt was enrolled on the debt relief service; or

         (B)  Be a percentage of the amount saved as a result of the settlement.  The percentage charged shall not change from one individual debt to another.  The amount saved is the difference between the amount owed at the time the debt was enrolled in the debt relief service and the amount actually paid to satisfy the debt.

     (d)  Nothing in this section shall prohibit the provider from requesting or requiring the individual to place funds in an account to be used to pay the provider's fees and the individual's creditors or debt collectors in connection with the renegotiation, settlement, reduction, or other alteration of the terms of payment or other terms of debt; provided that:

     (1)  The funds are held in a specifically designated account at a bank;

     (2)  The individual, not the provider, owns and controls the funds held in the account and is paid accrued interest on the account, if any;

     (3)  If the provider does not administer the account, the entity administering the account is not owned or controlled by, or an affiliate of, the provider;

     (4)  The entity administering the account does not give or accept any money or other compensation in exchange for referrals of business by the provider; and

     (5)  The individual may withdraw from the debt settlement services at any time without penalty, and shall receive all funds in the account, other than funds earned by the provider in compliance with this section, as specified in the account agreement between the individual and the bank.

     (e)  If a provider is not registered as required by this chapter when an individual assents to an agreement, the agreement is voidable by the individual.

     §   -14  Powers of the department.  (a)  The department may act on its own initiative or in response to complaints and may receive complaints, take action to obtain voluntary compliance with this chapter, and seek or provide remedies as provided in this chapter.

     (b)  The department may investigate and examine, in this State or elsewhere, by subpoena or otherwise, the activities, books, accounts, and records of a person that provides or offers to provide debt settlement services, or a person to which a provider has delegated its obligations under an agreement or this chapter, to determine compliance with this chapter.  Information that identifies individuals who have agreements with the provider shall not be disclosed to the public.  In connection with the investigation, the department may:

     (1)  Charge the person the reasonable expenses necessarily incurred to conduct the examination; and

     (2)  Require or permit a person to file a statement under oath as to all the facts and circumstances of a matter to be investigated.

     (c)  The department may enforce violations of this chapter by taking one or more of the following actions:

     (1)  Order a provider or a director, employee, or other agent of a provider to cease from any violations;

     (2)  Order a provider or a person that has caused a violation to correct the violation, including making restitution of money or property to a person aggrieved by a violation;

     (3)  Levy upon a provider or a person that has caused a violation a civil penalty not exceeding $1,000 for each violation; and

     (4)  Prosecute a civil action to enforce an order or to obtain restitution or an injunction or other equitable relief, or both.

     §   -15  Suspension, revocation, nonrenewal of registration.  (a)  The department may suspend, revoke, or deny renewal of a provider's registration if:

     (1)  The provider has committed a material violation of this chapter; or

     (2)  The provider is insolvent.

     (b)  If the department suspends or revokes a provider's registration, the provider may appeal and request a hearing pursuant to chapter 91."

     SECTION 2.  This Act shall take effect upon its approval.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Debt Settlement Services; Registration

 

Description:

Requires persons who act as providers of debt settlement services to be registered by DCCA.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.