As Introduced

130th General Assembly Regular Session 2013-2014

H. B. No. 173

Representatives Terhar, Mallory 

Cosponsors: Representatives Grossman, Brenner, Blair, Beck, Bishoff 

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A BILL

To amend sections 4710.01 and 4710.03 and to enact

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sections 4710.20 to 4710.32 of the Revised Code to

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regulate providers of debt settlement services.

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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 4710.01 and 4710.03 be amended and	4
sections 4710.20, 4710.21, 4710.22, 4710.23, 4710.24, 4710.25,	5
4710.26, 4710.27, 4710.28, 4710.29, 4710.30, 4710.31, and 4710.32	6
of the Revised Code be enacted to read as follows:	7

Sec. 4710.01.  As used in this chaptersections 4710.01 to	8
4710.04 of the Revised Code:	9

(A) "Person" includes individuals, partnerships,	10
associations, corporations, trusts, and other legal entities.	11

(B)(1) "Debt adjusting" means doing business in debt	12
adjusting, budget counseling, debt management, or debt pooling	13
service, or holding oneself out, by words of similar import, as	14
providing services to debtors in the management of their debts, to	15
do either of the following:	16

(1)(a) To effect the adjustment, compromise, or discharge of	17
any account, note, or other indebtedness of the debtor;	18

(2)(b) To receive from the debtor and disburse to the	19
debtor's creditors any money or other thing of value.	20

(2) "Debt adjusting" does not include debt settlement	21
services as defined in section 4710.20 of the Revised Code.	22

(C) "Resides" means to live in a particular place on a	23
temporary or a permanent basis.	24

Sec. 4710.03. Nothing in this chaptersections 4710.01 to	25
4710.04 of the Revised Code applies to any of the following:	26

(A) The federal national mortgage association; the federal	27
home loan mortgage corporation; a bank, bank holding company,	28
trust company, savings and loan association, credit union, savings	29
bank, or credit card bank, that is regulated by the office of the	30
comptroller of currency, office of thrift supervision, federal	31
reserve, federal deposit insurance corporation, national credit	32
union administration, or division of financial institutions; or to	33
subsidiaries of any of these entities;	34

(B) Debt adjusting incurred in the practice of law in this	35
state;	36

(C) A person that incidentally engages in debt adjusting to	37
adjust the indebtedness owed to that person;	38

(D) A registrant as defined in section 1321.51 of the Revised	39
Code;	40

(E) A registrant or licensee as both are defined in section	41
1322.01 of the Revised Code.	42

Sec. 4710.20.  As used in sections 4710.20 to 4710.32 of the	43
Revised Code:	44

(A) "Affiliate" means any of the following:

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(1) A person that controls, is controlled by, or is under	46
common control with a provider.	47

(2) An executive officer or director of a provider or any	48
individual performing functions similar to an executive officer or	49
director.	50

(3) An executive officer or director of a person described in	51
division (A)(1) of this section or any individual performing	52
functions similar to an executive officer or director.	53

(B) "Concessions" means assent to repayment of a debt on	54
terms more favorable to a debtor than the terms of the contract	55
between the debtor and a creditor.	56

(C) "Control" means the right to control at least ten per	57
cent of the voting power of another person.	58

(D) "Day" means a calendar day.

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(E) "Debtor" means an individual to whom a provider furnishes	60
debt settlement services.	61

(F) "Debt settlement services agreement" means an agreement	62
between a provider and a debtor for the furnishing of debt	63
settlement services.	64

(G)(1) "Debt settlement services" means the services as an	65
intermediary between a debtor and one or more unsecured creditors	66
of the debtor for the purpose of obtaining concessions with	67
respect to the debtor's unsecured debt, which concessions may	68
include a reduction in the principal amount of the debt.	69

(2) "Debt settlement services" does not include any of the	70
following:	71

(a) Accounting services provided in an accountant-client	72
relationship by a certified public accountant licensed to provide	73
accounting services in this state;	74

(b) Financial planning services provided in a financial	75
planner-client relationship by a licensed member of a financial	76
planning profession.	77

(H) "Financial institution" means any national bank, any bank	78
doing business under authority granted by the superintendent of	79
financial institutions or the regulatory authority of another	80
state, any federal savings association, any savings and loan	81
association or savings bank doing business under authority granted	82
by the superintendent or the regulatory authority of another	83
state, any trust company, or any credit union regulated by a state	84
or federal regulatory authority.	85

(I) "Good faith" means honesty in fact and the observance of	86
reasonable standards of fair dealing.	87

(J) "Person" means an individual, corporation, business	88
trust, estate, trust, partnership, limited liability company,	89
association, joint venture, or any other legal or commercial	90
entity. The term does not include a public corporation,	91
government, or governmental subdivision, agency, or	92
instrumentality.	93

(K) "Principal amount of the debt" means the amount of a debt	94
at the time of the execution of a debt settlement services	95
agreement.	96

(L) "Program" means a program or strategy in which a provider	97
furnishes debt settlement services.	98

(M) "Provider" means a person that furnishes, offers to	99
furnish, or agrees to furnish debt settlement services.	100

(N) "Record" means information that is inscribed on a	101
tangible medium or that is stored in an electronic or other medium	102
and is retrievable in a perceivable form.	103

(O) "State" means the state of Ohio, except when the context	104
indicates the term is referring to another state of the United	105
States, the District of Columbia, Puerto Rico, the United States	106
Virgin Islands, or any territory or insular possession subject to	107
the jurisdiction of the United States.	108

(P) "Superintendent of financial institutions" includes the	109
deputy superintendent for consumer finance as provided in section	110
1181.21 of the Revised Code.	111

Sec. 4710.21.  (A) A provider shall not furnish debt	112
settlement services to a debtor who the provider reasonably should	113
know resides in this state at the time the debt settlement	114
services agreement is entered into, except as provided in sections	115
4710.20 to 4710.32 of the Revised Code.	116

(B) Sections 4710.20 to 4710.32 of the Revised Code do not	117
apply to the following persons or their employees when the person	118
or the employee is engaged in the regular course of the person's	119
business or profession:	120

(1) A judicial officer, a person acting under an order of a	121
court or an administrative agency, or an assignee for the benefit	122
of creditors;	123

(2) A financial institution or an affiliate or agency of a	124
financial institution if the affiliate or agent is subject to	125
examination by a federal or state banking regulatory authority;	126

(3) A title insurer, escrow company, or other person that	127
provides bill-paying services if the furnishing of debt settlement	128
services is incidental to the bill-paying services;	129

(4) An attorney licensed or otherwise authorized to practice	130
law in this state who furnishes debt settlement services directly	131
to a client as part of a lawyer-client relationship and does not	132
have a business relationship with a provider that is in any way	133
related to the furnishing of debt settlement services.	134

Sec. 4710.22.  A provider, prior to offering to furnish or	135
furnishing debt settlement services to a debtor who the provider	136
reasonably should know resides in this state at the time the debt	137
settlement services agreement is entered into, shall submit all of	138
the following to the department of commerce:	139

(A) Evidence that the provider has a resident agent in this	140
state recorded with the secretary of state;	141

(B) Proof of a bond in effect meeting the requirements of	142
section 4710.23 of the Revised Code;	143

(C) Proof that the provider is authorized by the laws of this	144
state to conduct business in this state.	145

Sec. 4710.23.  (A) A provider shall obtain and maintain in	146
effect at all times a corporate surety bond issued by a bonding	147
company or insurance company authorized to do business in this	148
state that meets all of the following conditions:	149

(1) The bond is in favor of the superintendent of financial	150
institutions.	151

(2) The bond is for the exclusive benefit of any debtor	152
located in this state, and of the state for the benefit of any	153
debtor, who is injured by a failure to comply with any provision	154
of sections 4710.20 to 4170.32 of the Revised Code.	155

(3) The bond is in the amount of fifty thousand dollars.

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(B) Any debtor claiming against the bond for a failure to	157
comply with any provision of sections 4710.20 to 4710.32 of the	158
Revised Code may maintain an action at law against the provider	159
and against the corporate surety. The aggregate liability of the	160
corporate surety for any and all breaches of the conditions of the	161
bond shall not exceed the penal sum of the bond.	162

(C) Whenever the penal sum of the bond is reduced by one or	163
more recoveries or payments, the provider shall furnish a new or	164
additional bond under this section, so that the total or aggregate	165
penal sum of the bond or bonds equals the sum required by this	166
section, or shall furnish an endorsement executed by the corporate	167
surety reinstating the bond to the required penal sum.	168

(D) The bond shall not be canceled by the provider or by the	169
corporate surety, except upon notice to the superintendent by	170
certified mail, return receipt requested. The cancellation shall	171
not be effective prior to thirty days after the superintendent	172
receives the notice.	173

Sec. 4710.24.  A provider shall do all of the following:

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(A) Act in good faith in all matters relating to the	175
furnishing of debt settlement services;	176

(B) Maintain a toll-free communication system, staffed at a	177
level that reasonably permits a debtor to speak to a customer	178
service representative, as appropriate, during ordinary business	179
hours;	180

(C) Provide all disclosures required by sections 4710.20 to	181
4710.32 of the Revised Code in English and in any other language	182
the provider will use primarily to communicate with a debtor.	183

Sec. 4710.25.  (A) Before a debtor consents to pay the fees	184
for the goods and services offered by the provider, the provider	185
shall disclose, in a clear and conspicuous manner, all of the	186
following material information:	187

(1) A good faith estimate of the amount of time necessary to	188
achieve the represented results and, to the extent that the debt	189
settlement services may include a settlement offer to any of the	190
debtor's creditors, a good faith estimate of the time by which the	191
provider will start to make bona fide settlement offers to the	192
debtor's creditors, and the cost to the debtor for furnishing the	193
debt settlement services;	194

(2) To the extent that the debt settlement services may	195
include a settlement offer to any of the debtor's creditors, a	196
good faith estimate of the amount of money, or the percentage of	197
each outstanding debt, that the debtor will be required to	198
accumulate before the provider makes a bona fide settlement offer;	199

(3) To the extent that any aspect of the debt settlement	200
services relies upon or results in the debtor's failure to make	201
timely payments to creditors, that the use of the debt settlement	202
services will likely adversely affect the debtor's	203
creditworthiness, may result in the debtor being subject to	204
collection actions or sued by creditors, may result in the	205
creation of taxable income to the debtor, and may increase the	206
amount of money the debtor owes due to the accrual of fees and	207
interest;	208

(4) To the extent that the provider requests or requires the	209
debtor to place funds in an account at a financial institution,	210
that the debtor owns the funds held in the account;	211

(5) That the debtor may withdraw from the debt settlement	212
services agreement at any time without penalty.	213

(B) A provider shall not misrepresent, directly or by	214
implication, any material aspect of the debt settlement services,	215
including, but not limited to, any of the following:	216

(1) The amount of money or the percentage of the debt amount	217
that a debtor may save by entering into the debt settlement	218
services agreement;	219

(2) The effect of debt settlement services on the debtor's	220
creditworthiness and on the collection efforts of the debtor's	221
creditors;	222

(3) The percentage or number of debtors who attain the	223
represented results;	224

(4) Whether debt settlement services are being offered or	225
furnished by a nonprofit entity.	226

(C) Prior to entering into a debt settlement services	227
agreement, a provider shall prepare a financial analysis with	228
respect to the income and debts of the debtor seeking the debt	229
settlement services and provide the debtor with a copy of the	230
financial analysis.	231

Sec. 4710.26.  A provider shall not impose fees or receive	232
payment for debt settlement services unless all of the following	233
conditions are met:	234

(A) The provider has renegotiated, settled, reduced, or	235
otherwise altered the terms of at least one debt under a debt	236
settlement program.	237

(B) The debtor has made at least one payment to a creditor in	238
furtherance of a settlement with that creditor;	239

(C) The fee for settling each individual debt enrolled in a	240
debt settlement program shall do either of the following:	241

(1) Bear the same proportional relationship to the total fees	242
for settling the entire debt balance as the individual debt amount	243
bears to the entire debt amount. For purposes of division (C)(1)	244
of this section, "individual debt amount" and "entire debt amount"	245
mean the amounts owed at the time the debt was enrolled in the	246
program.	247

(2) Represent a percentage of the amount saved as a result of	248
the settlement. The percentage charged shall not change from one	249
individual debt to another. For purposes of division (C)(2) of	250
this section, the "amount saved" means the difference between the	251
amount owed at the time the debt was enrolled in the program and	252
the amount actually paid to satisfy the debt.	253

Sec. 4710.27.  (A) A provider shall not hold a debtor's funds	254
intended for distribution to creditors.	255

(B) Nothing in this section prohibits a provider from	256
requesting or requiring the debtor to place funds in an account to	257
be used for payment of the provider's fees and for payments to	258
creditors in connection with a renegotiation, settlement,	259
reduction, or other alteration of the terms of payment or other	260
terms of debt, provided that all of the following conditions are	261
met:	262

(1) The funds are held in a specifically designated account	263
at a financial institution.	264

(2) The debtor owns and controls the funds held in the	265
account and is paid accrued interest on the account, if any.	266

(3) The entity administering the account is not owned or	267
controlled by, or an affiliate of, the provider.	268

(4) The entity administering the account does not give or	269
accept any money or other compensation in exchange for referrals	270
of business by the provider.	271

(5) The debtor may terminate the debt settlement services	272
agreement at any time without penalty, and must receive all funds	273
in the account, other than funds earned by the provider in	274
accordance with sections 4710.20 to 4710.32 of the Revised Code,	275
within seven business days after the debtor's request.	276

Sec. 4710.28.  If a provider enters into a debt settlement	277
services agreement without complying with sections 4710.20 to	278
4710.32 of the Revised Code, the debtor may void the agreement.	279

Sec. 4710.29.  (A) The superintendent of financial	280
institutions may investigate an alleged failure to comply with any	281
provision of sections 4710.20 to 4710.32 of the Revised Code or	282
any complaints concerning such a failure.	283

(B) As often as the superintendent considers it necessary,	284
the superintendent may investigate and examine, in or outside this	285
state, the activities and the books, accounts, papers, records,	286
and other documents of a provider or of any person to which a	287
provider has delegated its obligations under an agreement or under	288
sections 4710.20 to 4710.32 of the Revised Code. In connection	289
with the investigation, the superintendent may charge the provider	290
the reasonable expenses necessarily incurred to conduct the	291
examination.	292

(C) In conducting any investigation pursuant to this section,	293
the superintendent may compel, by subpoena, witnesses to testify	294
in relation to any matter over which the superintendent has	295
jurisdiction and may require the production of any book, account,	296
paper, record, or other document pertaining to that matter. If a	297
person fails to file any statement or report, obey any subpoena,	298
give testimony, produce any book, account, paper, record, or other	299
document as required by a subpoena, or permit photocopying of any	300
book, account, paper, record, or other document subpoenaed, the	301
court of common pleas of any county in this state, upon	302
application made to it by the superintendent, shall compel	303
obedience by attachment proceedings for contempt, as in the case	304
of disobedience of the requirements of a subpoena issued from the	305
court or a refusal to testify therein.	306

(D) Examination or investigation information that identifies	307
debtors who have debt settlement services agreements with a	308
provider shall not be disclosed to the public.	309

Sec. 4710.30.  If the superintendent of financial	310
institutions determines that a person is engaged in or is believed	311
to be engaged in activities that may constitute a failure to	312
comply with any provision of sections 4710.20 to 4710.32 of the	313
Revised Code, the superintendent, after notice and a hearing	314
conducted in accordance with Chapter 119. of the Revised Code, may	315
do any of the following:	316

(A) Issue a cease and desist order. Such an order shall be	317
enforceable in the court of common pleas.	318

(B) Seek and obtain civil penalties in an amount not to	319
exceed one thousand dollars for each failure to comply.	320

(C) Order the person to correct or remedy the conditions	321
resulting from the failure to comply, including by making	322
restitution. Such an order shall be enforceable in the court of	323
common pleas.	324

Sec. 4710.31.  Any material, nontechnical failure to comply	325
with any provision of sections 4710.20 to 4710.32 of the Revised	326
Code is deemed an unfair or deceptive act or practice in violation	327
of section 1345.02 of the Revised Code. A debtor injured by such a	328
failure has a cause of action and is entitled to the same relief	329
available to a consumer under section 1345.09 of the Revised Code.	330

Sec. 4710.32.  Sections 4710.20 to 4710.31 of the Revised	331
Code modify, limit, and supersede the federal "Electronic	332
Signatures in Global and National Commerce Act," 114 Stat. 464, 15	333
U.S.C. 7001 et seq., as amended, but do not modify, limit, or	334
supersede section 101(c) of that act or authorize electronic	335
delivery of any of the notices described in section 103(b) of that	336
act.	337

Section 2.  That existing sections 4710.01 and 4710.03 of the	338
Revised Code are hereby repealed.	339