As Passed by the House

130th General Assembly Regular Session 2013-2014

Sub. H. B. No. 173

Representatives Terhar, Mallory 

Cosponsors: Representatives Grossman, Brenner, Blair, Beck, Bishoff, Buchy, Butler, Hackett, Hagan, C., Retherford, Ruhl Speaker Batchelder 

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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

(c) The collection of debts by a debt collector as defined in	78
the federal "Fair Debt Collection Practices Act," 91 Stat. 875	79
(1977), 15 U.S.C. 1692a, as amended.	80

(H) "Financial institution" means any national bank, any bank	81
doing business under authority granted by the superintendent of	82
financial institutions or the regulatory authority of another	83
state, any federal savings association, any savings and loan	84
association or savings bank doing business under authority granted	85
by the superintendent or the regulatory authority of another	86
state, any trust company, or any credit union regulated by a state	87
or federal regulatory authority.	88

(I) "Good faith" means honesty in fact and the observance of	89
reasonable standards of fair dealing.	90

(J) "Person" means an individual, corporation, business	91
trust, estate, trust, partnership, limited liability company,	92
association, joint venture, or any other legal or commercial	93
entity. The term does not include a public corporation,	94
government, or governmental subdivision, agency, or	95
instrumentality.	96

(K) "Principal amount of the debt" means the amount of a debt	97
at the time of the execution of a debt settlement services	98
agreement.	99

(L) "Program" means a program or strategy in which a provider	100
furnishes debt settlement services.	101

(M) "Provider" means a person that furnishes, offers to	102
furnish, or agrees to furnish debt settlement services.	103

(N) "Record" means information that is inscribed on a	104
tangible medium or that is stored in an electronic or other medium	105
and is retrievable in a perceivable form.	106

(O) "State" means the state of Ohio, except when the context	107
indicates the term is referring to another state of the United	108
States, the District of Columbia, Puerto Rico, the United States	109
Virgin Islands, or any territory or insular possession subject to	110
the jurisdiction of the United States.	111

(P) "Superintendent of financial institutions" includes the	112
deputy superintendent for consumer finance as provided in section	113
1181.21 of the Revised Code.	114

Sec. 4710.21.  (A) A provider shall not furnish debt	115
settlement services to a debtor who the provider reasonably should	116
know resides in this state at the time the debt settlement	117
services agreement is entered into, except as provided in sections	118
4710.20 to 4710.32 of the Revised Code.	119

(B) Sections 4710.20 to 4710.32 of the Revised Code do not	120
apply to the following persons or their employees when the person	121
or the employee is engaged in the regular course of the person's	122
business or profession:	123

(1) A judicial officer, a person acting under an order of a	124
court or an administrative agency, or an assignee for the benefit	125
of creditors;	126

(2) A financial institution or an affiliate or agency of a	127
financial institution if the affiliate or agent is subject to	128
examination by a federal or state banking regulatory authority;	129

(3) A title insurer, escrow company, or other person that	130
provides bill-paying services if the furnishing of debt settlement	131
services is incidental to the bill-paying services;	132

(4) An attorney licensed or otherwise authorized to practice	133
law in this state who furnishes debt settlement services directly	134
to a client as part of a lawyer-client relationship and does not	135
have a business relationship with a provider that is in any way	136
related to the furnishing of debt settlement services;	137

(5) A registrant as defined in section 1321.51 of the Revised	138
Code.	139

Sec. 4710.22.  A provider, prior to offering to furnish or	140
furnishing debt settlement services to a debtor who the provider	141
reasonably should know resides in this state at the time the debt	142
settlement services agreement is entered into, shall submit all of	143
the following to the department of commerce:	144

(A) Evidence that the provider has a resident agent in this	145
state recorded with the secretary of state;	146

(B) Proof of a bond in effect meeting the requirements of	147
section 4710.23 of the Revised Code;	148

(C) Proof that the provider is authorized by the laws of this	149
state to conduct business in this state.	150

Sec. 4710.23.  (A) A provider shall obtain and maintain in	151
effect at all times a corporate surety bond issued by a bonding	152
company or insurance company authorized to do business in this	153
state that meets all of the following conditions:	154

(1) The bond is in favor of the superintendent of financial	155
institutions.	156

(2) The bond is for the exclusive benefit of any debtor	157
located in this state, and of the state for the benefit of any	158
debtor, who is injured by a failure to comply with any provision	159
of sections 4710.20 to 4170.32 of the Revised Code.	160

(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	162
comply with any provision of sections 4710.20 to 4710.32 of the	163
Revised Code may maintain an action at law against the provider	164
and against the corporate surety. The aggregate liability of the	165
corporate surety for any and all breaches of the conditions of the	166
bond shall not exceed the penal sum of the bond.	167

(C) Whenever the penal sum of the bond is reduced by one or	168
more recoveries or payments, the provider shall furnish a new or	169
additional bond under this section, so that the total or aggregate	170
penal sum of the bond or bonds equals the sum required by this	171
section, or shall furnish an endorsement executed by the corporate	172
surety reinstating the bond to the required penal sum.	173

(D) The bond shall not be canceled by the provider or by the	174
corporate surety, except upon notice to the superintendent by	175
certified mail, return receipt requested. The cancellation shall	176
not be effective prior to thirty days after the superintendent	177
receives the notice.	178

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	180
furnishing of debt settlement services;	181

(B) Maintain a toll-free communication system, staffed at a	182
level that reasonably permits a debtor to speak to a customer	183
service representative, as appropriate, during ordinary business	184
hours;	185

(C) Provide all disclosures required by sections 4710.20 to	186
4710.32 of the Revised Code in English and in any other language	187
the provider will use primarily to communicate with a debtor.	188

Sec. 4710.25.  (A) Before a debtor consents to pay the fees	189
for the goods and services offered by the provider, the provider	190
shall disclose, in a clear and conspicuous manner, all of the	191
following material information:	192

(1) A good faith estimate of the amount of time necessary to	193
achieve the represented results and, to the extent that the debt	194
settlement services may include a settlement offer to any of the	195
debtor's creditors, a good faith estimate of the time by which the	196
provider will start to make bona fide settlement offers to the	197
debtor's creditors, and the cost to the debtor for furnishing the	198
debt settlement services;	199

(2) To the extent that the debt settlement services may	200
include a settlement offer to any of the debtor's creditors, a	201
good faith estimate of the amount of money, or the percentage of	202
each outstanding debt, that the debtor will be required to	203
accumulate before the provider makes a bona fide settlement offer;	204

(3) To the extent that any aspect of the debt settlement	205
services relies upon or results in the debtor's failure to make	206
timely payments to creditors, that the use of the debt settlement	207
services will likely adversely affect the debtor's	208
creditworthiness, may result in the debtor being subject to	209
collection actions or sued by creditors, and may increase the	210
amount of money the debtor owes due to the accrual of fees and	211
interest;	212

(4) To the extent that the provider requests or requires the	213
debtor to place funds in an account at a financial institution,	214
that the debtor owns the funds held in the account;	215

(5) That the debtor may withdraw from the debt settlement	216
services agreement at any time without penalty;	217

(6) That the use of the debt settlement services may result	218
in the creation of taxable income to the debtor and, if any debt	219
is cancelled, that the debtor will receive from the creditor the	220
United States internal revenue service form 1099 necessary for the	221
debtor in filing federal taxes pursuant to the "Internal Revenue	222
Code of 1986," 100 Stat. 2085, 26 U.S.C. 1 et seq., as amended.	223

(B) A provider shall not misrepresent, directly or by	224
implication, any material aspect of the debt settlement services,	225
including, but not limited to, any of the following:	226

(1) The amount of money or the percentage of the debt amount	227
that a debtor may save by entering into the debt settlement	228
services agreement;	229

(2) The effect of debt settlement services on the debtor's	230
creditworthiness and on the collection efforts of the debtor's	231
creditors;	232

(3) The percentage or number of debtors who attain the	233
represented results;	234

(4) Whether debt settlement services are being offered or	235
furnished by a nonprofit entity.	236

(C) Prior to entering into a debt settlement services	237
agreement, a provider shall prepare a financial analysis with	238
respect to the income and debts of the debtor seeking the debt	239
settlement services and provide the debtor with a copy of the	240
financial analysis.	241

Sec. 4710.26.  A provider shall not impose fees or receive	242
payment for debt settlement services unless all of the following	243
conditions are met:	244

(A) The provider has renegotiated, settled, reduced, or	245
otherwise altered the terms of at least one debt under a debt	246
settlement program.	247

(B) The debtor has made at least one payment to a creditor in	248
furtherance of a settlement with that creditor;	249

(C) The fee for settling each individual debt enrolled in a	250
debt settlement program shall do either of the following:	251

(1) Bear the same proportional relationship to the total fees	252
for settling the entire debt balance as the individual debt amount	253
bears to the entire debt amount. For purposes of division (C)(1)	254
of this section, "individual debt amount" and "entire debt amount"	255
mean the amounts owed at the time the debt was enrolled in the	256
program.	257

(2) Represent a percentage of the amount saved as a result of	258
the settlement. The percentage charged shall not change from one	259
individual debt to another. For purposes of division (C)(2) of	260
this section, the "amount saved" means the difference between the	261
amount owed at the time the debt was enrolled in the program and	262
the amount actually paid to satisfy the debt.	263

Sec. 4710.27.  (A) A provider shall not hold a debtor's funds	264
intended for distribution to creditors.	265

(B) Nothing in this section prohibits a provider from	266
requesting or requiring the debtor to place funds in an account to	267
be used for payment of the provider's fees and for payments to	268
creditors in connection with a renegotiation, settlement,	269
reduction, or other alteration of the terms of payment or other	270
terms of debt, provided that all of the following conditions are	271
met:	272

(1) The funds are held in a specifically designated account	273
at a financial institution.	274

(2) The debtor owns and controls the funds held in the	275
account and is paid accrued interest on the account, if any.	276

(3) The entity administering the account is not owned or	277
controlled by, or an affiliate of, the provider.	278

(4) The entity administering the account does not give or	279
accept any money or other compensation in exchange for referrals	280
of business by the provider.	281

(5) The debtor may terminate the debt settlement services	282
agreement at any time without penalty, and must receive all funds	283
in the account, other than funds earned by the provider in	284
accordance with sections 4710.20 to 4710.32 of the Revised Code,	285
within seven business days after the debtor's request.	286

Sec. 4710.28.  If a provider enters into a debt settlement	287
services agreement without complying with sections 4710.20 to	288
4710.32 of the Revised Code, the debtor may void the agreement.	289

Sec. 4710.29.  (A) The superintendent of financial	290
institutions may investigate an alleged failure to comply with any	291
provision of sections 4710.20 to 4710.32 of the Revised Code or	292
any complaints concerning such a failure.	293

(B) As often as the superintendent considers it necessary,	294
the superintendent may investigate and examine, in or outside this	295
state, the activities and the books, accounts, papers, records,	296
and other documents of a provider or of any person to which a	297
provider has delegated its obligations under an agreement or under	298
sections 4710.20 to 4710.32 of the Revised Code. In connection	299
with the investigation, the superintendent may charge the provider	300
the reasonable expenses necessarily incurred to conduct the	301
examination.	302

(C) In conducting any investigation pursuant to this section,	303
the superintendent may compel, by subpoena, witnesses to testify	304
in relation to any matter over which the superintendent has	305
jurisdiction and may require the production of any book, account,	306
paper, record, or other document pertaining to that matter. If a	307
person fails to file any statement or report, obey any subpoena,	308
give testimony, produce any book, account, paper, record, or other	309
document as required by a subpoena, or permit photocopying of any	310
book, account, paper, record, or other document subpoenaed, the	311
court of common pleas of any county in this state, upon	312
application made to it by the superintendent, shall compel	313
obedience by attachment proceedings for contempt, as in the case	314
of disobedience of the requirements of a subpoena issued from the	315
court or a refusal to testify therein.	316

(D) Examination or investigation information that identifies	317
debtors who have debt settlement services agreements with a	318
provider shall not be disclosed to the public.	319

Sec. 4710.30.  If the superintendent of financial	320
institutions determines that a person is engaged in or is believed	321
to be engaged in activities that may constitute a failure to	322
comply with any provision of sections 4710.20 to 4710.32 of the	323
Revised Code, the superintendent, after notice and a hearing	324
conducted in accordance with Chapter 119. of the Revised Code, may	325
do any of the following:	326

(A) Issue a cease and desist order. Such an order shall be	327
enforceable in the court of common pleas.	328

(B) Seek and obtain civil penalties in an amount not to	329
exceed one thousand dollars for each failure to comply.	330

(C) Order the person to correct or remedy the conditions	331
resulting from the failure to comply, including by making	332
restitution. Such an order shall be enforceable in the court of	333
common pleas.	334

Sec. 4710.31.  Any violation of sections 4710.20 to 4710.32	335
of the Revised Code is deemed an unfair or deceptive act or	336
practice in violation of section 1345.02 of the Revised Code. A	337
debtor injured by such a violation has a cause of action and is	338
entitled to the same relief available to a consumer under section	339
1345.09 of the Revised Code, and all powers and remedies available	340
to the attorney general to enforce sections 1345.01 to 1345.13 of	341
the Revised Code are available to the attorney general to enforce	342
sections 4710.20 to 4710.32 of the Revised Code.	343

Sec. 4710.32.  Sections 4710.20 to 4710.31 of the Revised	344
Code modify, limit, and supersede the federal "Electronic	345
Signatures in Global and National Commerce Act," 114 Stat. 464, 15	346
U.S.C. 7001 et seq., as amended, but do not modify, limit, or	347
supersede section 101(c) of that act or authorize electronic	348
delivery of any of the notices described in section 103(b) of that	349
act.	350

Section 2.  That existing sections 4710.01 and 4710.03 of the	351
Revised Code are hereby repealed.	352