127th General Assembly
(As Reported by H. Financial Institutions, Real Estate, and Securities)
Reps. Blessing, Flowers, J. McGregor, Fessler, Webster
BILL SUMMARY
· Establishes a new set of regulations for debt settlement service providers, as distinguished from persons doing business in debt adjusting.
CONTENT AND OPERATION
Current Ohio law regulates the practice of debt adjusting, defined as:
doing business in debt adjusting, budget counseling, debt management, or debt pooling service, or holding oneself out, by words of similar import, as providing services to debtors in the management of their debts, to do either of the following: (1) To effect the adjustment, compromise, or discharge of any account, note, or other indebtedness of the debtor; (2) To receive from the debtor and disburse to the debtor's creditors any money or other thing of value. (R.C. 4710.01.)
Persons engaged in debt adjusting are required to maintain a separate trust account for each debtor, charge only fees authorized by statute, and disburse to the appropriate creditor all funds received from the debtor, less certain permissible fees or contributions, within 30 days. These persons annually must undergo an audit and must maintain certain required levels of insurance coverage for employee dishonesty (R.C. 4710.02 not in the bill). Certain violations of the Debt Adjusting Law are deemed to be unfair or deceptive acts in violation of the "Consumer Sales Practices Act" (CSPA) (R.C. 1345.02), as well as constituting a misdemeanor of the third degree (R.C. 4710.04 and 4710.99 not in the bill).
The practice of "debt settlement service" would likely fall under the current definition of debt adjusting, and therefore, debt settlement service providers would currently be subject to the regulations of Chapter 4710. of the Revised Code.
The bill distinguishes between "debt adjusting" and "debt settlement service," and establishes a distinct set of regulations for debt settlement service providers.
The principal distinction that the bill makes is that unlike debt adjusters, debt settlement providers do not receive and disburse any of a client's money.
"Debt settlement service" means the negotiation, adjustment, or settlement of a consumer's debt without holding, receiving, or disbursing the debtor's funds.
"Debt settlement provider" means any person engaging in or holding oneself out as engaging in the business of debt settlement for compensation that does not in the usual, customary and regular course of business hold, receive and disburse the debtor's funds in connection with debt settlement service, but shall not include any of the following:
(1) Attorneys, escrow agents, accountants, broker-dealers in securities, or investment advisors in securities, when acting in the ordinary practice of their professions;
(2) Any bank, trust company, savings and loan association, savings bank, credit union, crop credit association, development credit corporation, industrial development corporation, title insurance company, or insurance company, operating or organized under the laws of this state, another state, or the United States, or any person registered to make loans pursuant to sections 1321.51 to 1321.60 of the Revised Code;
(3) Persons who perform credit services for their employer while receiving a regular salary or wage of an employer not engaged in the business of debt settlement;
(4) Public officers while acting in their official capacities and persons acting under court order;
(5) Any person while performing services incidental to the dissolution, winding up, or liquidating of a partnership, corporation, or other business enterprise.
(R.C. 4710.01 and 4710.05)
The bill alters the current definition of "debt adjusting" to specifically not include "debt settlement service," as defined below, and establishes the following distinct regulations and requirements for debt settlement service providers.
|
Current Debt Adjusting Law (unchanged by the bill) |
H.B. 367 proposed debt settlement regulation |
Insurance coverage type |
Must maintain coverage for
employee dishonesty, depositor's forgery, and computer fraud, by an insurer
rated at least A- or its equivalent by a nationally recognized rating organization. |
Must maintain coverage for
dishonesty, fraud, theft, and other misconduct on the part of a director,
employee, or agent, by an insurer rated at least A- or its equivalent by a
nationally recognized rating organization. |
Minimum required insurance
coverage |
At least 10% of the
monthly average for the immediate preceding six months of the aggregate
amount of all deposits made with the person by all debtors, but not less than
$100,000. |
Not less than $100,000. |
Insurance coverage
deductible |
Not more than 10% of the
face amount of the policy coverage. |
Not more than $10,000. |
Audit requirements |
Must annually arrange for
and undergo an audit by an independent, third party, certified public
accountant of the persons' business, including any trust funds deposited and
distributed to creditors on behalf of debtors. Must file the audit results and auditor's opinion with the
consumer protection divisions of the Attorney General. |
Must maintain books and
records and file a financial statement annually with the consumer protection
divisions of the Attorney General.
The Attorney General may require an audit. |
Enforcement |
A person injured by a
violation of the Debt Adjusting Law has a cause of action and is entitled to
the same private remedies available to a consumer under the "Consumer
Sales Protection Act" (R.C. 1345.09).
Also, all powers and remedies available to the Attorney General under
the CSPA are also available to the Attorney General to enforce the Debt
Adjusting Law (R.C.
4710.04). |
The Attorney General or the
prosecuting attorney of any county may bring an action upon finding that any
person has violated the bill's provisions and a court may make any necessary
order or enter a judgment. The
Attorney General or prosecuting attorney may accept an assurance of discontinuance
of any method, act, or practice that is in violation of the bill's provisions
from any person alleged to be engaged in the unlawful act (R.C. 4710.05(E) and (F)). |
Prohibitions, permissible
fees and charges |
A debt adjusting service
provider, if charging or accepting fees or contributions, may not do any of
the following: |
A debt settlement provider
may not do any of the following: |
HISTORY
ACTION |
DATE |
|
|
Introduced |
10-25-07 |
Reported,
H. Financial Institutions, Real |
|
h0367-rh-127.doc/kl