82R17052 CLG-D
By: Eltife, et al. S.B. No. 141
(Anchia)
Substitute the following for S.B. No. 141: No.
A BILL TO BE ENTITLED
AN ACT
relating to debt management services and the regulation of debt
management services providers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 394.202, Finance Code, is amended by
adding Subdivisions (3-a), (9-a), and (11-a) and amending
Subdivisions (6) and (10) to read as follows:
(3-a) "Concession" means assent to repayment of a debt
on terms more favorable to a consumer than the terms of the
agreement under which the consumer became indebted to the creditor.
(6) "Debt management service" means a service in which
a provider obtains or seeks to obtain a concession from one or more
creditors on behalf of a consumer[:
[(A) the receiving of money from a consumer for
the purpose of distributing that money to or among one or more of
the creditors of the consumer in full or partial payment of the
consumer's obligations;
[(B) arranging or assisting a consumer to arrange
for the distribution of one or more payments to or among one or more
creditors of the consumer in full or partial payment of the
consumer's obligations; or
[(C) exercising control, directly or indirectly,
or arranging for the exercise of control over funds of a consumer
for the purpose of distributing payments to or among one or more
creditors of the consumer in full or partial payment of the
consumer's obligations].
(9-a) "Principal amount of the debt" means the amount
of a debt owed by a consumer at the time the consumer enters into a
debt management service agreement.
(10) "Provider" means a person that acts as an
intermediary between a consumer and one or more creditors and that
provides or offers to provide [to a consumer in this state] a debt
management service to a consumer in this state.
(11-a) "Settlement fee" means a charge that is imposed
on or paid by a consumer in connection with a debt management
service agreement after a creditor agrees to accept in full
satisfaction of a debt an amount that is less than the principal
amount of the debt.
SECTION 2. Section 394.204(k), Finance Code, is amended to
read as follows:
(k) In addition to the power to refuse an initial
application as specified in this section, the commissioner may
suspend or revoke a provider's registration after notice and
hearing if the commissioner finds that any of the following
conditions are met:
(1) a fact or condition exists that if it had existed
when the provider applied for registration would have been grounds
for denying registration;
(2) a fact or condition exists that the commissioner
was not aware of when the provider applied for registration and
would have been grounds for denying registration;
(3) the provider violates this subchapter or rule or
order of the commissioner under this subchapter;
(4) the provider is insolvent;
(5) the provider refuses to permit the commissioner to
make an examination authorized by this subchapter;
(6) the provider fails to respond within a reasonable
time and in an appropriate manner to communications from the
commissioner;
(7) the provider has received money from or on behalf
of a consumer for disbursement to a creditor under a debt management
plan that provides for regular periodic payments to creditors in
full repayment of the principal amount of the debts and the provider
has failed to disburse money to the creditor [creditors] on behalf
of the consumer [consumers] within a reasonable time, normally 30
days;
(8) the commissioner determines that the provider's
trust account is not materially in balance with and reconciled to
the consumer's account; or
(9) the provider fails to warrant the belief that the
business will be operated lawfully and fairly and within the
provisions and purposes of this subchapter.
SECTION 3. Section 394.206(b), Finance Code, is amended to
read as follows:
(b) The bond or insurance must:
(1) run concurrently with the period of registration;
(2) be available to pay damages and penalties to
consumers directly harmed by a violation of this subchapter;
(3) be in favor of this state for the use of this state
and the use of a person who has a cause of action under this
subchapter against the provider;
(4) if a bond:
(A) be in an amount equal to the average daily
balance of the provider's trust account serving Texas consumers
over the six-month period preceding the issuance of the bond, or in
the case of an initial application, in an amount determined by the
commissioner, but not less than $25,000 or more than $100,000, if
the provider receives and holds money paid by or on behalf of a
consumer for disbursement to the consumer's creditors; or
(B) be in the amount of $50,000, if the provider
does not receive and hold money paid by or on behalf of a consumer
for disbursement to the consumer's creditors;
(5) if an insurance policy:
(A) provide coverage for professional liability,
employee dishonesty, depositor's forgery, and computer fraud in an
amount not less than $100,000;
(B) be issued by a company rated at least "A-" or
its equivalent by a nationally recognized rating organization; and
(C) provide for 30 days advance written notice of
termination of the policy to be provided to the commissioner;
(6) be issued by a bonding, surety, or insurance
company that is authorized to do business in the state; and
(7) be conditioned on the provider and its agents
complying with all state and federal laws, including regulations,
governing the business of debt management services.
SECTION 4. Sections 394.208(a), (d), and (f), Finance Code,
are amended to read as follows:
(a) A provider may not enroll a consumer in a debt
management plan unless, through the services of a counselor
certified by an independent accreditation organization, the
provider [has]:
(1) has provided the consumer individualized
counseling and educational information that at a minimum addresses
the topics of managing household finances, managing credit and
debt, and budgeting;
(2) has prepared an individualized financial analysis
and an initial debt management plan for the consumer's debts with
specific recommendations regarding actions the consumer should
take;
(3) has determined that the consumer has a reasonable
ability to make payments under the proposed debt management plan
based on the information provided by the consumer;
(4) if the proposed debt management plan does not
provide for a reduction of principal as a concession:
(A) has a reasonable expectation, provided that
the consumer has provided accurate information to the provider,
that each creditor of the consumer listed as a participating
creditor in the plan will accept payment of the consumer's debts as
provided in the initial plan; and
(B) has [(5)] prepared, for all creditors
identified by the consumer or identified through additional
investigation by the provider, a list, which must be provided to the
consumer in a form the consumer may keep, of the creditors that the
provider reasonably expects to participate in the plan; and
(5) has [(6)] provided a written document to the
consumer in a form the consumer may keep that clearly and
conspicuously contains the following statements:
(A) that debt management services are not
suitable for all consumers and that consumers may request
information about other ways, including bankruptcy, to deal with
indebtedness;
(B) that if the provider is a nonprofit or
tax-exempt organization the provider cannot require donations or
contributions; and
(C) if applicable, that some of the provider's
funding comes from contributions from creditors who participate in
debt management plans, except that a provider may substitute for
"some" the actual percentage of creditor contributions it received
during the most recent reporting period.
(d) A provider may provide the information required by
Subsections (a)(2), (4)(B), and (5)[, and (6)] through its Internet
website if the provider:
(1) has complied with the federal Electronic
Signatures in Global and National Commerce Act (15 U.S.C. Section
7001 et seq.);
(2) informs the consumer that, on electronic,
telephonic, or written request the provider will make available to
the consumer a paper copy or copies; and
(3) discloses on its Internet website:
(A) the provider's name and each name under which
it does business;
(B) the provider's principal business address
and telephone number; and
(C) the names of the provider's principal
officers.
(f) A provider who receives and disburses money to creditors
on behalf of consumers for debt management services shall provide
each consumer to [for] whom those services were provided [it
provides debt management services] a written report accounting for:
(1) the amount of money received from the consumer
since the last report;
(2) the amount and date of each disbursement made on
the consumer's behalf to each creditor listed in the agreement
since the last report;
(3) any amount deducted from amounts received from the
consumer; and
(4) any amount held in reserve.
SECTION 5. Section 394.209(b), Finance Code, is amended to
read as follows:
(b) Each debt management services agreement must:
(1) be dated and signed by the consumer;
(2) include the name and address of the consumer and
the name, address, and telephone number of the provider;
(3) describe the services to be provided;
(4) state all fees, individually itemized, to be paid
by the consumer;
(5) if the proposed debt management plan does not
provide for a reduction of principal as a concession, list in the
agreement or accompanying document, to the extent the information
is available to the provider at the time the agreement is executed,
each participating creditor of the consumer to which payments will
be made and, based on information provided by the consumer, the
amount owed to each creditor and the schedule of payments the
consumer will be required to make to the creditor, including the
amount and date on which each payment will be due;
(6) state the existence of a surety bond or insurance
for consumer claims;
(7) state that establishment of a debt management plan
may impact the consumer's credit rating and credit score either
favorably or unfavorably, depending on creditor policies and the
consumer's payment history before and during participation in the
debt management plan; and
(8) state that either party may cancel the agreement
without penalty at any time on 10 days' notice and that a consumer
who cancels an agreement is entitled to a refund of all money that
the consumer has paid to the provider that has not been disbursed.
SECTION 6. Subchapter C, Chapter 394, Finance Code, is
amended by adding Section 394.2095 to read as follows:
Sec. 394.2095. CANCELLATION OF AGREEMENT BY EITHER PROVIDER
OR CONSUMER. If a provider or a consumer cancels a debt management
service agreement, the provider shall immediately return to the
consumer:
(1) any money of the consumer held in trust by the
provider for the consumer's benefit; and
(2) 65 percent of any portion of the account set-up fee
received under Section 394.210(g)(1) that has not been credited
against settlement fees.
SECTION 7. Section 394.210, Finance Code, is amended by
amending Subsections (c) through (f) and adding Subsections (g)
through (n) to read as follows:
(c) A provider may not impose fees or other charges on a
consumer or receive payment for debt management services until the
consumer has entered into a debt management service agreement with
the provider that complies with Section 394.209.
(d) If a consumer enters into a debt management service
agreement with a provider, the provider may not impose a fee or
other charge for debt counseling, education services, or similar
services except as otherwise authorized by this section. The
commissioner may authorize a provider to charge a fee based on the
nature and extent of the counseling, education services, or other
similar services furnished by the provider.
(e) Subsections (f)-(j) apply subject to an adjustment made
under Section 394.2101.
(f) If a consumer is enrolled in a debt management plan that
provides for a reduction of finance charges or fees for late
payment, default, or delinquency as a concession from creditors,
the provider may charge:
(1) a fee not to exceed $100 for debt consultation or
education services, including obtaining a credit report, setting up
an account, and other similar services; and
(2) a monthly service fee, not to exceed the lesser of:
(A) $10 multiplied by the number of accounts
remaining in the plan on the day of the month the fee is assessed; or
(B) $50.
(g) If a consumer is enrolled in a debt management plan that
provides for settlement of debts for amounts that are less than the
principal amounts of the debts as a concession from creditors, the
provider may charge:
(1) a fee for debt consultation or education services,
including obtaining a credit report, setting up an account, and
other similar services, in an amount not to exceed the lesser of
$400 or four percent of the total amount of the outstanding debt
included in the plan at the time the plan is established; and
(2) a monthly service fee, not to exceed the lesser of:
(A) $10 multiplied by the number of accounts
remaining in the plan on the day of the month the fee is assessed; or
(B) $50; and
(3) one of the following:
(A) with respect to a debt management service
agreement in which a flat fee is charged based on the total amount
of debt that is included in a debt management plan, the total
aggregate amount of fees charged to a consumer under this
subchapter, including fees charged under Subdivisions (1) and (2),
may not exceed 17 percent of the total principal amount of debt
included in the debt management plan; or
(B) with respect to a debt management service
agreement in which fees are computed as a percentage of the amount
saved by a consumer as a result of a concession, in addition to fees
charged under Subdivisions (1) and (2), a settlement fee may not
exceed 30 percent of the excess of the outstanding amount of each
debt over the amount actually paid to the creditor, as computed at
the time of settlement.
(h) Settlement fees authorized under Subsection (g) may be
charged only as debts are settled, and the total aggregate amount of
fees charged to a consumer under this subchapter, including fees
charged under Subsections (g)(1) and (2), may not exceed 20 percent
of the principal amount of debt included in the debt management
plan.
(i) The flat fee authorized under this subchapter shall be
assessed in equal monthly payments for a period that is at least as
long as the term of the debt management plan, as estimated when the
debt management plan is established, unless:
(1) the fee payment period is voluntarily accelerated
by the consumer in an addendum to the agreement or other separate
agreement; and
(2) offers of settlement by creditors have been
obtained on at least half of the outstanding debt included in the
debt management plan.
(j) If a consumer is enrolled in a debt management plan that
provides for the settlement of debts for amounts that are less than
the principal amount of the debts as a concession from creditors, if
fees for debt management services will not be charged or collected
until the time a settlement agreement is reached with a creditor,
and if at least one payment has been made toward the settlement
agreement by or on behalf of the consumer, the fee limitations in
Subsection (g) do not apply and the provider may charge reasonable
settlement fees. The fee with respect to each debt included in the
plan must:
(1) bear the same proportional relationship to the
total fee for settling all debts included in the debt management
plan as the principal amount of the particular debt bears to the
total principal amount of the debt included in the plan; or
(2) be a percentage of the amount saved as a result of
the settlement, determined as the difference between the principal
amount of a debt and the amount actually paid to satisfy the debt.
The percentage charged cannot change from one debt to another.
(k) A provider may impose fees or other charges or receive
fees or payment under only one of Subsection (f), (g), or (j).
(l) If a consumer does not enter into a debt management
service agreement with a provider, the provider may receive payment
for debt counseling or education services provided to the consumer
in an amount not to exceed $100 or a greater amount, on approval of
the commissioner. The commissioner may approve a fee in an amount
greater than $100 if the nature and extent of the educational and
counseling services warrant the greater amount.
(m) If, before the expiration of the 90th day after the date
debt counseling or education services are completed or canceled, a
consumer enters into a debt management service agreement with a
provider, the provider shall refund to the consumer any payments
received under Subsection (l).
(n) Subject to an adjustment made under Section 394.2101, if
any payment made by a consumer to a provider under this subchapter
is dishonored, the provider may impose a reasonable charge on the
consumer not to exceed the lesser of $25 or an amount permitted by a
law other than this chapter [Any fee charged by a provider must be
fair and reasonable given the value of the products and services
provided to the consumer, including consideration of the amount
subject to debt management and the number of anticipated
payments. A fee or a portion of a fee that is specifically related
to a debt management plan may not be charged until the provider has
complied with Sections 394.208(a) and (b) and 394.209.
[(d) A provider may charge a monthly maintenance fee if the
fee is fair and reasonable.
[(e) A fee charged for a service other than a debt
management service must be fair and reasonable.
[(f) The finance commission may establish maximum fair and
reasonable fees under this section].
SECTION 8. Subchapter C, Chapter 394, Finance Code, is
amended by adding Section 394.2101 to read as follows:
Sec. 394.2101. ADJUSTMENT OF AMOUNTS OF FEES OR OTHER
CHARGES. (a) The commissioner shall compute and publish the
dollar amounts of fees or other charges in amounts different from
the amounts of fees or other charges specified in Section 394.210 to
reflect inflation, as measured by the Consumer Price Index for All
Urban Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor or, if that index is not
available, another index adopted by finance commission rule. The
commissioner shall adopt a base year and adjust the dollar amounts,
effective on July 1 of each year, if the change in the index from the
base year, as of December 31 of the preceding year, is at least 10
percent. The dollar amounts must be rounded to the nearest $100,
except that the amounts of the fees and other charges specified in
Section 394.210 must be rounded to the nearest dollar.
(b) The commissioner shall notify registered providers of
any change in dollar amounts made under Subsection (a) and make that
information available to the public.
SECTION 9. Section 394.211(a), Finance Code, is amended to
read as follows:
(a) A provider must use a trust account for the management
of all money paid by or on behalf of a consumer and received by the
provider for disbursement to the consumer's creditor. A provider
may not commingle the money in a trust account established for the
benefit of consumers with any operating funds of the provider. A
provider shall exercise due care to appropriately manage the funds
in the trust account.
SECTION 10. Section 394.213, Finance Code, is amended to
read as follows:
Sec. 394.213. DUTIES OF PROPER MANAGEMENT. A provider has a
duty to a consumer who receives debt management services from the
provider to ensure that client money held by the provider is managed
properly at all times.
SECTION 11. This Act takes effect September 1, 2011.