AB218: Bill Text

2007 - 2008 LEGISLATURE

2007 Assembly BILL 218

March 27, 2007 - Introduced by Joint Legislative Council. Referred to Committee on Financial Institutions.

AB218,1,5 An Act to renumber 218.02 (9) and 218.02 (10); to amend chapter 218 (title), 220.02 (2) (b), 220.02 (3) and 422.501 (2) (b) 4.; and to repeal and recreate subchapter II (title) of chapter 218 [precedes 218.02], 218.02 (title) and 218.02 (1) to (8) of the statutes; relating to: adopting the Uniform Debt-Management Services Act, granting rule-making authority, and providing a penalty.

Analysis by the Legislative Reference Bureau

This bill regulates persons who provide certain debt-management services. Under current law, the Division of Banking (division) of the Department of Financial Institutions regulates persons engaged in the business of prorating the income of a debtor to a debtor's creditors or assuming a debtor's obligations by purchasing the accounts of the debtor. Such a person must obtain a license as an adjustment service company from the division. The bill repeals this licensure requirement and adopts instead the Uniform Debt-Management Services Act, which was approved by the National Conference of Commissioners on Uniform State Laws in 2005.

Under the bill, with certain exceptions, a person may not provide debt-management services to a resident of this state unless the person obtains a license from the division. "Debt-management services" is defined as services as an intermediary between an individual and one or more of the individual's creditors for the purpose of obtaining "concessions," which is defined as assents to repayment of debt on terms that are favorable to the individual.

A person is exempt from the licensure requirement if the person receives no compensation for providing debt-management services, but this exemption does not apply if the services are provided without charge for the purpose of evading the bill's requirements. Also exempt is a person who provides debt-management services to an individual whom the person has no reason to believe resides in this state at the time the person agrees to provide the services. In addition, the bill exempts all of the following persons:

1. Agents and employees of a person who is licensed under the bill.

2. Judicial officers and persons acting under court or administrative orders.

3. Assignees for the benefit of creditors.

4. Financial institutions and certain of their affiliates.

5. Title insurers, escrow companies, and other persons whose provision of debt-management services is incidental to their provision of bill-paying services.

6. Attorneys and certified public accountants whose provision of debt-management services is incidental to their provision of legal or accounting services.

The bill requires an applicant for a license to pay a license fee and do all of the following:

1. Provide evidence that the applicant has insurance of $250,000 against risks of dishonesty, fraud, theft, and other misconduct on the part of directors, employees, and agents.

2. If the applicant is a nonprofit or tax-exempt entity, provide evidence of such status.

3. If the applicant is an out-of-state corporation or limited liability company, provide a certificate of good standing issued by the other state.

4. Provide specified business, financial, employee, and accreditation information.

5. Provide evidence that the applicant's counselors obtain certification as counselors within 12 months of employment.

6. Describe criminal convictions and certain governmental and other actions, charges, suits, or claims regarding the applicant.

7. Submit the results of criminal background checks on the applicant's officers.

8. Describe the applicant's educational programs, financial analyses, and initial budget plans for individuals whom the applicant counsels.

9. Provide copies of the agreements for providing debt-management services that the applicant will use in this state.

10. Provide the applicant's fee schedule.

In addition, an applicant must file a surety bond for the purpose of protecting individuals for whom the applicant agrees to provide debt-management services. Also, if the applicant intends to maintain trust accounts for paying creditors on behalf of individuals to whom the applicant provides debt-management services, the applicant must submit the results of criminal background checks on all employees and agents who will have access to the trust accounts.

The division must issue a license to an applicant, unless any of the following apply: 1) the application is incomplete or contains erroneous information; 2) an officer, director, or owner of the applicant has defaulted in the payment of money collected for others or has been convicted of a crime, or suffered a civil judgment, involving dishonesty or the violation of federal or state securities laws; or 3) the division makes a specified finding regarding the applicant's inability to operate its business in compliance with the bill's requirements. In addition, if the applicant is a nonprofit or tax-exempt entity, the division must deny the application if the applicant's board of directors is not independent of its employees and agents. The bill includes tests for the division to determine independence. The bill also requires the division to deny a license if the applicant is liable for delinquent taxes or is delinquent in making court-ordered child or family support payments.

If a person is licensed under the bill, the bill imposes various requirements on the person's provision of debt-management services, including the following: 1) the person must act in good faith; 2) the person must maintain a toll-free customer service communication system; and 3) before providing services to an individual, the person must provide the individual with an itemized list of goods, services, and charges; educate the individual about personal finance management; and prepare a financial analysis. Additional requirements apply if the person prepares a plan for an individual to make payments to creditors. The bill also imposes requirements on agreements for licensed persons to provide debt-management services to individuals, including requirements for terminating such agreements. In addition, the bill does the following: 1) imposes trust requirements on money held by licensed persons for payment to creditors; 2) establishes limits on the fees that licensed persons may charge; 3) specifies records that licensed persons must maintain; and 4) prohibits licensed persons from engaging in specified conduct.

The bill creates other requirements, including the following:

1. The bill imposes deadlines on the division's consideration of an application for a license.

2. The bill requires licensed persons to renew their licenses annually.

3. The bill allows a person licensed or registered in another state to apply for a license in this state by submitting the other state's application and license or registration.

4. The bill allows the division to suspend or revoke a license if a person is insolvent, violates the bill's requirements, or is liable for delinquent taxes or is delinquent in making court-ordered child or family support payments.

5. The bill allows the division to investigate and enforce the bill's requirements, including by ordering persons to take corrective action or by obtaining civil forfeitures.

6. The bill allows an individual to void a debt-management service agreement with a licensed person who violates the bill's requirements and allows an individual who is harmed by a licensed person's violation of the bill's requirements to bring a civil action against the licensed person.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB218, s. 1 Section 1. Chapter 218 (title) of the statutes is amended to read:

AB218,4,2 Chapter 218

AB218,4,3 Finance companies, auto dealers,

AB218,4,4 adjustment companies

AB218,4,5 debt-management service providers,

AB218,4,6 and collection agencies

AB218, s. 2 Section 2. Subchapter II (title) of chapter 218 [precedes 218.02] of the statutes is repealed and recreated to read:

AB218,4,9 Chapter 218

AB218,4,10 Subchapter II

AB218,4,11 Uniform debt-management

AB218,4,12 services Act

AB218, s. 3 Section 3. 218.02 (title) of the statutes is repealed and recreated to read:

AB218,4,14 218.02 (title) Uniform debt-management services act.

AB218, s. 4 Section 4. 218.02 (1) to (8) of the statutes are repealed and recreated to read:

AB218,4,17 218.02 (1) Short title. This section may be cited as the "Uniform Debt-Management Services Act."

AB218,4,18 (2) Definitions. In this section:

AB218,4,19 (a) 1. "Affiliate," with respect to an individual, means any of the following:

AB218,4,20 a. The spouse of the individual.

AB218,4,21 b. A sibling of the individual or the spouse of a sibling.

AB218,4,23 c. An individual or the spouse of an individual who is a lineal ancestor or lineal descendant of the individual or the individual's spouse.

AB218,5,3 d. An aunt, uncle, great aunt, great uncle, first cousin, niece, nephew, grandniece, or grandnephew, whether related by the whole or the half blood or adoption, or the spouse of any of them.

AB218,5,4 e. Any other individual occupying the residence of the individual.

AB218,5,5 2. "Affiliate," with respect to an entity, means any of the following:

AB218,5,7 a. A person that directly or indirectly controls, is controlled by, or is under common control with the entity.

AB218,5,9 b. An officer of, or an individual performing similar functions with respect to, the entity.

AB218,5,11 c. A director of, or an individual performing similar functions with respect to, the entity.

AB218,5,16 d. Subject to adjustment of the dollar amount pursuant to sub. (31) (f), a person that receives or received more than $25,000 from the entity in either the current year or the preceding year or a person that owns more than 10 percent of, or an individual who is employed by or is a director of, a person that receives or received more than $25,000 from the entity in either the current year or the preceding year.

AB218,5,18 e. An officer or director of, or an individual performing similar functions with respect to, a person described in subd. 2. a.

AB218,5,20 f. The spouse of, or an individual occupying the residence of, an individual described in subd. 2. a. to e.

AB218,5,22 g. An individual who has the relationship specified in subd. 1. d. to an individual or the spouse of an individual described in subd. 2. a. to e.

AB218,5,24 (b) "Agreement" means an agreement between a provider and an individual for the performance of debt-management services.

AB218,6,2 (c) "Business address" means the physical location of a business, including the name and number of a street.

AB218,6,6 (d) "Certified counselor" means an individual certified by a training program or certifying organization, approved by the division, that authenticates the competence of individuals providing education and assistance to other individuals in connection with debt-management services.

AB218,6,8 (e) "Concessions" means 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.

AB218,6,9 (f) "Day" means calendar day.

AB218,6,12 (g) "Debt-management services" means services as an intermediary between an individual and one or more creditors of the individual for the purpose of obtaining concessions.

AB218,6,13 (h) "Division" means the division of banking.

AB218,6,14 (i) "Entity" means a person other than an individual.

AB218,6,18 (j) "Financial institution" means a financial institution, including a commercial bank, savings bank, savings and loan association, credit union, and trust company, engaged in the business of banking, chartered under federal or state law, and regulated by a federal or state banking regulatory authority.

AB218,6,20 (k) "Good faith" means honesty in fact and the observance of reasonable standards of fair dealing.

AB218,6,24 (L) "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, government, or governmental subdivision, agency, or instrumentality.

AB218,7,4 (m) "Plan" means a program or strategy in which a provider furnishes debt management services to an individual and which includes a schedule of payments to be made by or on behalf of the individual and used to pay debts owed by the individual.

AB218,7,6 (n) "Principal amount of the debt" means the amount of a debt at the time of an agreement.

AB218,7,8 (o) "Provider" means a person that provides, offers to provide, or agrees to provide debt-management services directly or through others.

AB218,7,10 (p) "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.