AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Due to federal bankruptcy reform legislation passed in 2005, as well as the current economic downturn, a more uniform approach to the regulation of all providers of debt management services is timely. There is a need for consistency in the regulation of all providers of debt management services to provide protection for consumers. Senate Bill 141 encompass debt settlement services under the term "debt management service," which would bring debt settlement companies under the regulatory authority of CCC.
Senate Bill 141 is modeled after the Uniform Debt-Management Services Act, as developed by the National Conference of Commissioners on Uniform State Laws.
As proposed, S.B. 141 amends current law relating to the regulation of debt management services providers and provides a penalty.
RULEMAKING AUTHORITY
Rulemaking authority previously granted to the Finance Commission of Texas is rescinded in SECTION 2 (Sections 394.204, 394.506, and 394.214, Finance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 394, Finance Code, by adding Subchapter D, as follows:
SUBCHAPTER D. UNIFORM DEBT MANAGEMENT SERVICES ACT
Sec. 394.301. SHORT TITLE. Authorizes that this subchapter be cited as the Uniform Debt Management Services Act.
Sec. 394.302. DEFINITIONS. Defines, in this subchapter, "administrator," "affiliate," "agreement," "bank," "business address," "certified counselor," "certified debt specialist," "concessions," "day," "debt management services," "entity," "good faith," "person," "plan," "principal amount of the debt," "provider," "record," "settlement fee," "sign," "state," and "trust account."
Sec. 394.303. APPLICABILITY. (a) Provides that this subchapter does not apply to an agreement with an individual who the provider has no reason to know resides in this state at the time of the agreement.
(b) Provides that this subchapter does not apply to a provider to the extent that the provider:
(1) provides or agrees to provide debt management, educational, or counseling services to an individual who the provider has no reason to know resides in this state at the time the provider agrees to provide the services; or
(2) receives no compensation for debt management services from or on behalf of the individuals to whom it provides the services or from their creditors.
(c) Provides that this subchapter does not apply to certain persons or entities or their employees when the person, entity, or the employee is engaged in the regular course of the person's or entity's business or profession.
Sec. 394.304. REGISTRATION REQUIRED. (a) Prohibits a provider, except as otherwise provided in Subsection (b), from providing debt management services to an individual who it reasonably should know resides in this state at the time it agrees to provide the services, unless the provider is registered under this subchapter.
(b) Provides that if a provider is registered under this subchapter, Subsection (a) does not apply to an employee or agent of the provider.
(c) Requires the administrator (consumer credit commissioner) to maintain and publicize a list of the names of all registered providers.
Sec. 394.305. APPLICATION FOR REGISTRATION: FORM, FEE, AND ACCOMPANYING DOCUMENTS. (a) Requires that an application for registration as a provider be in a form prescribed by the administrator.
(b) Requires that an application for an initial registration, subject to adjustment of dollar amounts pursuant to Section 394.332(f), be accompanied by:
(1) the appropriate fees set by the Finance Commission of Texas (commission) in an amount necessary to recover the costs of administering this subchapter;
(2) the bond required by Section 394.313;
(3) identification of all trust accounts required by Section 394.322 and an irrevocable consent authorizing the administrator to review and examine the trust accounts;
(4) evidence of insurance in the amount of $250,000:
(A) against the risks of dishonesty, fraud, theft, and other misconduct on the part of the applicant or a director, employee, or agent of the applicant;
(B) issued by an insurance company authorized to do business in this state and rated at least A or equivalent by a nationally recognized rating organization approved by the administrator;
(C) with a deductible not exceeding $5,000;
(D) payable for the benefit of the applicant, this state, and individuals who are residents of this state, as their interests may appear; and
(E) not subject to cancellation by the applicant or the insurer until 60 days' notice after written notice has been given to the administrator; and
(5) a certificate of authority to do business in this state, if applicable.
Sec. 394.306. APPLICATION FOR REGISTRATION: REQUIRED INFORMATION. (a) Requires an application for registration to be signed under oath and include:
(1) the applicant's name, principal business address and telephone number, and all other business addresses in this state, electronic mail addresses, and Internet website addresses;
(2) all names under which the applicant conducts business;
(3) the address of each location in this state at which the applicant will provide debt management services or a statement that the applicant will have no such location;
(4) the name and home address of each officer and director of the applicant and each person that owns at least 10 percent of the applicant;
(5) identification of every jurisdiction in which, during the five years immediately preceding the application:
(A) the applicant or any of its officers or directors has been licensed or registered to provide debt management services; or
(B) individuals have resided when they received debt management services from the applicant;
(6) a statement describing, to the extent it is known or should be known by the applicant, any material civil or criminal judgment or litigation and any material administrative or enforcement action by a governmental agency in any jurisdiction against the applicant, any of its officers, directors, owners, or agents, or any person who is authorized to have access to the trust account required by Section 394.322;
(7) subject to Subsection (b), the applicant's financial statements, reviewed by an independent accountant licensed to practice accounting under Chapter 901 (Accounts), Occupations Code, or licensed in the state of the applicant's principal place of business, for each of the two years immediately preceding the application or, if it has not been in operation for the two years preceding the application, for the period of its existence;
(8) evidence of accreditation by an independent accrediting organization approved by the administrator;
(9) evidence that, within 12 months after initial employment, each of the applicant's counselors becomes certified as a certified counselor or certified debt specialist;
(10) a description of the three most commonly used educational programs that the applicant provides or intends to provide to individuals who reside in this state and a copy of any materials used or to be used in those programs;
(11) a description of the applicant's financial analysis and initial budget plan, including any form or electronic model, used to evaluate the financial condition of individuals;
(12) a copy of each form of agreement that the applicant will use with individuals who reside in this state;
(13) the schedule of fees and charges that the applicant will use with individuals who reside in this state;
(14) at the applicant's expense, the results of a criminal records check, including fingerprints, conducted within the immediately preceding 12 months, covering every officer of the applicant and every employee or agent of the applicant who is authorized to have access to the trust account required by Section 394.322;
(15) the names and addresses of all employers of each director during the 10 years immediately preceding the application;
(16) a description of any ownership interest of at least 10 percent by a director, owner, or employee of the applicant in:
(A) any affiliate of the applicant; or
(B) any entity that provides products or services to the applicant or any individual relating to the applicant's debt management services;
(17) if the applicant claims nonprofit or tax-exempt status, or if the applicant's business practices involve holding, accessing, or directing the funds of an individual, a statement of the amount of compensation of the applicant's five most highly compensated employees for each of the three years immediately preceding the application or, if it has not been in operation for the three years preceding the application, for the period of its existence;
(18) the identity of each director who is an affiliate, as defined in Section 394.302(2)(A) or (B)(i), (ii), (iv), (v), (vi), or (vii), of the applicant; and
(19) any other information that the administrator reasonably requires.
Sec. 394.307. APPLICATION FOR REGISTRATION: OBLIGATION TO UPDATE INFORMATION. Requires an applicant or registered provider to notify the administrator within 10 days after a change in the information specified in Section 394.305(b)(4) or Section 394.306(a)(1), (3), (6), (12), or (13).
Sec. 394.308. APPLICATION FOR REGISTRATION: PUBLIC INFORMATION. Requires the administrator, except for the information required by Sections 394.306(a)(7), (14), and (17) and the addresses required by Section 394.306(a)(4), to make the information in an application for registration as a provider available to the public.
Sec. 394.309. CERTIFICATE OF REGISTRATION: ISSUANCE OR DENIAL. (a) Requires the administrator, except as otherwise provided in Subsections (c) and (d), to issue a certificate or registration as a provider to a person that complies with Sections 394.305 and 394.306.
(b) Authorizes the administrator to issue a temporary certificate of registration, if an applicant has otherwise complied with Sections 394.305 and 394.306, including a timely effort to obtain the information required by Section 394.306(a)(14), but the information has not been received. Requires that the temporary certificate expire not later than 180 days after issuance.
(c) Authorizes the administrator to deny registration under certain conditions.
(d) Requires the administrator to deny registration with respect to an applicant that claims nonprofit or tax-exempt status if the applicant's board of directors is not independent of the applicant's employees and agents.
(e) Provides that subject to adjustment of the dollar amount pursuant to Section 394.332(f), a board of directors is not independent for purposes of Subsection (d) if more than one-fourth of its members:
(1) are affiliates of the applicant, as defined in Section 394.302(2)(A) (relating to definition of "affiliate" with respect to an individual) or (B) (relating to definition of affiliate with respect to an entity); or
(2) in the 10 years before initially becoming a director of the applicant, were employed by or directors of a person that received from the applicant more than $25,000 in either the current year or the preceding year.
Sec. 394.310. CERTIFICATE OF REGISTRATION: TIMING. (a) Requires the administrator to approve or deny an initial registration as a provider not later than the 60th day after the date on which the completed application, including all required documents and payments, is filed. Requires the administrator to inform the applicant in writing of the reasons for the denial.
(b) Authorizes the applicant, if the administrator denies an application for registration as a provider, to appeal and request a hearing pursuant to Chapter 2001 (Administrative Procedure), Government Code. Authorizes the applicant to appeal and request a hearing on the question of the applicant's qualifications for initial registration as a provider if the administrator has notified the applicant in a record that the initial application has been denied. Prohibits a request for a hearing from being made after the 30th day after the date the administrator mails a notice to the applicant stating that the application has been denied and stating the reasons for the denial.
(c) Provides that a registration as a provider is valid for one year.
Sec. 394.311. RENEWAL OF REGISTRATION. (a) Requires a provider to obtain a renewal of its registration annually.
(b) Requires that an application for renewal of registration as a provider be in a form prescribed by the administrator, signed under oath, and:
(1) be filed not less than 30 days or more than 60 days before the registration expires;
(2) be accompanied by the fee established by the commission and the bond required by Section 394.313;
(3) subject to Subsection (b-1), contain the matters required for initial registration as a provider by Sections 394.306(a)(8) and (9) and a financial statement for the applicant's fiscal year immediately preceding the application;
(4) disclose any changes in the information contained in the applicant's application for registration or its immediately previous application for renewal, as applicable;
(5) supply evidence of insurance in an amount equal to the larger of $250,000 or the highest daily balance in the trust account required by Section 394.322 during the six-month period immediately preceding the application:
(A) against risks of dishonesty, fraud, theft, and other misconduct on the part of the applicant or a director, employee, or agent of the applicant;
(B) issued by an insurance company authorized to do business in this state and rated at least A or equivalent by a nationally recognized rating organization approved by the administrator;
(C) with a deductible not exceeding $5,000;
(D) payable for the benefit of the applicant, this state, and individuals who are residents of this state, as their interests may appear; and
(E) not subject to cancellation by the applicant or the insurer until 60 days after written notice has been given to the administrator;
(6) disclose the total amount of money received by the applicant pursuant to plans during the preceding 12 months from or on behalf of individuals who reside in this state and the total amount of money distributed to creditors of those individuals during that period;
(7) disclose, to the best of the applicant's knowledge, the gross amount of money accumulated during the preceding 12 months pursuant to plans by or on behalf of individuals who reside in this state and with whom the applicant has agreements; and
(8) provide any other information that the administrator reasonably requires to perform the administrator's duties under this section.
(b-1) Requires that the provider's financial statement required by Subsection (b)(3) be audited by an accountant licensed to practice accounting under Chapter 901, Occupations Code or licensed in the state of the applicant's principal place of business if the provider claims nonprofit or tax-exempt status, or if a provider's business practices involve holding, accessing, or directing the funds of an individual.
(c) Requires the administrator to make the information in an application for renewal of registration as a provider available to the public, except for the information required by Sections 394.306(a)(7), (14), and (17), the information required by Section 394.306(a)(6) with respect to for-profit entities, and the addresses required by Section 394.306(a)(4).
(d) Provides that if a registered provider files a timely and complete application for renewal of registration, the registration remains effective until the administrator, in a record, notifies the applicant of a denial and states the reasons for the denial.
(d-1) Authorizes the administrator to issue a temporary renewal of registration if an application is otherwise complete and the applicant has made a timely effort to obtain the information required by Section 394.306(a)(14) but the information has not been received. Requires that the temporary renewal expire not later than 180 days after issuance.
(e) Authorizes the applicant, within 30 days after receiving notice of the denial, to appeal and request a hearing pursuant to Chapter 2001, Government Code, if the administrator denies an application for renewal of registration as a provider. Requires the applicant while the appeal is pending, subject to Section 394.334, to continue to provide debt management services to individuals with whom it has agreements. Requires the applicant, if the denial is affirmed, subject to the administrator's order and Section 394.334, to continue to provide debt management services to individuals with whom it has agreements until, with the approval of the administrator, it transfers the agreements to another registered provider or returns to the individuals all unexpended money that is under the applicant's control.
Sec. 394.312. REGISTRATION IN ANOTHER STATE. Authorizes a provider, if the provider holds a license or certificate or registration in another state authorizing it to provide debt management services, to submit a copy of that license or certificate and the application for it instead of an application in the form prescribed by Sections 394.305 and 394.306 or by Section 394.311. Requires the administrator to accept the application and the license or certificate from the other state as an application for registration as a provider or for renewal of registration as a provider, as appropriate, in this state if the application contains certain information and the applicant meets certain conditions.
Sec. 394.313. BOND REQUIRED. (a) Requires a provider, except as otherwise provided in Section 394.314, that is required to be registered under this subchapter to file a surety bond that meets certain requirements with the administrator.
(b) Requires that a surety bond filed pursuant to Subsection (a), subject to adjustment of the dollar amount pursuant to Section 394.332(f), meet certain conditions.
(c) Requires the provider, if the principal amount of a surety bond is reduced by payment of a claim or a judgment, to immediately notify the administrator and, within 30 days after the notice by the administrator, file a new or additional surety bond in an amount set by the administrator. Requires that the amount of the new or additional bond be at least the amount of the bond immediately before payment of the claim or judgment. Requires the provider, if for any reason a surety terminates a bond, to file immediately a new surety bond in the amount of $50,000 or other amount determined pursuant to Subsection (b).
(d) Provides that the administrator or an individual may obtain satisfaction out of the surety bond procured pursuant to this section if:
(1) the administrator assesses expenses under Section 394.332(b)(1), issues a final order under Section 394.333(b)(2), or recovers a final judgment under Section 394.333(b)(4) or (5) or 394.333(e); or
(2) an individual recovers a final judgment pursuant to Section 394.335(a), 394.335(b), or 394.335(c)(1), (2), or (4).
(e) Requires the administrator, if claims against a surety bond exceed or are reasonably expected to exceed the amount of the bond, on the initiative of the administrator or on petition of the surety, unless the proceeds are adequate to pay all costs, judgments, and claims, to distribute the proceeds in a certain order. Sets forth the order of distribution of proceeds.
Sec. 394.314. BOND REQUIRED; SUBSTITUTE. (a) Authorizes a provider, instead of the bond required by Section 394.313, to deliver to the administrator a substitute provided by this section. Requires the substitute to be in the amount required by Section 394.313(b) and, except as otherwise provided in Subdivision (2)(A), payable or available to this state and to individuals who reside in this state when they agree to receive debt management services from the provider, as their interests may appear, if the provider or its agent does not comply with this subchapter. Authorizes a provider, on satisfying the requirements of this subsection, to deliver to the administrator one of the following substitutes:
(1) a certificate of insurance:
(A) issued by an insurance company authorized to do business in this state and rated at least A or equivalent by a nationally recognized rating organization approved by the administrator; and
(B) with no deductible, or, if the provider supplies a bond in the amount of $5,000, a deductible not exceeding $5,000; or
(2) with the approval of the administrator:
(A) an irrevocable letter of credit, issued or confirmed by a bank approved by the administrator, payable on presentation of a certificate by the administrator stating that the provider or its agent has not complied with this subchapter; or
(B) bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this state or a political subdivision of this state, to be deposited and maintained with a bank approved by the administrator for this purpose.
(b) Provides that if a provider furnishes a substitute pursuant to Subsection (a), Sections 394.313(a), (c), (d), and (e) apply to the substitute.
Sec. 394.315. REQUIREMENT OF GOOD FAITH. Requires a provider to act in good faith in all matters under this subchapter.
Sec. 394.316. CUSTOMER SERVICE. Requires a provider that is required to be registered under this chapter to maintain a toll-free communication system, staffed at a level that reasonably permits an individual to speak to a certified counselor, certified debt specialist, or customer service representative, as appropriate, during ordinary business hours.
Sec. 394.317. PREREQUISITES FOR PROVIDING DEBT MANAGEMENT SERVICES. (a) Requires a registered provider, before providing debt management services, to give the individual an itemized list of goods and services and the charges for each. Requires that the list be clear and conspicuous, be in a record the individual may keep whether or not the individual assents to an agreement, and describe the goods and services the provider offers for certain charges, and using certain terminology in a certain format.
(b) Prohibits a provider from furnishing debt management services unless the provider, through the services of a certified counselor or certified debt specialist:
(1) provides the individual with reasonable education about the management of personal finance;
(2) has prepared a financial analysis; and
(3) if the individual is to make regular periodic payments to a creditor or provider:
(A) has prepared a plan for the individual;
(B) has made a determination, based on the provider's analysis of the information provided by the individual and otherwise available to it, that the plan is suitable for the individual and the individual will be able to meet the payment obligations under the plan; and
(C) believes that each creditor of the individual listed as a participating creditor in the plan will accept payment of the individual's debts as provided in the plan.
(c) Requires a provider, before an individual assents to an agreement to engage in a plan, to:
(1) provide the individual with a copy of the analysis and plan required by Subsection (b) in a record that identifies the provider and that the individual may keep whether or not the individual assents to the agreement; and
(2) inform the individual of the availability, at the individual's option, of assistance by a toll-free communication system or in person to discuss the financial analysis and plan required by Subsection (b).
(d) Requires the provider, before an individual assents to an agreement, to inform the individual, in a separate record that the individual may keep whether or not the individual assents to the agreement:
(1) of the name and business address of the provider;
(2) that plans are not suitable for all individuals and the individual may ask the provider about other ways, including bankruptcy, to deal with indebtedness;
(3) that establishment of a plan may adversely affect the individual's credit rating or credit scores;
(4) that nonpayment of debt may lead creditors to increase finance and other charges or undertake collection activity, including litigation;
(5) unless it is not true, that the provider may receive compensation from the creditors of the individual; and
(6) that, unless the individual is insolvent, if a creditor settles for less than the full amount of the debt, the plan may result in the creation of taxable income to the individual, even though the individual does not receive any money.
(e) Authorizes the provider, if a provider is authorized to receive payments from an individual's creditors and the plan contemplates that the individual's creditors and the plan contemplates that the individual's creditors will reduce finance charges or fees for late payment, default, or delinquency, to comply with Subsection (d) by providing a certain disclosure in a certain form. Sets forth the required language of the disclosure.
(f) Authorizes a provider, if a provider will not receive payments from an individual's creditors and the plan contemplates that the individual's creditor will reduce finance charges or fees for late payment, default, or delinquency, to comply with Subsection (d) by providing a certain disclosure in a certain form. Sets forth the required language of the disclosure.
(g) Authorizes a provider, if a plan contemplates that creditors will settle debts for less than the full principal amount of debt owed, to comply with Subsection (d) by providing a certain disclosure in a certain form. Sets forth the required language of the disclosure.
Sec. 394.318. COMMUNICATION BY ELECTRONIC OR OTHER MEANS. (a) Defines "federal act" and "consumer" in this section.
(b) Authorizes a provider to satisfy the requirements of Section 394.317, 394.319, or 394.327 by means of the Internet or other electronic means if the provider obtains a consumer's consent in the manner provided by Section 101(c)(1) of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq. (federal act).
(c) Requires that the disclosures and materials required by Sections 394.317, 394.319, and 394.327 be presented in a form that is capable of being accurately reproduced for later reference.
(d) Requires, with respect to disclosure by means of an internet website, the disclosure of the information required by Section 394.317(d) to appear on one or more screens that contain no other information, and the individual must see before proceeding to assent to formation of an agreement.
(e) Requires a provider, at the time of providing the materials and agreement required by Sections 394.317(c) and (d), 394.319, and 394.327, to inform the individual that on electronic, telephonic, or written request, it will send the individual a written copy of the materials, and to comply with a request as provided in Subsection (f).
(f) Requires the provider, if a provider is requested, before the expiration of 90 days after an agreement is completed or terminated, to send a written copy of the materials required by Sections 394.317(c) and (d), or by Section 394.319 or 394.327, to send them at no charge within three business days after the request is received, but provides that the provider need not comply with a request more than once per calendar month or if it reasonably believes the request is made for purposes of harassment. Requires the provider to send within a reasonable time a written copy of the materials requested, if a request is made more than 90 days after an agreement is completed or terminated.
(g) Requires a provider that maintains an Internet website to disclose on the home page of its website or on a page that is clearly and conspicuously connected to the home page by a link that clearly reveals its contents, its name and all names under which it does business; its principal business address, telephone number, and electronic mail address, if any; and the names of its principal officers.
(h) Authorizes a provider, subject to Subsection (i), if a consumer who has consented to electronic communication in the manner provided by Section 101 of the federal act withdraws consent as provided in the federal act, to terminate its agreement with the consumer.
(i) Requires a provider, if a provider wishes to terminate an agreement with a consumer pursuant to Subsection (h), to notify the consumer that it will terminate the agreement unless the consumer, within 30 days after receiving the notification, consents to electronic communication in the manner provided in Section 101(c) of the federal act. Authorizes the provider, if the consumer consents, to terminate the agreement only as permitted by Section 394.319(a)(6)(F) (relating to disclosing that the provider may terminate the agreement for good cause on reform of unexpanded money of the individual).
Sec. 394.319. FORM AND CONTENTS OF AGREEMENT. (a) Requires an agreement to:
(1) be in a record;
(2) be dated and signed by the provider and the individual;
(3) include the name of the individual and the address where the individual resides;
(4) include the name, business address, and telephone number of the provider;
(5) be delivered to the individual immediately on formation of the agreement; and
(6) disclose certain information, relating to services, payments, and termination of the agreement.
(b) Provides that for purposes of Subsection (a)(5), delivery of an electronic record occurs when it is made available in a format in which the individual may retrieve, save, and print, and the individual is notified that it is available.
(c) Authorizes the provider to comply with information required under Subsection (a)(6)(I) (relating to disclosure of the address, telephone number, and Internet address or website of administrator) only by disclosing the information supplied by the administrator if the administrator supplies the provider with any information required under that requirement.
(d) Requires that an agreement provide that:
(1) the individual has a right to terminate the agreement at any time, without penalty or obligation, by giving the provider written or electronic notice, in which event:
(A) the provider will refund all unexpended money that the provider or its agent has received from or on behalf of the individual for the reduction or satisfaction of the individual's debt;
(B) with respect to an agreement that contemplates that creditors will settle debts for less than the principal amount of debt, the provider will refund 65 percent of any portion of the setup fee that has not been credited against the settlement fee; and
(C) all powers of attorney granted by the individual to the provider are revoked and ineffective;
(2) the individual authorizes any bank in which the provider or its agent has established a trust account to disclose to the administrator any financial records relating to the trust account; and
(3) if a plan provides for regular periodic payments to creditors, the provider will notify the individual within five days after learning of a creditor's decision to reject or withdraw from a plan and that this notice will include:
(A) the identity of the creditor; and
(B) the right of the individual to modify or terminate the agreement.
(e) Authorizes an agreement to confer on a provider a power of attorney to settle the individual's debt for not more than 50 percent of the outstanding amount of the debt owed at the time of settlement. Prohibits an agreement from conferring a power of attorney to settle a debt for more than 50 percent of that amount, but authorizes an agreement to confer a power of attorney to negotiate with creditors of the individual on behalf of the individual. Requires that an agreement provide that the provider will obtain the assent of the individual after a creditor has assented to a settlement for more than 50 percent of the outstanding amount of the debt owed at the time of settlement.
(f) Prohibits an agreement from:
(1) providing for application of the law of any jurisdiction other than the United States and this state;
(2) except as permitted by Section 2 of the Federal Arbitration Act, 9 U.S.C. Section 2, containing a provision that modifies or limits otherwise available forums or procedural rights, including the right to trial by jury, that are generally available to the individual under law other than this subchapter;
(3) containing a provision that restricts the individual's remedies under this subchapter or law other than this subchapter; or
(4) containing a provision that:
(A) limits or releases the liability of any person for not performing the agreement or for violating this subchapter; or
(B) indemnifies any person for liability arising under the agreement or this subchapter.
(g) Provides that all rights and obligations specified in Subsection (e) and Section 394.320 exist even if not provided in the agreement. Provides that a provision in an agreement which violates Subsection (d), (e), or (f) is void.
Sec. 394.320. CANCELLATION OF AGREEMENT; WAIVER. (a) Authorizes an individual to cancel an agreement before midnight of the third business day after the individual assents to it, unless the agreement does not comply with Section 394.319(b) or Section 394.328, in which event the individual may cancel the agreement within 30 days after the individual assents to it. Requires the individual, to exercise the right to cancel, to give notice in a record to the provider. Provides that notice by mail is given when mailed.
(b) Requires that an agreement be accompanied by a certain form in bold-face type, surrounded by bold black lines. Sets forth the required language of the form.
(c) Authorizes an individual to waive the right to cancel if a personal financial emergency necessitates the disbursement of an individual's money to one or more of the individual's creditors before the expiration of three days after an agreement is signed. Requires the individual, to waive the right, to send or deliver a signed, dated statement in the individual's own words describing the circumstances that necessitate a waiver. Requires that the waiver explicitly waive the right to cancel. Provides that a waiver by means of a standard form record is void.
Sec. 394.321. REQUIRED LANGUAGE. Requires that the disclosures and documents required by this subchapter be in English unless the commission, by rule, provides otherwise. Requires the provider, if a provider communicates with an individual primarily in a language other than English, to furnish a translation into the other language of the disclosures and documents required by this subchapter
Sec. 394.322. TRUST ACCOUNT. (a) Provides that all money paid to a provider by or on behalf of an individual pursuant to a plan for distribution to creditors is held in trust. Requires the provider, within two business days after receipt, to deposit the money in a trust account established for the benefit of individuals to whom the provider is furnishing debt management services.
(b) Provides that money held in trust by a provider is not property of the provider or its designee. Provides that the money is not available to creditors of the provider or designee, except an individual from whom or on whose behalf the provider received money, to the extent that the money has not been disbursed to creditors of the individual.
(c) Requires a provider to:
(1) maintain separate records of account for each individual to whom the provider is furnishing debt management services;
(2) disburse money paid by or on behalf of the individual to creditors of the individual as disclosed in the agreement, except that:
(A) the provider may delay payment to the extent that a payment by the individual is not final; and
(B) if a plan provides for regular periodic payments to creditors, the disbursement must comply with the due dates established by each creditor; and
(3) promptly correct any payments that are not made or that are misdirected as a result of an error by the provider or other person in control of the trust account and reimburse the individual for any costs or fees imposed by a creditor as a result of the failure to pay or misdirection.
(d) Prohibits a provider from commingling money in a trust account established for the benefit of individuals to whom the provider is furnishing debt management services with money of other persons.
(e) Requires that a trust account at all times have a cash balance equal to the sum of the balances of each individual's account.
(f) Requires the provider to reconcile the trust account at least once a month if a provider has established a trust account pursuant to Subsection (a). Requires that the reconciliation compare the cash balance in the trust account with the sum of the balances in each individual's account. Requires that each trust account be individually reconciled if the provider or its designee has more than one trust account.
(g) Requires the provider to immediately notify the administrator by a method approved by the administrator if a provider discovers, or has a reasonable suspicion of, embezzlement or other unlawful appropriation of money held in trust. Requires the provider, unless the commission by rule provides otherwise, to give notice to the administrator describing the remedial action taken or to be taken.
(h) Requires the provider, if an individual terminates an agreement or it becomes reasonable apparent to a provider that a plan has failed, to promptly refund to the individual all money paid by or on behalf of the individual which has not been paid to creditors, less fees that are payable to the provider under Section 394.323.
(i) Requires a provider, before relocating a trust account from one bank to another, to inform the administrator of the name, business address, and telephone number of the new bank. Requires the provider, as soon as practicable, to inform the administrator of the account number of the trust account at the new bank.
Sec. 394.323. FEES AND OTHER CHARGES. (a) Prohibits a provider from imposing directly or indirectly a fee or other charge on an individual or receive money from or on behalf of an individual for debt management services except as permitted by this section.
(b) Prohibits a provider from imposing charges or receiving payment for debt management services until the provider and the individual have signed an agreement that complies with Sections 394.319 and 394.328.
(c) Prohibits a provider, if an individual assents to an agreement, from imposing a fee or other charge for educational or counseling services, or the like, except as otherwise provided in this subsection and Section 394.328(d). Authorizes the administrator to authorize a provider to charge a fee based on the nature and extent of the educational or counseling services furnished by the provider.
(d) Requires fees and other charges, subject to adjustment of dollar amounts pursuant to Section 394.332(f), to meet the following requirements:
(1) Authorizes the provider, if an individual assents to a plan that contemplates that creditors will reduce finance charges or fees for late payment, default, or delinquency, to charge:
(A) a fee not to exceed $50 for consultation, obtaining a credit report, setting up an account, and the like; and
(B) a monthly service fee, not to exceed $10 times the number of accounts remaining in a plan at the time the fee is assessed, but not more than $50 in any month.
(2) Authorizes the provider, if an individual assents to a plan that contemplates that creditors will settle debts for less than the principal amount of the debt, to charge:
(A) subject to Section 394.319(d), a fee for consultation, obtaining a credit report, setting up an account, and the like, in an amount not to exceed the lesser of $400 or four percent of the debt in the plan at the inception of the plan;
(B) a monthly service fee, not to exceed $10 times the number of accounts remaining in the plan at the time the fee is assessed, but not more than $50 in any month; and
(C) a fee as permitted in Subdivision (f).
(3) Prohibits a provider from imposing or receiving fees under both Subdivisions (1) and (2).
(4) Authorizes a provider, except as otherwise provided in Section 394.328(d), if an individual does not assent to an agreement, to receive for educational and counseling services it provides to the individual a fee not to exceed $100 or, with the approval of the administrator, a larger amount. Authorizes the administrator to approve a fee in an amount greater than $100 if the nature and extent of the educational and counseling services warrant the larger fee.
(e) Requires the provider, if before the expiration of 90 days after the completion or termination of educational or counseling services, an individual assents to an agreement, to refund to the individual any fee paid pursuant to Subsection (d)(4) (relating to authorizing a provider to receive for educational and counseling services it provides to the individual a fee not to exceed $100 or, with the approval of the administrator, a larger amount).
(f) Prohibits compensation for services in connection with settling debt, except as otherwise provided in Subsections (c) and (d), if an agreement contemplates that creditors will settle an individual's debts for less than the principal amount of the debt, from exceeding one of the following applicable settlement fee limits in Subdivision (1), (2), or (3) the terms of which shall be clearly disclosed in the agreement.
(1) Prohibits the total aggregate amount of fees charged to any individual under this chapter, including fees charged under Subsections (d)(2)(A) (relating to fee for consultation) and (B) (relating to a monthly service fee), with respect to agreements in which a flat fee is charged based on the overall amount of included debt and collected in equal payments from exceeding 17 percent of the principal amount of debt included in the agreement at the agreement's inception. Requires that the flat fee authorized under this subchapter be assessed in equal monthly payments over not less than the length of the plan, as estimated at the plan's inception, unless:
(A) voluntarily accelerated by the individual in a separate record; and
(B) offers of settlement by creditors have been obtained on at least half of the outstanding debt included in the agreement.
(2) Prohibits a settlement fee, with respect to agreements in which fees are calculated as a percentage of the amount saved by an individual in addition to fees under Subsections (d)(2)(A) and (B), from exceeding 30 percent of the excess of the outstanding amount of each debt over the amount actually paid to the creditor, as calculated at the time of settlement. Requires that settlement fees authorized under this subsection to become billable only as a debts are settled, and the total aggregate amount of fees charged to any individual under this subchapter, including fees charged under Subsections (d)(2)(A) and (B), may not exceed 20 percent of the principal amount of debt included in the agreement at the agreement's inception.
(3) Requires that a settlement fee, with respect to agreements in which no fees are charged or collected until the time a settlement agreement is reached with a creditor and at least one payment has been made towards such agreement by the individual, be a reasonable amount, the amount or calculation of which must be disclosed at the time of the inception of the agreement between the provider and the individual per Sec. 394.319. Requires that the fee meet certain conditions.
(4) Authorizes a provider to only impose on or receive from any individual or agreement fees under one of the fee structures listed in Subdivisions (1), (2) and (3).
(g) Authorizes a provider, subject to adjustment of the dollar amount pursuant to Section 394.332(f), if a payment to a provider by an individual under this subchapter is dishonored, to impose a reasonable charge on the individual not to exceed the lesser of $25 or the amount permitted by law other than this subchapter.
(h) Authorizes the commission to establish maximum fair and reasonable fees under this section.
Sec. 394.324. VOLUNTARY CONTRIBUTIONS. Prohibits a provider from soliciting a voluntary contribution from an individual or an affiliate of the individual for any service provided to the individual. Authorizes the provider to accept voluntary contributions from an individual but, until 30 days after completion or termination of a plan, the aggregate amount of money received from or on behalf of the individual may not exceed the total amount the provider may charge the individual under Section 394.323.
Sec. 394.325. VOIDABLE AGREEMENTS. (a) Authorizes the individual, if a provider imposes a fee or other charge or receives money or other payments not authorized by Section 394.323 or 394.324, to void the agreement and recover as provided in Section 394.335.
(b) Provides that if a provider is not registered as required by this subchapter when an individual assents to an agreement, the agreement is voidable by the individual.
(c) Provides that if an individual voids an agreement under Subsection (b), the provider does not have a claim against the individual for breach of contract or for restitution.
Sec. 394.326. TERMINATION OF AGREEMENTS. (a) Authorizes a provider to terminate an agreement if an individual who has entered into an agreement fails for 60 days to make payments required by the agreement.
(b) Requires the provider, if a provider or an individual terminates an agreement, to return immediately to the individual:
(1) any money of the individual held in trust for the benefit of the individual; and
(2) 65 percent of any portion of the setup fee received pursuant to Section 394.323(d)(2) which has not been credited against settlement fees.
Sec. 394.327. PERIODIC REPORTS AND RETENTION OF RECORDS. (a) Requires a provider to provide the accounting required by Subsection (b):
(1) on cancellation or termination of an agreement; and
(2) before cancellation or termination of any agreement:
(A) at least once each month; and
(B) within five business days after a request by an individual, but the provider does not need to comply with more than one request in any calendar month.
(b) Requires a provider, in a record, to provide each individual for whom it has established a plan an accounting of certain information.
(c) Requires a provider to maintain records for each individual for whom it provides debt management services for five years after the final payment made by the individual and produce a copy of the records to the individual within a reasonable time after a request for them. Authorizes the provider to use electronic or other means of storage for the records.
Sec. 394.328. PROHIBITED ACTS AND PRACTICES. (a) Prohibits a provider from, directly or indirectly, take certain actions.
(b) Prohibits a provider, if a provider furnishes debt management services to an individual, from directly or indirectly or through an affiliate, take certain actions.
(c) Provides that this subchapter does not authorize any person to engage in the practice of law.
(d) Prohibits a provider from receiving a gift or bonus, premium, reward, or other compensation, directly or indirectly, for advising, arranging, or assisting an individual in connection with obtaining an extension of credit or other service unrelated to debt management services from a lender or service provider, except for educational or counseling services required in connection with a government program or as expressly approved by the administrator.
(e) Prohibits a provider, unless a person supplies goods, services, or facilities generally and supplies them to the provider at a cost not greater than the cost the person generally charges to others, from purchasing goods, services, or facilities from the person if an employee or a person that the provider should reasonably know is an affiliate of the provider:
(1) owns more than 10 percent of the person; or
(2) is an employee or affiliate of the person.
Sec. 394.329. NOTICE OF LITIGATION. Requires the provider, not later than 30 days after the provider has been served with notice of a civil action for violation of this subchapter by or on behalf of an individual who resides in this state at either the time of an agreement or the time the notice is served, to notify the administrator in a record that has been sued.
Sec. 394.330. ADVERTISING. (a) Requires a provider to disclose, in an easily comprehensible manner, that using a debt management plan may make it harder for the individual to obtain credit, if the agreements of a provider contemplate that creditors will reduce finance charges or fees for late payment, default, or delinquency and the provider advertises debt management services.
(b) Requires that agreements disclose, in an easily comprehensible manner, the information specified in Sections 394.317 (d)(3) and (4) if the agreements of a provider contemplate that creditors will settle for less than the full principal amount of debt and the provider advertises debt management services.
Sec. 394.331. LIABILITY FOR CONDUCT OF OTHER PERSONS. Provides that if a provider delegates any of its duties or obligations under an agreement or this subchapter to a third-party agent, including an independent contractor, the provider is liable for the person's conduct which, if done by the provider, would violate the agreement or this subchapter.
Sec. 394.332. POWERS OF ADMINISTRATOR. (a) Authorizes the administrator to receive complaints, act on its own initiative or in response to complaints, take action to obtain voluntary compliance with this subchapter, and seek or provide remedies as provided in this subchapter or Chapter 14 (Consumer Credit Commissioner).
(b) Authorizes the administrator or the administrator's respresentative to investigate and examine, in this state or elsewhere, by subpoena or otherwise, the activities, books, accounts, and records of a person that provides or offers to provide debt management services, or a person to whom a provider has delegated its obligations under an agreement or this subchapter, to determine compliance with this subchapter. Prohibits information that identifies individuals who have agreements with the provider from being disclosed to the public. Authorizes the administrator, in connection with the investigation, to:
(1) charge the person the reasonable expenses necessarily incurred to conduct the examination;
(2) require or permit a person to file a statement under oath as to all the facts and circumstances of a matter to be investigated or examined; and
(3) seek a court order authorizing seizure from a bank at which the person maintains a trust account required by Section 394.322, any or all money, books, records, accounts, and other property of the provider that is in the control of the bank and relates to individuals who reside in this state.
(c) Authorizes the commission to adopt rules to implement this subchapter in accordance with Chapter 2001, Government Code.
(d) Authorizes the administrator to enter into cooperative arrangements with any other federal or state agency having authority over providers and to exchange with any of those agencies information about a provider, including information obtained during an examination of the provider.
(e) Requires the commission by rule to establish reasonable fees to be paid by providers for the expense of administering this subchapter.
(f) Requires the administrator to compute and publish the dollar amounts instead of those specified in Sections 394.302, 394.305, 394.309, 394.313, 394.323, 394.333, and 394.335 to reflect inflation, as measured by the United States Bureau of Labor Statistics Consumer Price Index for All Urban Consumers or, if that index is not available, another index adopted by commission rule. Requires the administrator to adopt a base year and adjust the dollar amounts, effective 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. Requires that the dollar amount be rounded to the nearest $100, except that the amounts in Section 394.323 must be rounded to the nearest dollar.
(g) Requires the administrator to notify registered providers of any change in dollar amounts made pursuant to Subsection (f) and make that information available to the public.
(h) Provides that information obtained under an examination is confidential.
Sec. 394.333. ADMINISTRATIVE REMEDIES. (a) Provides that for purposes of enforcing this subchapter, the administrator:
(1) has the powers granted to the administrator under Chapter 14;
(2) may exercise those powers in the same manner as those powers may be exercised under:
(A) Chapters 14 and 392 (Debt Collection); and
(B) Subtitle B (Loans and Financed Transactions), Title 4 (Regulation of Interest, Loans, and Financed Transactions); and
(3) has any authority granted to the administrator by other law.
(b) Authorizes the administrator to enforce this subchapter and rules adopted under this subchapter by taking one or more of the following actions:
(1) ordering a provider or a director, employee, or other agent or a provider to cease and desist from any violations;
(2) ordering a provider or a person that has caused a violation to correct the violation, including making restitution of money or property to a person to a person aggrieved by a violation;
(3) subject to adjustment of the dollar amount pursuant to Section 394.332(f), imposing against a provider or a person that has caused a violation a civil penalty in an amount not to exceed $10,000 for each violation;
(4) prosecuting a civil action to enforce and order, or obtain restitution or an injunction or other equitable relief, or both; or
(5) intervening in an action brought under Section 394.335.
(c) Authorizes an administrator, subject to adjustment of the dollar amount pursuant to Section 394.332(f), if a person violates or knowingly authorizes, directs, or aids in the violation of a final order issued under Subsection (b)(1) or (2), to assess an administrative penalty in an amount not to exceed $20,000 for each violation.
(d) Authorizes the administrator to maintain an action to enforce this subchapter in any county at the administrator's sole discretion.
(e) Authorizes the administrator to recover the reasonable costs of enforcing this subchapter under Subsection (b) and (d), including attorney's fees based on the hours reasonably expended and the hourly rates for attorneys of comparable experience in the community.
(f) Requires the administrator, in determining the amount of an administrative penalty to impose under Subsection (b) or (c), to consider certain factors.
Sec. 394.334. SUSPENSION, REVOCATION, OR NONRENEWAL OF REGISTRATION. (a) Defines "insolvent" in this section.
(b) Authorizes the administrator to suspend, revoke, or deny renewal of a provider's registration if:
(1) a fact or condition exists that, if it had existed when the registrant applied for registration as a provider, would have been a reason for denying registration;
(2) the provider has committed a material violation of this subchapter or a rule or order of the administrator under this subchapter;
(3) the provider is insolvent;
(4) the provider or an employee or affiliate of the provider has refused to permit the administrator to make an examination authorized by this subchapter, failed to comply with Section 394.332(b)(2) within 15 days after request, or made a material misrepresentation or omission in complying with Section 394.332(b)(2); or
(5) the provider has not responded within a reasonable time and in an appropriate manner to communications from the administrator.
(c) Authorizes the administrator to order a summary suspension of the provider's registration, effective on the date specified in the order, if a provider does not comply with Section 394.322(f) or if the administrator otherwise finds that the public health or safety or general welfare requires emergency action.
(d) Authorizes an administrator, if the administrator suspends, revokes, or denies the renewal of the registration of a provider, to seek a court order authorizing seizure of any or all of the money in a trust account required by Section 394.322, books, records, accounts, and other property of the provider that are located in this state.
(e) Authorizes the provider to appeal and request a hearing pursuant to Chapter 2001, Government Code, if the administrator suspends or revokes a provider's registration.
Sec. 394.335. PRIVATE ENFORCEMENT. (a) Authorizes the individual, in addition to the recovery under Subsection (b)(3), if an individual voids an agreement under Section 394.325(a) or (b), to recover in a civil action all money paid or deposited by or on behalf of the individual under the agreement, other than amounts paid to creditors.
(b) Authorizes an individual with respect to whom a provider violates this subchapter or a rule adopted under this subchapter, or commits any unfair or deceptive act, to recover in a civil action from the provider and any third party that caused the violation or committed the act or practice, not including a provider's officers, directors, employees, or investors:
(1) actual damages for injury caused by the violation or conduct;
(2) punitive damages not to exceed three times actual damages only upon a finding of unconscionable conduct relating to a violation of this subchapter or a rule adopted under this subchapter; and
(3) reasonable attorney's fees and costs.
(c) Authorizes the individual, in addition to the remedy available under Subsection (b), if a provider violates an individual's rights under Section 394.320, to recover in a civil action all money paid or deposited by or on behalf of the individual under the agreement, except for amount paid to creditors.
(d) Provides that a provider is not liable under this section for a violation of this subchapter if the provider proves that the violation was not intentional and resulted from a good faith error, notwithstanding the maintenance of reasonable procedures adopted to avoid the error. Provides that an error of legal judgment with respect to a provider's obligations under this subchapter is not a good faith error. Provides that if, in connection with a violation, the provider has received more money than authorized by an agreement or this subchapter, the defense provided by this subsection is not available unless the provider refunds the excess amount not later than the seventh calendar day after the date learning of the violation.
(f) Requires an administrative penalty or fine under this title or federal law that is assessed by or agreed to with an administrative agency or the attorney general be considered and applied as a bar or credit to recovery of further fines, penalties, or enhanced damages for substantially the same act, practice, or violation in a suit or other proceeding brought by a private litigant under this title, the Business & Commerce Code, or other applicable law of this state. Provides that this subsection and Subsection (g) do not apply to a claim for restitution for unreimbursed actual damages.
(e) Requires the administrator to assist an individual in enforcing a judgment against the surety bond or other security provided under Section 394.313 or 394.314.
(g) Provides that a suit or other proceeding by a private litigant does not affect or restrict any state or federal agency from pursuing a person for any administrative remedy, including an administrative penalty. Requires an administrative agency of this state, however, to consider as a mitigating factor any relief recovered in a private suit or proceeding when the agency determines an administrative remedy.
Sec. 394.336. VIOLATION OF DECEPTIVE TRADE PRACTICES ACT. Provides that an individual may not recover under both this subchapter and Chapter 17 (Deceptive Trade Practices), Business and Commerce Code, if an act or practice of a provider violates both.
Sec. 394.337. STATUTE OF LIMITATIONS. (a) Requires that an action or proceeding brought pursuant to Sections 394.333(a), (b), or (c) be commenced within four years after the conduct that is the basis of the administrator's complaint.
(b) Requires that an action brought under Section 394.335 be commenced within two years after the latest of certain events.
(c) Provides that the period prescribed in Subsection (b)(5) (relating to the date on which the individual discovered or reasonably should have discovered the facts giving rise to the individual's claim) is tolled during any period in which the provider or, if different, the defendant has materially and willfully misrepresented information required by this subchapter to be disclosed to the individual, if the information so misrepresented is material to the establishment of the liability of the defendant under this subchapter.
Sec. 394.338. UNIFORMITY OF APPLICATION AND CONSTRUCTION. Requires that consideration, in applying and construing this subchapter, be given to the need to promote uniformity of the law with respect to the subject matter of this subchapter among states that have enacted a law substantially similar to this subchapter.
Sec. 394.339. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. Provides that this subchapter modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Section 7001 et seq.) but does not modify, limit, or supersede 15 U.S.C. Section 7001(c) or authorize electronic delivery of any of the notices described in 15 U.S.C. Section 7003(b).
SECTION 2. Repealer: Subchapter C (Consumer Debt Management Services), Chapter 394, Finance Code.
SECTION 3. Provides that a transaction entered into before the effective date of this Act and the rights, duties, and interests resulting from the transaction may be completed, terminated, or enforced as required or permitted by a law amended, repealed, or modified by this Act as though the amendment, repeal, or modification had not occurred.
SECTION 4. Effective date: January 1, 2012.