FINAL BILL REPORT

SSB 5147

                              C 303 L 89

BYSenate Committee on Financial Institutions & Insurance (originally sponsored by Senators von Reichbauer, Rasmussen, Johnson, Smitherman, McMullen, McCaslin and West)

Revising definition of credit services organization.

Senate Committee on Financial Institutions & Insurance

House Committe on Financial Institutions & Insurance

SYNOPSIS AS ENACTED

BACKGROUND:

In 1986, the Legislature adopted the Credit Services Organization Act (Act).  For a fee, these businesses generally offer to assist individuals in obtaining credit.  Typical services include offering to improve a customer's credit, obtaining an extension of credit for the customer, or providing related advice.

The Act requires a credit service organization to meet certain financial and disclosure requirements.  A credit service organization is prohibited from charging or receiving any money prior to full and complete performance of contract services, unless the organization has obtained a surety bond for $10,000.  All contracts must be in writing and specify cancellation rights, terms of payment, and a full description of the services to be performed. 

The Act also grants an individual a "cooling off" period of five days during which he or she may cancel the contract.  Any contract provision waiving the rights granted under the Act is prohibited.  Certain exemptions are made from the Act, including various lenders, real estate brokers, securities broker-dealers, and attorneys.  A violation of this Act constitutes a gross misdemeanor.

A relatively new business has surfaced which offers similar services as a credit service organization but is not subject to the Act.  The organizations, called foreclosure relief companies, offer advice and assistance in exchange for a fee.  Often fees are collected up front and range from $400-$500.  Critics claim that the services provided involve questionable techniques which fail to fulfill the company's promise to halt, prevent or delay foreclosure proceedings.

SUMMARY:

The definition of a credit service organization is expanded to include organizations offering to save or preserve a person's credit or to stop, prevent, or delay the foreclosure of a deed of trust, mortgage, or other security instrument.  Foreclosure relief companies are made subject to the Act.

The surety bond is payable to the state or purchaser of services from a credit service organization.  The liability of the surety is limited to the face value of the bond.  The bond must be continuous and remain unimpaired throughout its term.  Provisions for claims and notification to the surety are established.

The definition of a credit service organization is modified to exempt mortgage brokers acting within the scope of their profession.

VOTES ON FINAL PASSAGE:

     Senate   46    0

     House 97  0 (House amended)

     Senate   37    0 (Senate concurred)

EFFECTIVE:July 23, 1989