SENATE BILL REPORT
This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.
As Reported by Senate Committee On:
Financial Institutions & Insurance, March 25, 2015
Title: An act relating to nonprofit organizations engaged in debt adjusting.
Brief Description: Concerning nonprofit organizations engaged in debt adjusting.
Sponsors: House Committee on Business & Financial Services (originally sponsored by Representatives Parker, Kirby and Vick).
Brief History: Passed House: 3/10/15, 98-0.
Committee Activity: Financial Institutions & Insurance: 3/19/15, 3/25/15 [DPA].
SENATE COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE
Majority Report: Do pass as amended.
Signed by Senators Benton, Chair; Angel, Vice Chair; Mullet, Ranking Minority Member; Darneille, Hobbs, Litzow, Pedersen and Roach.
Staff: Shani Bauer (786-7468)
Background: Debt adjusting is defined as (1) managing, counseling, settling, adjusting, pro-rating, or liquidating a debtor's indebtedness; or (2) receiving funds for distribution among creditors in payment of a debtor's obligations. A debt adjuster is a person who engages in debt adjusting for compensation. It includes debt poolers, debt managers, debt consolidators, debt pro-raters, and credit counselors.
The definition of a debt adjuster specifically excludes the following:
attorneys, escrow agents, accountants, and investment advisors while performing services solely incidental to the practice of their professions;
persons doing business that is permitted by law related to banks, credit unions, trust companies, and insurance companies;
employees performing credit services for their employer;
public officers and persons acting under court order;
persons performing services incidental to the dissolution of a business entity; and
dealing exclusively with debts owing from commercial enterprises to business creditors; or
engaged in debt adjusting and which do not assess against the debtor a service charge in excess of $15 per month.
The Debt Adjusting Act regulates contract terms and prohibited actions of the debt adjuster in providing services to a debtor. Violation of the Debt Adjusting Act is a misdemeanor offense, and it is an unfair or deceptive act or practice under the Consumer Protection Act (CPA).
The act also limits the fees that may be charged by a debt adjuster. The total fee for debt adjusting services is capped at 15 percent of the debtor's total debt. Excess fees, except as a result of an accidental or bona fide error, void the contract. Before retaining the fee, the debt adjuster must notify all creditors that the debtor has engaged the debt adjuster's services. The debt adjuster must distribute at least 85 percent of the debtor's payments to creditors at least once every 40 days. A debtor's payments to a debt adjuster must be held in a separate trust account.
Summary of Bill (Recommended Amendments): Fair share is defined as creditor contributions paid to debt adjusters by the creditors whose consumers receive debt-adjusting services from debt adjusters and pay down their debt accordingly. Fair share does not include grants received by debt adjusters for services unrelated to debt adjusting. The 15 percent cap on fees charged by a debt adjuster does not include fair share, and receiving fair share is not a prohibited activity. A debt adjuster who receives fair share must disclose this fact and provide an explanation of fair share to the debtor prior to accepting any fair share.
EFFECT OF CHANGES MADE BY FINANCIAL INSTITUTIONS & INSURANCE COMMITTEE (Recommended Amendments): Nonprofit and for-profit debt adjusters may receive fair-share payments. Provisions requiring nonprofit debt adjusters to report information and data to the Department of Financial Institutions (DFI) and requiring DFI to present a summary report of the information to the Legislature are removed. Prior to accepting a fair-share payment, a debt adjuster must provide the debtor with an explanation about fair share and disclose the payment. The title is amended.
Fiscal Note: Available.
Committee/Commission/Task Force Created: No.
Effective Date: Ninety days after adjournment of session in which bill is passed.
Staff Summary of Public Testimony on Substitute House Bill: PRO: The Department of Financial Institutions has agreed to perform the reporting functions of this bill within existing funds. The associated work is minimal. Stakeholders have worked on this bill for the past three years. Nonprofit entities have a concern with the reporting requirement in the House bill because it is very labor intensive. Staff has been reduced by two-thirds in the last year and this requirement will impact the services a nonprofit entity is able to provide.
Persons Testifying: PRO: Representative Parker, prime sponsor; Julie Griffith, Money Management International, Regional Director.
Persons Signed in to Testify But Not Testifying: No one.