BILL REQ. #:  H-2825.2 

Prefiled 01/06/14. Read first time 01/13/14.   Referred to Committee on Business & Financial Services.

     AN ACT Relating to registration of persons providing debt settlement services; reenacting and amending RCW 18.28.010 and 42.56.230; adding a new chapter to Title 18 RCW; creating a new section; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   This chapter may be known and cited as the debt settlement services act.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Affiliate" means:
     (a) A person that controls, is controlled by, or is under common control with the provider;
     (b) An executive officer of or individual performing similar functions with respect to the provider;
     (c) A director of or individual performing similar functions with respect to the provider; and
     (d) An executive officer or director of or an individual performing similar functions with respect to a person described in (a) of this subsection.
     (2) "Agreement" means a contract between a provider and an individual for the performance of debt settlement services.
     (3) "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.
     (4) "Control" means the right to control ten percent or more of the voting power of another person.
     (5) "Debt settlement services" means services as an intermediary between an individual and one or more unsecured creditors of the individual for the purpose of obtaining concessions involving a reduction in principal of the individual's unsecured debt. "Debt settlement services" does not include the following, so long as debt settlement services are not the primary business purpose of the person described below:
     (a) Legal services provided in an attorney-client relationship by an attorney licensed or otherwise authorized to practice law in this state;
     (b) Accounting services provided in an accountant-client relationship by a certified public accountant licensed to provide accounting services in this state; or
     (c) Financial planning services provided in a financial planner-client relationship by a licensed member of a financial planning profession.
     (6) "Department" means the department of financial institutions.
     (7) "Financial institution" means any person doing business under the laws of any state or the United States relating to commercial banks, bank holding companies, savings banks, savings and loan associations, trust companies, or credit unions.
     (8) "Good faith" means honesty in fact and the observance of reasonable standards of fair dealing.
     (9) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, or any other legal or commercial entity. "Person" does not include a public corporation, government or governmental subdivision, agency or instrumentality.
     (10) "Principal amount of the debt" means the amount of a debt at the time of the execution of an agreement for debt settlement services.
     (11) "Program" means a plan or strategy in which a provider furnishes debt settlement services.
     (12) "Provider" means a person required to be registered pursuant to this chapter and that provides, offers to provide, or agrees to provide debt settlement services for compensation.
     (13) "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.

NEW SECTION.  Sec. 3   This chapter does not apply to the following persons or their employees when the person or the employee is engaged in the regular course of the person's business or profession:
     (1) A judicial officer, a person acting under an order of a court or an administrative agency, or an assignee for the benefit of creditors;
     (2) A financial institution; or
     (3) A title insurer, escrow company, or other person that provides bill-paying services if the provision of debt settlement services is incidental to the bill-paying services.

NEW SECTION.  Sec. 4   (1) On or after the effective date of this section, a provider may not provide debt settlement 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 chapter.
     (2) The department shall maintain and publicize a list of the names of all registered providers.

NEW SECTION.  Sec. 5   (1) An application for registration as a provider must be in a form prescribed by the department.
     (2) An application for registration as a provider must be accompanied by:
     (a) The fee established by the department;
     (b) Evidence of minimum insurance in an amount specified by the department;
     (c) In lieu of the aggregate umbrella insurance required by (b) of this subsection, a surety bond filed with the department, in a form approved by the department, for a term no less than the expiration of the term of registration and in the amount of not less than ten thousand dollars or other larger amount that the department determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt settlement services, the risk to individuals, and any other factor the department considers appropriate, but in no event greater than fifty thousand dollars. The surety bond runs to the state for the benefit of this state and of individuals who reside in this state when they agree to receive debt settlement services from the provider, as their interests may appear, payment of which is conditioned upon noncompliance of the provider or its agent with this chapter; and
     (d) Proof that the provider is authorized by the laws of this state to conduct business in this state.

NEW SECTION.  Sec. 6   (1) An application for registration must be signed by the applicant and declare as true any material matter pursuant to the application for registration. The application form must contain a statement informing the applicant that a false or dishonest answer to a question may be grounds for denial or subsequent suspension or revocation of the applicant's registration.
     (2) An application must include the following:
     (a) The applicant's name, principal business address and telephone number, all other business addresses in this state, electronic mail addresses, and internet web site addresses;
     (b) All names under which the applicant conducts business in this state;
     (c) The address of each location in this state at which the applicant will provide debt settlement services or a statement that the applicant will have no such location;
     (d) A copy of each form of agreement that the applicant will use with individuals who reside in this state;
     (e) The schedule of fees and charges that the applicant will use with individuals who reside in this state; and
     (f) Such other information that the department may reasonably require.

NEW SECTION.  Sec. 7   An applicant or provider shall notify the department no later than sixty days after a material change in the information provided in an application for registration.

NEW SECTION.  Sec. 8   The department shall make available to the public the information in an application for registration and renewal of registration as a provider.

NEW SECTION.  Sec. 9   (1) Except as otherwise provided in subsection (2) of this section, the department shall issue a certificate of registration as a provider to a person that complies with sections 5 and 6 of this act.
     (2) The department may deny registration if:
     (a) The application contains information that is materially erroneous or incomplete;
     (b) An officer, director, or owner of the applicant has suffered a civil judgment or been convicted of a crime involving dishonesty or the violation of federal or state securities laws; or
     (c) The application is not accompanied by the fee established by the department.

NEW SECTION.  Sec. 10   (1) The department shall approve or deny an initial registration as a provider no later than sixty days after an application is filed. The department may extend the sixty-day period for not more than forty-five days. No later than seven days after denying an application, the department, in a record, shall inform the applicant of the reasons for the denial.
     (2) If the department denies an application for registration as a provider or does not act on an application within the time prescribed in subsection (1) of this section, the applicant may appeal and request a hearing under chapter 34.05 RCW.
     (3) Subject to section 11(4) of this act, a registration as a provider is valid for one year.
     (4) Upon submission of an application for registration and until such time as an application, or any appeal filed pursuant to subsection (2) of this section, is approved or denied, the applicant may continue to provide debt settlement services, but a denial of registration terminates any further power to provide services unless approved by the department.

NEW SECTION.  Sec. 11   (1) A provider shall obtain a renewal of its registration annually.
     (2) An application for renewal of a registration as a provider must be in a form prescribed by the department, signed under penalty of perjury, and:
     (a) Be filed not less than thirty days nor more than sixty days before the registration expires;
     (b) Be accompanied by the fee established by the department;
     (c) Disclose any changes in the information contained in the applicant's application for registration or its immediately previous application for renewal, as applicable; and
     (d) Provide any other information that the department may reasonably require to perform the department's duties under this section.
     (3) If a provider files a timely and complete application for renewal of registration, the registration remains effective until the department, in a record, notifies the applicant of a denial and states the reasons for the denial.
     (4) If the department denies an application for renewal of registration as a provider, the applicant, no later than thirty days after receiving notice of the denial, may appeal and request a hearing under chapter 34.05 RCW. While the appeal is pending, the applicant shall continue to provide debt settlement services to individuals with whom it has agreements. If the denial is affirmed, the applicant shall continue to provide debt settlement services to individuals with whom it has agreements until, with the approval of the department, it transfers the agreements to another registered provider.

NEW SECTION.  Sec. 12   If a provider holds a license or certificate of registration in another state authorizing it to provide debt settlement services, the provider may submit a copy of that license or certificate of registration and the application for it instead of an application in the form prescribed by section 5(1), 6, or 11(2) of this act. The department shall 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:
     (1) The application in the other state contains information substantially similar to or more comprehensive than that required in an application submitted in this state; and
     (2) The applicant, under penalty of perjury, certifies that the information contained in the application is current or, to the extent it is not current, supplements the application to make the information current.

NEW SECTION.  Sec. 13   A person registered as a provider under this chapter is exempt from chapter 18.28 RCW.

NEW SECTION.  Sec. 14   A provider shall act in good faith in all matters under this chapter.

NEW SECTION.  Sec. 15   (1) Before an individual consents to pay for goods or services offered, a provider shall disclose truthfully, in a clear and conspicuous manner, the following material information:
     (a) A good faith estimate of the amount of time necessary to achieve the represented results;
     (b) To the extent the debt settlement services may include a settlement offer to any of the individual's creditors or debt collectors:
     (i) A good faith estimate of the time by which the provider will start to make bona fide settlement offers to the individual's creditors;
     (ii) A good faith estimate of the amount of money or the percentage of each outstanding debt that the individual will need to accumulate before the provider will make a bona fide settlement offer to one or more of such creditors;
     (iii) The cost to the individual for providing debt settlement services;
     (c) To the extent that any aspect of the debt settlement services relies upon or results in the individual's failure to make timely payments to creditors or debt collectors, that the use of the debt settlement services will likely adversely affect the individual's creditworthiness, may result in the individual being subject to collection actions or sued by creditors or debt collectors, and may increase the amount of money the individual owes due to the accrual of fees and interest; and
     (d) To the extent that the provider requests or requires the individual to place funds in an account at a financial institution, that the individual owns the funds held in the account and that the individual may withdraw from the debt settlement services at any time without penalty.
     (2) A provider may not misrepresent, directly or by implication, any material aspect of any debt settlement services, including but not limited to: The amount of money or the percentage of the debt amount that an individual may save by using such service; the effect of the service on the individual's creditworthiness; the effect of the service on collection efforts of the individual's creditors or debt collectors; the percentage or number of individuals who attain the represented results; and whether debt settlement services are offered or provided by a nonprofit entity.
     (3) A provider may not receive payment of any fee or consideration for any debt settlement services until and unless:
     (a) The provider has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt under a debt settlement program;
     (b) The individual has made at least one payment to a creditor in furtherance of a settlement with that creditor; and
     (c) The fee or consideration for settling each individual debt enrolled in a debt settlement plan either:
     (i) Bears the same proportional relationship to the total fee for settling the entire debt balance as the individual debt amount bears to the entire debt amount. The individual debt amount and the entire debt amount are amounts owed at the time the debt was enrolled on the debt relief service; or
     (ii) Is a percentage of the amount saved as a result of the settlement. The percentage charged may not change from one individual debt to another. The amount saved is the difference between the amount owed at the time the debt was enrolled in the debt relief service and the amount actually paid to satisfy the debt.
     (4) Nothing in this section prohibits requesting or requiring the individual to place funds in an account to be used for payment of the provider's fees and for payments to creditors or debt collectors in connection with the renegotiation, settlement, reduction, or other alteration of the terms of payment or other terms of debt if:
     (a) The funds are held in a specifically designated account at a financial institution;
     (b) The individual, not the provider, owns and controls the funds held in the account and is paid accrued interest on the account, if any;
     (c) If the provider does not administer the account, the entity administering the account is not owned or controlled by the provider and is not an affiliate of the provider;
     (d) The entity administering the account does not give or accept any money or other compensation in exchange for referrals of business by the provider; and
     (e) The individual may withdraw from the debt settlement services at any time without penalty, and receives all funds in the account, other than funds earned by the provider in compliance with this section, as specified in the account agreement between the individual and the financial institution.
     (5) If a provider is not registered as required by this chapter when an individual assents to an agreement, the agreement is voidable by the individual.

NEW SECTION.  Sec. 16   (1) The department may act on its own initiative or in response to complaints and may receive complaints, take action to obtain voluntary compliance with this chapter, and seek or provide remedies as provided in this chapter.
     (2) To determine compliance with this chapter, the department may 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 settlement services or of a person to which a provider has delegated its obligations under an agreement or this chapter. Information that identifies individuals who have agreements with the provider may not be disclosed to the public. In connection with the investigation, the department may:
     (a) Charge the person the reasonable expenses necessarily incurred to conduct the examination; and
     (b) Require or permit a person to file a statement under oath as to all the facts and circumstances of a matter to be investigated.
     (3) The department may enforce violations of this chapter by taking one or more of the following actions:
     (a) Ordering a provider or a director, employee, or other agent of a provider to cease and desist from any violations;
     (b) 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 aggrieved by a violation;
     (c) Imposing on a provider or a person that has caused a violation a civil penalty not exceeding one thousand dollars for each violation; and
     (d) Prosecuting a civil action to enforce an order or to obtain restitution or an injunction or other equitable relief, or both.

NEW SECTION.  Sec. 17   (1) The department may suspend, revoke, or deny renewal of a provider's registration if:
     (a) The provider has committed a material violation of this chapter; or
     (b) The provider is insolvent.
     (2) If the department suspends or revokes a provider's registration, the provider may appeal and request a hearing pursuant to chapter 34.05 RCW.

NEW SECTION.  Sec. 18   The director shall establish reasonable fees by rule sufficient to cover the costs of administering this chapter.

NEW SECTION.  Sec. 19   This chapter modifies, limits, and supersedes the electronic signatures in global and national commerce act (P.L. 106-229, 15 U.S.C. Sec. 7001 et seq.), but does not modify, limit, or supersede section 101(c) of the electronic signatures in global and national commerce act, 15 U.S.C. Sec. 7001(c), or authorize electronic delivery of any of the notices described in section 103(b) of the electronic signatures in global and national commerce act, 15 U.S.C. Sec. 7003(b).

Sec. 20   RCW 18.28.010 and 2012 c 56 s 1 are each reenacted and amended to read as follows:
     Unless a different meaning is plainly required by the context, the following words and phrases as hereinafter used in this chapter shall have the following meanings:
     (1) "Debt adjuster," which includes any person known as a debt pooler, debt manager, debt consolidator, debt prorater, or credit counselor, is any person engaging in or holding himself or herself out as engaging in the business of debt adjusting for compensation. The term shall not include:
     (a) Attorneys-at-law, escrow agents, accountants, broker-dealers in securities, or investment advisors in securities, while performing services solely incidental to the practice of their professions;
     (b) Any person, partnership, association, or corporation doing business under and as permitted by any law of this state or of the United States relating to banks, consumer finance businesses, consumer loan companies, trust companies, mutual savings banks, savings and loan associations, building and loan associations, credit unions, crop credit associations, development credit corporations, industrial development corporations, title insurance companies, insurance companies, or third-party account administrators;
     (c) Persons who, as employees on a regular salary or wage of an employer not engaged in the business of debt adjusting, perform credit services for their employer;
     (d) Public officers while acting in their official capacities and persons acting under court order;
     (e) Any person while performing services incidental to the dissolution, winding up or liquidation of a partnership, corporation, or other business enterprise;
     (f) Nonprofit organizations dealing exclusively with debts owing from commercial enterprises to business creditors;
     (g) Nonprofit organizations engaged in debt adjusting and which do not assess against the debtor a service charge in excess of fifteen dollars per month;
     (h) Persons registered as providers of debt settlement services under chapter 18.-- RCW (the new chapter created in section 23 of this act).
     (2) "Debt adjusting" means the managing, counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, ((or)) and receiving funds for the purpose of distributing said funds among creditors in payment or partial payment of obligations of a debtor.
     (3) "Debt adjusting agency" is any partnership, corporation, or association engaging in or holding itself out as engaging in the business of debt adjusting.
     (4) "Financial institution" means any person doing business under the laws of any state or the United States relating to commercial banks, bank holding companies, savings banks, savings and loan associations, trust companies, or credit unions.
     (5) "Third-party account administrator" means an independent entity that holds or administers a dedicated bank account for fees and payments to creditors, debt collectors, debt adjusters, or debt adjusting agencies in connection with the renegotiation, settlement, reduction, or other alteration of the terms of payment or other terms of a debt.

Sec. 21   RCW 42.56.230 and 2013 c 220 s 1 and 2013 c 336 s 3 are each reenacted and amended to read as follows:
     The following personal information is exempt from public inspection and copying under this chapter:
     (1) Personal information in any files maintained for students in public schools, patients or clients of public institutions or public health agencies, or welfare recipients;
     (2)(a) Personal information:
     (i) For a child enrolled in licensed child care in any files maintained by the department of early learning; or
     (ii) For a child enrolled in a public or nonprofit program serving or pertaining to children, adolescents, or students, including but not limited to early learning or child care services, parks and recreation programs, youth development programs, and after-school programs.
     (b) Emergency contact information under this subsection (2) may be provided to appropriate authorities and medical personnel for the purpose of treating the individual during an emergency situation;
     (3) Personal information in files maintained for employees, appointees, or elected officials of any public agency to the extent that disclosure would violate their right to privacy;
     (4) Information required of any taxpayer in connection with the assessment or collection of any tax if the disclosure of the information to other persons would: (a) Be prohibited to such persons by RCW 84.08.210, 82.32.330, 84.40.020, 84.40.340, or any ordinance authorized under RCW 35.102.145; or (b) violate the taxpayer's right to privacy or result in unfair competitive disadvantage to the taxpayer;
     (5) Credit card numbers, debit card numbers, electronic check numbers, card expiration dates, or bank or other financial account numbers, except when disclosure is expressly required by or governed by other law;
     (6) Personal and financial information related to a small loan or any system of authorizing a small loan in RCW 31.45.093; and
     (7)(a) Any record used to prove identity, age, residential address, social security number, or other personal information required to apply for a driver's license or identicard.
     (b) Information provided under RCW 46.20.111 that indicates that an applicant declined to register with the selective service system.
     (c) Any record pertaining to a vehicle license plate, driver's license, or identicard issued under RCW 46.08.066 that, alone or in combination with any other records, may reveal the identity of an individual, or reveal that an individual is or was, performing an undercover or covert law enforcement, confidential public health work, public assistance fraud, or child support investigative activity. This exemption does not prevent the release of the total number of vehicle license plates, drivers' licenses, or identicards that, under RCW 46.08.066, an agency or department has applied for, been issued, denied, returned, destroyed, lost, and reported for misuse.
     (d) Any record pertaining to a vessel registration issued under RCW 88.02.330 that, alone or in combination with any other records, may reveal the identity of an individual, or reveal that an individual is or was, performing an undercover or covert law enforcement activity. This exemption does not prevent the release of the total number of vessel registrations that, under RCW 88.02.330, an agency or department has applied for, been issued, denied, returned, destroyed, lost, and reported for misuse. (((e))) Upon request by the legislature, the department of licensing shall provide a report to the legislature containing all of the information in (c) ((and (d))) of this subsection and this subsection (7)(d) that is subject to public disclosure.
     (8) Information obtained by the department of financial institutions that identifies individuals who have agreements with a provider of debt settlement services, as provided in section 16 of this act.

NEW SECTION.  Sec. 22   This act does not invalidate or make unlawful contracts executed prior to the effective date of this section.

NEW SECTION.  Sec. 23   Sections 1 through 19 of this act constitute a new chapter in Title 18 RCW.