AN ACT Relating to prohibiting debt adjusting services and defining and regulating debt management services; amending RCW 18.28.080, 18.28.090, 18.28.100, 18.28.110, 18.28.120, 18.28.130, 18.28.140, 18.28.150, 18.28.165, 18.28.185, and 18.28.900; reenacting and amending RCW 18.28.010; and adding a new section to chapter 18.28 RCW.

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

Sec. 1.  RCW 18.28.010 and 2012 c 56 s 1 are each reenacted and amended to read as follows:

(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) "Debt adjusting" means, except under a debt management plan:

(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)))(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;

(d)))(C) Public officers while acting in their official capacities and persons acting under court order;

(((e)))(D) Any person while performing services incidental to the dissolution, winding up, or liquidation of a partnership, corporation, or other business enterprise;

(((f)))(E) 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)).

(2) (("Debt adjusting" means the managing, counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, or receiving funds for the purpose of distributing said funds among creditors in payment or partial payment of obligations of a debtor.))"Debt management" means services as an intermediary between a debtor and one or more creditors that includes the development and implementation of debt management plans and may include the receiving of money from a debtor for the purpose of distributing one or more payments to the debtor's creditors or arranging or assisting a debtor to arrange for the distribution of one or more payments to the debtor's creditors. "Debt management" does not include debt adjusting.

(3) "Debt ((adjusting))management agency" is any partnership, corporation, or association engaging in or holding itself out as engaging in the business of debt ((adjusting))management.

(4) "Debt management plan" means a plan which contemplates that:

(6) "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)))(7) "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))managers, or debt ((adjusting))management agencies in connection with the renegotiation, settlement, reduction, or other alteration of the terms of payment or other terms of a debt.

NEW SECTION.  Sec. 2.  A new section is added to chapter 18.28 RCW to read as follows:

(1) Except as provided in subsection (2) of this section, it is unlawful to engage in debt adjusting.

(2) Nonprofit organizations engaged in debt adjusting or debt management and that do not assess against the debtor a service charge in excess of fifteen dollars per month are exempt from this chapter.

Sec. 3.  RCW 18.28.080 and 2012 c 56 s 2 are each amended to read as follows:

(1) By contract a debt ((adjuster))manager may charge a reasonable fee for debt ((adjusting))management services. The total fee for debt ((adjusting))management services, including, but not limited to, any fee charged by a financial institution or a third-party account administrator, may not exceed fifteen percent of the total debt listed by the debtor on the contract. The fee retained by the debt ((adjuster))manager from any one payment made by or on behalf of the debtor may not exceed fifteen percent of the payment. The debt ((adjuster))manger may make an initial charge of up to twenty-five dollars which shall be considered part of the total fee. If an initial charge is made, no additional fee may be retained which will bring the total fee retained to date to more than fifteen percent of the total payments made to date. No fee whatsoever shall be applied against rent and utility payments for housing.

In the event of cancellation or default on performance of the contract by the debtor prior to its successful completion, the debt ((adjuster))manager may collect, in addition to fees previously received, six percent of that portion of the remaining indebtedness listed on said contract which was due when the contract was entered into, but not to exceed twenty-five dollars.

(2) A debt ((adjuster))manager shall not be entitled to retain any fee until notifying all creditors listed by the debtor that the debtor has engaged the debt ((adjuster))manager in a program of debt ((adjusting))management.

(3) The department of financial institutions has authority to enforce compliance with this section.

Sec. 4.  RCW 18.28.090 and 1999 c 151 s 103 are each amended to read as follows:

If a debt ((adjuster))manager contracts for, receives, or makes any charge in excess of the maximums permitted by this chapter, except as the result of an accidental and bona fide error, the debt ((adjuster's))manager's contract with the debtor shall be void and the debt ((adjuster))manager shall return to the debtor the amount of all payments received from the debtor or on the debtor's behalf and not distributed to creditors.

Sec. 5.  RCW 18.28.100 and 1999 c 151 s 104 are each amended to read as follows:

Every contract between a debt ((adjuster))manager and a debtor shall:

(1) List every debt to be handled with the creditor's name and disclose the approximate total of all known debts;

(2) Provide in precise terms payments reasonably within the ability of the debtor to pay;

(3) Disclose in precise terms the rate and amount of all of the debt ((adjuster's))manager's charges and fees;

(4) Disclose the approximate number and amount of installments required to pay the debts in full;

(5) Disclose the name and address of the debt ((adjuster))manager and of the debtor;

(6) Provide that the debt ((adjuster))manager shall notify the debtor, in writing, within five days of notification to the debt ((adjuster))manager by a creditor that the creditor refuses to accept payment pursuant to the contract between the debt ((adjuster))manager and the debtor;

(7) Contain the following notice in ten point boldface type or larger directly above the space reserved in the contract for the signature of the buyer: NOTICE TO DEBTOR:

(a) Do not sign this contract before you read it or if any spaces intended for the agreed terms are left blank.

(b) You are entitled to a copy of this contract at the time you sign it.

(c) You may cancel this contract within three days of signing by sending notice of cancellation by certified mail return receipt requested to the debt ((adjuster))manager at his or her address shown on the contract, which notice shall be posted not later than midnight of the third day (excluding Sundays and holidays) following your signing of the contract; and

(8) Contain such other and further provisions or disclosures as are necessary for the protection of the debtor and the proper conduct of business by the debt ((adjuster))manager.

Sec. 6.  RCW 18.28.110 and 1999 c 151 s 105 are each amended to read as follows:

Every debt ((adjuster))manager shall perform the following functions:

(1) Make a permanent record of all payments by debtors, or on the debtors' behalf, and of all disbursements to creditors of such debtors, and shall keep and maintain in this state all such records, and all payments not distributed to creditors. No person shall intentionally make any false entry in any such record, or intentionally mutilate, destroy, or otherwise dispose of any such record. Such records shall at all times be open for inspection by the attorney general or the attorney general's authorized agent, and shall be preserved as original records or by microfilm or other methods of duplication for at least six years after making the final entry therein.

(2) Deliver a completed copy of the contract between the debt ((adjuster))manager and a debtor to the debtor immediately after the debtor executes the contract, and sign the debtor's copy of such contract.

(3) Unless paid by check or money order, deliver a receipt to a debtor for each payment within five days after receipt of such payment.

(4) Distribute to the creditors of the debtor at least once each forty days after receipt of payment during the term of the contract at least eighty-five percent of each payment received from the debtor.

(5) At least once every month render an accounting to the debtor which shall indicate the total amount received from or on behalf of the debtor, the total amount paid to each creditor, the total amount which any creditor has agreed to accept as payment in full on any debt owed the creditor by the debtor, the amount of charges deducted, and any amount held in trust. The debt ((adjuster))manager shall in addition render such an account to a debtor within ten days after written demand.

(6) Notify the debtor, in writing, within five days of notification to the debt ((adjuster))manager by a creditor that the creditor refuses to accept payment pursuant to the contract between the debt ((adjuster))manager and the debtor.

Sec. 7.  RCW 18.28.120 and 1999 c 151 s 106 are each amended to read as follows:

A debt ((adjuster))manager shall not:

(1) Take any contract((,)) or other instrument which has any blank spaces when signed by the debtor;

(2) Receive or charge any fee in the form of a promissory note or other promise to pay or receive or accept any mortgage or other security for any fee, whether as to real or personal property;

(3) Lend money or credit;

(4) Take any confession of judgment or power of attorney to confess judgment against the debtor or appear as the debtor in any judicial proceedings;

(5) Take, concurrent with the signing of the contract or as a part of the contract or as part of the application for the contract, a release of any obligation to be performed on the part of the debt ((adjuster))manager;

(6) Advertise services, display, distribute, broadcast, or televise, or permit services to be displayed, advertised, distributed, broadcasted, or televised in any manner whatsoever wherein any false, misleading, or deceptive statement or representation with regard to the services to be performed by the debt ((adjuster))manager, or the charges to be made therefor, is made;

(7) Offer, pay, or give any cash, fee, gift, bonus, premiums, reward, or other compensation to any person for referring any prospective customer to the debt ((adjuster))manager;

(8) Receive any cash, fee, gift, bonus, premium, reward, or other compensation from any person other than the debtor or a person in the debtor's behalf in connection with his or her activities as a debt ((adjuster))manager; or

(9) Disclose to anyone the debtors who have contracted with the debt ((adjuster))manager; nor shall the debt ((adjuster))manager disclose the creditors of a debtor to anyone other than: (a) The debtor; or (b) another creditor of the debtor and then only to the extent necessary to secure the cooperation of such a creditor in a debt ((adjusting))management plan.

Sec. 8.  RCW 18.28.130 and 1999 c 151 s 107 are each amended to read as follows:

Without limiting the generality of the foregoing and other applicable laws, the debt ((adjuster)), manager or an employee of the debt ((adjuster))manager shall not:

(1) Prepare, advise, or sign a release of attachment or garnishment, stipulation, affidavit for exemption, compromise agreement, or other legal or court document, nor furnish legal advice or perform legal services of any kind;

(2) Represent that he or she is authorized or competent to furnish legal advice or perform legal services;

(3) Assume authority on behalf of creditors or a debtor or accept a power of attorney authorizing it to employ or terminate the services of any attorney or to arrange the terms of or compensate for such services; or

(4) Communicate with the debtor or creditor or any other person in the name of any attorney or upon the stationery of any attorney or prepare any form or instrument which only attorneys are authorized to prepare.

Sec. 9.  RCW 18.28.140 and 1999 c 151 s 108 are each amended to read as follows:

Nothing in this chapter shall be construed as prohibiting the assignment of wages by a debtor to a debt ((adjuster))manager, if such assignment is otherwise in accordance with the law of this state.

Sec. 10.  RCW 18.28.150 and 1999 c 151 s 109 are each amended to read as follows:

(1) Any payment received by a debt ((adjuster))manager from or on behalf of a debtor shall be held in trust by the debt ((adjuster))manager from the moment it is received. The debt ((adjuster))manager shall not commingle such payment with the debt ((adjuster's))manager's own property or funds, but shall maintain a separate trust account and deposit in such account all such payments received. All disbursements whether to the debtor or to the creditors of the debtor, or to the debt ((adjuster))manager, shall be made from such account.

(2) In the event that the debtor cancels or defaults on the contract between the debtor and the debt ((adjuster))manager, the debt ((adjuster))manager shall close out the debtor's trust account in the following manner:

(a) The debt ((adjuster))manager may take from the account that amount necessary to satisfy any fees, other than any cancellation or default fee, authorized by this chapter.

(b) After deducting the fees provided in ((subsection (2)))(a) of this subsection, the debt ((adjuster))manager shall distribute the remaining amount in the account to the creditors of the debtor. The distribution shall be made within five days of the demand therefor by the debtor, but if the debtor fails to make the demand, then the debt ((adjuster))manager shall make the distribution within thirty days of the date of cancellation or default.

Sec. 11.  RCW 18.28.165 and 1999 c 151 s 110 are each amended to read as follows:

For the purpose of discovering violations of this chapter or securing information lawfully required under this chapter, the office of the attorney general may at any time: Investigate the debt ((adjusting))management business and examine the books, accounts, records, and files used; have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of debt ((adjusters))managers; and require the attendance of and examine under oath all persons whomsoever whose testimony might be required relative to such debt ((adjusting))management business or to the subject matter of any examination, investigation, or hearing.

Sec. 12.  RCW 18.28.185 and 1979 c 156 s 10 are each amended to read as follows:

Sec. 13.  RCW 18.28.900 and 1967 c 201 s 23 are each amended to read as follows:

The provisions of this chapter shall not invalidate or make unlawful contracts between debt adjusters and debtors or debt managers and debtors executed prior to the effective date of this chapter.

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