Z-1479               _______________________________________________

                                                   SENATE BILL NO. 6553

                        _______________________________________________

State of Washington                              50th Legislature                              1988 Regular Session

By Senator Lee; by request of Department of Licensing

Read first time 1/25/88 and referred to Committee on Economic Development & Labor.

AN ACT Relating to debt adjusting; amending RCW 18.28.010, 18.28.020, 18.28.040, 18.28.050, 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, 18.28.170, and 18.28.190; adding new sections to chapter 18.28 RCW; repealing RCW 18.28.030, 18.28.045, 18.28.060, 18.28.070, and 18.28.160; and prescribing penalties.

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

        Sec. 1.  Section 1, chapter 201, Laws of 1967 as last amended by section 1, chapter 156, Laws of 1979 and RCW 18.28.010 are each 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 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.

          (2) "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 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, ((small loan companies)) consumer finance businesses, industrial 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, or insurance companies;

          (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.

          (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) "License" means a debt adjuster license or debt adjusting agency license issued under the provisions of this chapter.

          (5) "Licensee" means a debt adjuster or debt adjusting agency to whom a license has been issued under the provisions of this chapter.

          (6) "Director" means the director of the department of licensing.))

        Sec. 2.  Section 2, chapter 201, Laws of 1967 and RCW 18.28.020 are each amended to read as follows:

          ((No debt adjuster,)) Debt adjusting ((agency, or branch office of any debt adjusting agency may engage in the business of debt adjusting within this state except as authorized by this chapter and without first obtaining a license from the director)) conducted by any entity not exempt from the definition of "debt adjuster" under RCW 18.28.010(2) is subject to the consumer protection act, chapter 19.86 RCW, and this chapter.

NEW SECTION. Sec. 3.  A new section is added to chapter 18.28 RCW to read as follows:

          (1) A person engaged in debt adjusting in this state must register with the department of licensing.  Each registration application shall be submitted annually on a form provided by the department of licensing and shall include the following information:

          (a) The name, residence address and telephone number, and business name, address, and telephone number of the registrant; and

          (b) Proof that the registrant has the required surety bond under RCW 18.28.040.

          (2) The department of licensing shall charge a fee for each application, to be set in accordance with RCW 43.24.086.

          (3)  Any persons advertising or representing themselves as having registered under this section who are not currently registered are guilty of a gross misdemeanor.

          (4) If the surety on a bond cancels or refuses to renew the bond for a registrant during the period of registration, the surety company shall notify the department of licensing in writing of the termination of the bond and its effective date not less than thirty days before the effective date of termination.

          (a) Upon receipt of a surety company termination notice, the department of licensing shall send written notice to the registrant that on the effective date of termination the department of licensing will suspend the registration unless proof of bonding as required by this section is filed with the department of licensing before the effective date of the termination.

          (b) If a surety company fails to give notice of coverage termination, this failure shall not have the effect of continuing the coverage.

          (c) The department of licensing may suspend or revoke registration under this section if the registrant fails to maintain in full force and effect the surety bond required by this chapter.

          (5) The state of Washington is immune from any civil action arising from a registration under this section.

        Sec. 4.  Section 4, chapter 201, Laws of 1967 and RCW 18.28.040 are each amended to read as follows:

          ((The bond, required in RCW 18.28.030, shall be)) A debt adjuster shall have at all times a surety bond((, annually renewable on January 1st, to be approved by the director as to form and content,)) in the sum of ((ten)) fifteen thousand dollars, executed by the ((applicant)) debt adjuster as principal and by a surety company authorized to do business in this state as a surety, whose liability shall not exceed the said sum in the aggregate.  Such bond shall run to the state of Washington as obligee for the benefit of the state and of any person or persons who may have cause of action against the principal of said bond under the provisions of this chapter or chapter 19.86 RCW.  Such bond shall be conditioned that said principal ((as licensee)) hereunder will not commit any fraudulent act and will comply with the provisions of chapter 19.86 RCW and this chapter and the rules lawfully adopted hereunder, and will pay to the state and any such person or persons any and all moneys that may become due and owing from such principal under and by virtue of the provisions of chapter 19.86 RCW and this chapter.  The surety on such bond shall be released and discharged from all liability accruing on such bond after the expiration of ((thirty)) forty-five days from the date upon which such surety ((shall have lodged with the director a written request to be released and discharged, but)) has notified the principal of the expiration or cancellation of the bond.  This provision shall not operate to relieve, release or discharge the surety from any liability already accrued or which shall accrue before the expiration of the ((thirty)) forty-five day period.  ((The director shall promptly upon receiving any such request notify the principal who furnished the bond; and unless the principal shall, on or before the expiration of the thirty day period, file a new bond, the director shall forthwith cancel the principal's license.

          An applicant for a license under this chapter may furnish, file and deposit with the director, in lieu of the surety bond provided for herein, United States currency or bonds, representing obligations of the United States, or bonds of the state of Washington or any legal subdivision thereof, for which the faith of the United States, the state of Washington or any legal subdivision thereof is pledged, for the payment of both the principal and interest, equal in amount to the amount of the bond required by this chapter.  The security deposited with the director in lieu of the surety bond shall be returned to the licensee at the expiration of three years after the license issued thereon has expired or been revoked if no legal action has been instituted against the licensee or on the bond at the expiration of said three years.)) Claims may be filed on the surety bond within three years from the date of bond termination by serving by registered or certified mail a copy of the complaint on the surety at the time the suit is started.  Failure to maintain a surety bond at the full amount required in this section is a violation.

        Sec. 5.  Section 5, chapter 201, Laws of 1967 and RCW 18.28.050 are each amended to read as follows:

          If the ((licensee)) debt adjuster has failed to account to a debtor or distribute to the debtor's creditors such amounts as are required by this chapter and the contract between the debtor and ((licensee)) debt adjuster, the debtor((,)) or his legal representative or receiver((, or the director,)) shall have, in addition to all other legal remedies, a right of action in the name of the debtor on the bond ((or the security)) given pursuant to the provisions of RCW 18.28.040, for loss suffered by the debtor, not exceeding the face of the bond ((or security)), and without the necessity of joining the ((licensee)) debt adjuster in such suit or action.  No action shall be brought upon any bond ((or security)) given under RCW 18.28.040 after the expiration of three years from the ((revocation)) cancellation or expiration of the ((license issued thereon)) bond.  Upon entering judgment for plaintiff in any action on the bond required under RCW 18.28.040, for more than the sum tendered in the court by the defendant, if any, the court shall include in the judgment reasonable compensation for services of plaintiff's attorney in the action.

NEW SECTION. Sec. 6.  A new section is added to chapter 18.28 RCW to read as follows:

          (1) No person may conduct debt adjusting or serve as a principal, officer, or director, or be an employee in a debt adjusting agency, if that person has:

          (a) Been convicted of forgery, embezzlement, obtaining money under false pretenses, larceny, extortion, conspiracy to defraud, or any other like offense or disbarred from the practice of law;

          (b) Violated this chapter or any rules, orders, or decisions promulgated under this chapter or chapter 19.86 RCW;

          (c) Had a license to engage in the business of debt adjusting revoked or removed for any reason other than for failure to pay licensing renewal fees in this or any other state;

          (d) Ownership in or is employed by a collection agency or process serving business.

          (2) A debt adjusting agency that is a partnership, corporation, or association must be authorized to do business in this state.

        Sec. 7.  Section 8, chapter 201, Laws of 1967 as last amended by section 4, chapter 156, Laws of 1979 and RCW 18.28.080 are each amended to read as follows:

          (1) By contract, a ((licensee)) debt adjuster or debt adjusting agency may charge a reasonable fee for debt adjusting services.  The total fee for debt adjusting services may not exceed fifteen percent of the total debt listed by the debtor on the contract.  The fee retained by the ((licensee)) debt adjuster from any one payment made by or on behalf of the debtor may not exceed fifteen percent of the payment:  PROVIDED, That ((the licensee 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 ((licensee)) debt adjuster 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 licensee shall not be entitled to retain any fee until notifying all creditors listed by the debtor that the debtor has engaged the licensee in a program of debt adjusting.)) No fee may be retained by a debt adjuster until all creditors listed by the debtor have been notified by the debt adjuster that the debtor has engaged the services of the debt adjuster or debt adjusting agency.

        Sec. 8.  Section 9, chapter 201, Laws of 1967 and RCW 18.28.090 are each amended to read as follows:

          If a ((licensee)) debt adjuster 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 ((licensee's)) contract with the debtor shall be void and ((the licensee shall return to the debtor the amount of)) all payments received from the debtor or on his behalf and not distributed to creditors shall be returned to the debtor.

        Sec. 9.  Section 10, chapter 201, Laws of 1967 as amended by section 5, chapter 156, Laws of 1979 and RCW 18.28.100 are each amended to read as follows:

          Every contract ((between a licensee and)) with 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 ((licensee's)) debt adjuster'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 ((licensee)) debt adjuster and of the debtor;

          (6) Provide that the ((licensee)) debt adjuster shall notify the debtor, in writing, within five days of notification to the ((licensee)) debt adjuster by a creditor that the creditor refuses to accept payment pursuant to the contract between the ((licensee)) debt adjuster 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 at his 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) Disclose to the debtor the name of the authorized surety company holding the required bond, the amount of the bond, the bond number, and process by which a claim can be made against the bond; and

(9) Contain such other and further provisions or disclosures as ((the director shall determine)) are required by rule or are necessary for the protection of the debtor and the proper conduct of business by the ((licensee)) debt adjuster.

        Sec. 10.  Section 11, chapter 201, Laws of 1967 as amended by section 6, chapter 156, Laws of 1979 and RCW 18.28.110 are each amended to read as follows:

          Every ((licensee)) debt adjuster 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 ((director or his)) attorney general or the attorney general's authorized agent, and shall be preserved as original records or by microfilm or other methods of duplication acceptable to the ((director)) attorney general, for at least six years after making the final entry therein.

          (2) Deliver a completed copy of the contract between the ((licensee)) debt adjuster 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 ((him)) by the debtor, the amount of charges deducted, and any amount held in trust.  The ((licensee)) debt adjuster 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 licensee)) by a creditor that the creditor refuses to accept payment pursuant to the contract between the ((licensee)) debt adjuster and the debtor.

          (((7) Furnish the director with all contracts, assignments, and forms as described in RCW 18.28.030 which are currently in use.))

        Sec. 11.  Section 12, chapter 201, Laws of 1967 and RCW 18.28.120 are each amended to read as follows:

          A ((licensee)) debt adjuster or debt adjusting agency 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 ((licensee)) debt adjuster;

          (6) Advertise his services, display, distribute, broadcast or televise, or permit his 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 ((licensee)) debt adjuster, 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 ((licensee)) debt adjuster;

          (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 activities as a ((licensee)) debt adjuster; or

          (9) Disclose to anyone, other than the ((director or his)) attorney general or the attorney general's agent, the debtors who have contracted with the ((licensee)) debt adjuster; nor shall the ((licensee)) debt adjuster disclose the creditors of a debtor to anyone other than:  (a) The debtor, or (b) the ((director or his)) attorney general or the attorney general's agent, or (c) another creditor of the debtor and then only to the extent necessary to secure the cooperation of such a creditor in a debt adjusting plan.

        Sec. 12.  Section 13, chapter 201, Laws of 1967 and RCW 18.28.130 are each amended to read as follows:

          Without limiting the generality of the foregoing and other applicable laws, the ((licensee,)) debt adjuster or manager or employee of a ((licensee)) debt adjuster 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)) the debt adjuster 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. 13.  Section 14, chapter 201, Laws of 1967 and RCW 18.28.140 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 ((licensee)) debt adjuster, if such assignment is otherwise in accordance with the law of this state.

        Sec. 14.  Section 15, chapter 201, Laws of 1967 as amended by section 8, chapter 156, Laws of 1979 and RCW 18.28.150 are each amended to read as follows:

          (1) Any payment received by a ((licensee)) debt adjuster from or on behalf of a debtor shall be held in trust by the ((licensee)) debt adjuster from the moment it is received.  The ((licensee)) debt adjuster shall not commingle such payment with his 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 ((licensee)) debt adjuster, shall be made from such account.

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

          (a) The ((licensee)) debt adjuster 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 section, the ((licensee)) debt adjuster 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 ((licensee)) debt adjuster shall make the distribution within thirty days of the date of cancellation or default.

        Sec. 15.  Section 7, chapter 156, Laws of 1979 and RCW 18.28.165 are each amended to read as follows:

          For the purpose of discovering violations of this chapter or securing information lawfully required by him hereunder, the ((director)) attorney general may at any time, either personally or by a person or persons duly designated by ((him)) the attorney general, investigate the debt adjusting business and examine the books, accounts, records, and files used therein, of every ((licensee)) debt adjuster.  For that purpose the ((director)) attorney general and ((his)) the attorney general's duly designated representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all ((licensees)) debt adjusters.  The ((director)) attorney general and all persons duly designated by ((him)) the attorney general may require the attendance of and examine under oath all persons whomsoever whose testimony ((he)) may ((require)) be required relative to such debt adjusting business or to the subject matter of any examination, investigation, or hearing.

        Sec. 16.  Section 17, chapter 201, Laws of 1967 as amended by section 9, chapter 156, Laws of 1979 and RCW 18.28.170 are each amended to read as follows:

          The ((director)) attorney general may promulgate rules, make specific decisions, orders and rulings, including therein demands and findings, and take other necessary action for the implementation and enforcement of this chapter.  The ((director)) attorney general shall include among rules promulgated, those which describe and forbid deceptive advertising.

        Sec. 17.  Section 19, chapter 201, Laws of 1967 and RCW 18.28.190 are each amended to read as follows:

          Any person who violates any provision of this chapter or aids or abets such violation, or any rule lawfully promulgated hereunder or any order or decision of the ((director)) attorney general hereunder((, or any person who operates as a debt adjuster without a license,)) shall be guilty of a misdemeanor.

NEW SECTION. Sec. 18.  The following acts or parts of acts are each repealed:

                   (1) Section 3, chapter 201, Laws of 1967, section 6, chapter 266, Laws of 1971 ex. sess., section 23, chapter 30, Laws of 1975 1st ex. sess., section 18, chapter 7, Laws of 1985 and RCW 18.28.030;

          (2) Section 2, chapter 156, Laws of 1979 and RCW 18.28.045;

          (3) Section 6, chapter 201, Laws of 1967, section 1, chapter 141, Laws of 1967 ex. sess., section 20, chapter 292, Laws of 1971 ex. sess., section 3, chapter 156, Laws of 1979 and RCW 18.28.060;

          (4) Section 7, chapter 201, Laws of 1967 and RCW 18.28.070; and

          (5) Section 16, chapter 201, Laws of 1967 and RCW 18.28.160.