senate Bill S5215B

2011-2012 Legislative Session

Defines certain terms related to budget planners and regulates the activities of budget planners

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Archive: Last Bill Status - Passed Senate


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jun 13, 2012 referred to codes
delivered to assembly
passed senate
ordered to third reading cal.1235
committee discharged and committed to rules
Jun 01, 2012 print number 5215c
amend and recommit to finance
Jan 18, 2012 reported and committed to finance
Jan 04, 2012 referred to consumer protection
Jun 24, 2011 committed to rules
Jun 14, 2011 amended on third reading 5215b
Jun 14, 2011 advanced to third reading
Jun 13, 2011 2nd report cal.
Jun 07, 2011 1st report cal.1060
Jun 02, 2011 print number 5215a
amend and recommit to banks
May 17, 2011 reported and committed to banks
May 03, 2011 referred to consumer protection

Votes

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Jun 13, 2012 - Rules committee Vote

S5215C
21
1
committee
21
Aye
1
Nay
2
Aye with Reservations
0
Absent
1
Excused
0
Abstained
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Jan 18, 2012 - Consumer Protection committee Vote

S5215B
8
0
committee
8
Aye
0
Nay
2
Aye with Reservations
0
Absent
0
Excused
0
Abstained
show Consumer Protection committee vote details

Consumer Protection Committee Vote: Jan 18, 2012

aye wr (2)

Jun 7, 2011 - Banks committee Vote

S5215A
17
1
committee
17
Aye
1
Nay
1
Aye with Reservations
0
Absent
0
Excused
0
Abstained
show committee vote details

May 17, 2011 - Consumer Protection committee Vote

S5215
10
0
committee
10
Aye
0
Nay
0
Aye with Reservations
0
Absent
0
Excused
0
Abstained
show committee vote details

Bill Amendments

Original
A
B
C (Active)
Original
A
B
C (Active)

Co-Sponsors

S5215 - Bill Details

See Assembly Version of this Bill:
A8212A
Current Committee:
Law Section:
General Business Law
Laws Affected:
Amd §§455 - 457, Gen Bus L; ren §579 to be §579-a, add §579, amd §§579-a & 583-a, ren §§584-a & 584-b to be 584-c & 584-d, add §§584-a & 584-b, amd §584-d, Bank L

S5215 - Bill Texts

view summary

Defines certain terms related to budget planners and regulates the activities of budget planners.

view sponsor memo
BILL NUMBER:S5215

TITLE OF BILL:
An act
to amend the general business law and the banking law, in relation to
defining terms related to budget planning and regulating the activities
of budget planners

PURPOSE:
The purpose of this bill is to expand the scope of current law to
require persons conducting debt settlement and debt management
services to be registered as budget planners under the jurisdiction
of the Department of Financial Regulation and require all budget
planners to disclose specific information necessary for consumers to
make informed decision regarding whether budget planning services are
appropriate for them. The bill further regulates fees paid by
consumers to budget planners.

SUMMARY OF PROVISIONS:
Includes in the definition of budget planning those persons who
provide debt settlement and debt management services and removes the
requirement that all budget planners have not-for-profit tax status.

Adds new definitions of the terms "person", "principal amount of the
debt", "debt management plan" and "debt settlement plan." The bill
requires that persons engaged in the business of budget planning must
first obtain a license from the superintendent. The bill also
provides exemptions from the license requirement for: attorneys
licensed to practice law and who don't hold themselves out as budget
planners; any public officer while acting in an official capacity and
any persons acting under a court order; persons performing services
as part of a dissolution of a business enterprise; any bank, trust
company, savings bank, savings and loan association or credit union;
and any attorney providing legal services under the federal
bankruptcy code.

Requires budget planners to make four specific disclosures to
consumers including: how long it will take for consumers to see
results; how much the services will likely cost; the negative
consequences that could result from using debt relief services; and
key information about dedicated accounts if they choose to require
them.

Prohibits upfront fees to be paid by consumers prior to receiving
budget planning services. The bill also establishes a fee structure
that provides a 25 percent cap on fees whether the fees are paid as a
proportion to the entire debt balance as the individual debt amount
bears to the entire debt amount or as a percentage of the amount
saved as a result of the debt settlement.

The bill requires that if a consumer must establish an account for the
purposes of licensee's fees or the payment of funds to creditors the
account must be held in an insured financial institution; the debtor
maintains ownership of the funds; if the licensee doesn't manage the
account, the manager of the account must not have any affiliation
with the licensee; the manager of the account must not give or accept
any compensation in exchange for referrals; and the debtor may


withdraw from the budget plan at any time without penalty and receive
all funds minus fees earned by the licensee. Lastly, the bill
prohibits a licensee from misrepresenting any material aspect of
budget planning.

JUSTIFICATION:
As the size and scope of consumer debt has risen in this country so
has the growth of the debt settlement industry. As more and more New
Yorkers have become unable to pay their debts, the option of debt
settlement has become even more attractive.

The expansion of this industry, however, has come with its share of
burdens. Legitimate debt settlement companies are being tarnished by
the fraud and abuse that is apparent throughout the industry.
Hundreds of debt settlement companies are operating in an
under-regulated environment and lack enforceable standards and
regulations, which has eroded confidence in debt settlement among
regulators and consumers. For the debt settlement industry to remain
relevant and succeed as an effective option for New Yorkers facing
financial hardship over the long-term, the state must adopt
enforceable standards and seek appropriate oversight from regulators.

In October, 2010, the Federal Trade Commission (FTC) amended the
Telemarketing Sales Rule (TSR) to add specific provisions to curb
deceptive and abusive practices associated with debt settlement
services. The new rule, however, only applies to for-profit sellers
of debt relief services and telemarketers for debt settlement
companies. In addition, the new rule does not apply to in-person
marketing of debt settlement services.

The new rule expands the scope of the TSR to cover not only outbound
telemarketing calls but now will cover inbound calls from consumers
to debt settlement companies as well. The rule further makes it
illegal to charge upfront fees and requires the disclosure of certain
information before signing people up for services. This bill would
codify the FTC rules into New York Law strengthening the state's
current budget planner statute and providing necessary protections to
New York consumers. Furthermore, this bill goes beyond the FTC rule
to cover both for-profit and not-for-profit debt settlement providers
and will also apply to in-person sales and marketing of services that
the FTC rule fails to provide.

The bill further protects consumers by prohibiting a debt settlement
company from charging more than twenty-five percent of the debt
balance as the individual debt amount bears to the entire debt amount
or as a percentage of the amount saved as a result of the debt
settlement.

In addition to the enhanced consumer protection provisions of this
bill, the legislation seeks to remedy a longstanding misconception
regarding for-profit debt settlement companies. Current
New York law requires "budget planners" to be non-profit
organizations. The current approach to regulating budget planners by
allowing only non-profit providers to become licensed is based on the
false conclusion that non-profit providers offer a better service to
consumers than taxable providers. Taxable and non-profit providers
coexist and compete in health care, education, utilities and social


services across the state of New York. These services should not be
regulated on the basis of tax status, but on the provider's
qualifications and service to consumers. No state has ever determined
that the tax status of a legitimate debt settlement provider
influences the quality of service being offered.

Effective laws and regulations governing this industry will help
ensure that consumers are sufficiently protected when seeking the
services of debt settlement providers. Requiring high standards for
providing these services will ensure that only organizations
committed to helping consumers will be permitted to operate.

LEGISLATIVE HISTORY: This is a new bill.

FISCAL IMPLICATIONS: Undetermined.

EFFECTIVE DATE: Immediate.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5215

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 3, 2011
                               ___________

Introduced  by  Sen.  GRIFFO -- read twice and ordered printed, and when
  printed to be committed to the Committee on Consumer Protection

AN ACT to amend the  general  business  law  and  the  banking  law,  in
  relation  to  defining terms related to budget planning and regulating
  the activities of budget planners

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Section  455  of  the general business law, as amended by
chapter 629 of the laws of 2002, subdivisions 1  and  4  as  amended  by
chapter 456 of the laws of 2006, is amended to read as follows:
  S 455. Definitions. 1. Budget planning, as used in this article, means
the  making  of  a  contract between a person [or entity] engaged in the
business of budget planning with a particular debtor whereby THE  DEBTOR
AGREES  TO  PAY  TO  SUCH  PERSON ANY VALUABLE CONSIDERATION AND (i) the
debtor agrees to pay a sum or sums of money in any manner  or  form  and
the  person  [or  entity]  engaged  in  the  business of budget planning
distributes, or supervises, coordinates or controls the distribution of,
or has a contractual relationship with another person [or  entity]  that
distributes,  or  supervises,  coordinates or controls such distribution
of, the same among certain specified creditors in accordance with a plan
agreed upon [and]; OR (ii) the [debtor agrees to pay to such  person  or
entity,  or such other person or entity that distributes, or supervises,
coordinates or controls such distribution of, a sum or  sums  of  money,
any  valuable  consideration for such services or for any other services
rendered in connection therewith.] PERSON ENGAGED  IN  THE  BUSINESS  OF
BUDGET  PLANNING PROVIDES ADVICE OR SERVICES, OR ACTS AS AN INTERMEDIARY
BETWEEN OR ON BEHALF OF A DEBTOR AND ONE OR MORE OF THE DEBTOR'S  CREDI-
TORS,  WHERE THE PRIMARY PURPOSE OF THE ADVICE, SERVICE, OR ACTION IS TO
OBTAIN A SETTLEMENT, ADJUSTMENT, OR SATISFACTION OF THE  DEBTOR'S  UNSE-
CURED DEBT TO A CREDITOR IN AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT  OF
THE  DEBT  OR  IN AN AMOUNT LESS THAN THE CURRENT OUTSTANDING BALANCE OF

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11381-01-1

S. 5215                             2

THE DEBT; OR (III) THE PERSON ENGAGED IN THE BUSINESS OF BUDGET PLANNING
PROVIDES SERVICES RELATED TO, OR PROVIDES SERVICES  ADVISING,  ENCOURAG-
ING,  ASSISTING,  OR  COUNSELING  A  DEBTOR TO, ACCUMULATE FUNDS FOR THE
PRIMARY  PURPOSE OF PROPOSING, OBTAINING, OR SEEKING TO OBTAIN A SETTLE-
MENT, ADJUSTMENT, OR SATISFACTION OF THE DEBTOR'S UNSECURED  DEBT  TO  A
CREDITOR  IN  AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT OF THE DEBT OR IN
AN AMOUNT LESS THAN THE CURRENT OUTSTANDING BALANCE OF THE DEBT  TO  PAY
TO  SUCH  PERSON. For the purposes of this article, a person [or entity]
shall be considered as engaged in the business of budget planning in New
York, and subject to this article and the licensing and  other  require-
ments of article twelve-C of the banking law, if such person [or entity]
solicits  budget  planning business within this state and, in connection
with such solicitation, enters into a contract for budget planning  with
an individual then resident in this state.
  2.  PERSON,  AS  USED  IN  THIS  ARTICLE, MEANS AN INDIVIDUAL, LIMITED
LIABILITY COMPANY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.
  3. Person, as used in this article, shall not include a person [admit-
ted to practice law in this state.
  3. Entity, as used in this article, shall not include a firm, partner-
ship, professional  corporation,  or  other  organization,  all  of  the
members  or  principals  of  which  are admitted to practice law in this
state.
  4. Person or entity as used in this article shall not include a type B
not-for-profit corporation as defined in section two hundred one of  the
not-for-profit  corporation law of this state, or an entity incorporated
in another state and having a similar not-for-profit  status,]  licensed
by  the  superintendent[,]  to engage in the business of budget planning
[as defined in this section] OR EXEMPT FROM LICENSURE AS A BUDGET  PLAN-
NER UNDER ARTICLE TWELVE-C OF THE BANKING LAW.
  [5. Any attorney licensed to practice law in this state who is engaged
in budget planning shall (a) negotiate directly with creditors on behalf
of  the  client; (b) ensure that all moneys received from the client are
deposited in the attorney's account maintained for client funds; (c) pay
creditors from such account; and  (d)  offer  budget  planning  services
through the same legal entity that the attorney uses to practice law.]
  S  2.  Section  456 of the general business law, as amended by chapter
456 of the laws of 2006, is amended to read as follows:
  S 456. Budget planning prohibited. No person [or entity] shall  engage
in  the  business  of budget planning as defined in section four hundred
fifty-five of this article, except as authorized in article twelve-C  of
the banking law.
  S  3.  Section  457 of the general business law, as amended by chapter
629 of the laws of 2002, is amended to read as follows:
  S 457. Penalty. Whoever either individually or as officer, director or
employee of any person[, firm, association or corporation,] violates any
of the provisions of [the preceding] section FOUR HUNDRED  FIFTY-SIX  OF
THIS ARTICLE shall be guilty of a misdemeanor for each such violation.
  S  4. Section 579 of the banking law is renumbered section 579-a and a
new section 579 is added to read as follows:
  S 579. DEFINITIONS. AS USED IN THIS ARTICLE:
  1. "PERSON" MEANS AN INDIVIDUAL, PARTNERSHIP, LIMITED LIABILITY COMPA-
NY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.
  2. "PRINCIPAL AMOUNT OF THE DEBT" MEANS THE TOTAL  AMOUNT  OWED  BY  A
DEBTOR  TO  ONE  OR MORE CREDITORS FOR A DEBT THAT IS INCLUDED IN A DEBT
SETTLEMENT PLAN AT THE TIME WHEN THE DEBTOR ENTERS INTO SUCH DSP.

S. 5215                             3

  3. "DEBT MANAGEMENT PLAN" OR "DMP" MEANS A CONTRACT BETWEEN  A  PERSON
AND  A  DEBTOR  WHEREBY  THE  PERSON  WILL  PROVIDE BUDGET PLANNING THAT
CONTEMPLATES THAT CREDITORS WILL REDUCE FINANCE CHARGES OR FEES FOR LATE
PAYMENT, DEFAULT OR DELINQUENCY.
  4.  "DEBT  SETTLEMENT PLAN" OR "DSP" MEANS A CONTRACT BETWEEN A PERSON
AND A DEBTOR WHEREBY  THE  PERSON  WILL  PROVIDE  BUDGET  PLANNING  THAT
CONTEMPLATES  THAT CREDITORS WILL SETTLE DEBTS FOR LESS THAN THE PRINCI-
PAL AMOUNT OF THE DEBT.
  S 5. Section 579-a of the banking law, as amended by  chapter  629  of
the  laws  of  2002  and  as  renumbered by section four of this act, is
amended to read as follows:
  S 579-a.  Doing business without license prohibited. [Only  a  type  B
not-for-profit  corporation as defined in section two hundred one of the
not-for-profit corporation law of this state, or an entity  incorporated
in  another state and having a similar not-for-profit status,] NO PERSON
shall engage in the business of budget planning as defined  in  subdivi-
sion  one of section four hundred fifty-five of the general business law
of this state except as authorized by this  article  and  without  first
obtaining a license from the superintendent, EXCEPT:
  1.  ANY ATTORNEY LICENSED TO PRACTICE LAW IN THIS STATE WHEN ACTING IN
THE ORDINARY PRACTICE OF LAW AND THROUGH THE ENTITY USED BY THE ATTORNEY
IN THE ORDINARY PRACTICE OF LAW, AND NOT HOLDING HIMSELF OR HERSELF  OUT
AS  A BUDGET PLANNER, AND NOT PROVIDING BUDGET PLANNING SERVICES, EXCEPT
AS INCIDENTAL TO LEGAL REPRESENTATION; OR
  2. ANY PUBLIC OFFICER WHILE ACTING IN AN  OFFICIAL  CAPACITY  AND  ANY
PERSON ACTING UNDER COURT ORDER; OR
  3. ANY PERSON WHILE PERFORMING SERVICES INCIDENTAL TO THE DISSOLUTION,
WINDING UP, OR LIQUIDATING OF A PARTNERSHIP, CORPORATION, OR OTHER BUSI-
NESS ENTERPRISE; OR
  4.  ANY  BANK,  TRUST  COMPANY, SAVINGS BANK, SAVINGS AND LOAN ASSOCI-
ATION, OR CREDIT UNION, WHETHER INCORPORATED,  CHARTERED,  OR  ORGANIZED
UNDER THE LAWS OF THIS STATE OR ANY OTHER STATE OR THE UNITED STATES, OR
ANY  OPERATING SUBSIDIARY OF ANY SUCH BANK, TRUST COMPANY, SAVINGS BANK,
SAVINGS AND LOAN ASSOCIATION OR CREDIT UNION; OR
  5. AN ATTORNEY IN PROVIDING INFORMATION, ADVICE,  OR  LEGAL  REPRESEN-
TATION  WITH RESPECT TO FILING A CASE OR PRECEDING UNDER TITLE 11 OF THE
UNTIES STATES CODE; OR
  6. SUCH OTHER PERSONS AS MAY BE SPECIFICALLY EXEMPTED  BY  THE  SUPER-
INTENDENT IN HIS OR HER SOLE DISCRETION AND CONSISTENT WITH THE PURPOSES
OF THIS ARTICLE AND THE RULES AND REGULATIONS PROMULGATED HEREUNDER.
  S  6.  Subdivision  4 of section 583-a of the banking law, as added by
chapter 142 of the laws of 1992, is amended to read as follows:
  4. As used in this section[: (a)],  the  term  ["person"  includes  an
individual, partnership, corporation, association or any other organiza-
tion,  and  (b)  the  term]  "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the manage-
ment and policies of a licensee, whether through the ownership of voting
stock of such licensee, the ownership of  voting  stock  of  any  person
which  possesses  such  power or otherwise. Control shall be presumed to
exist if any person, directly or indirectly,  owns,  controls  or  holds
with  power  to  vote  ten per centum or more of the voting stock of any
licensee or of any person which owns, controls or holds  with  power  to
vote  ten per centum or more of the voting stock of any licensee, but no
person shall be deemed to control a licensee solely by reason  of  being
an  officer  or  director of such licensee or person. The superintendent
may in his discretion, upon the application of a licensee or any  person

S. 5215                             4

who,  directly or indirectly, owns, controls or holds with power to vote
or seeks to own, control or hold with power to vote any voting stock  of
such  licensee, determine whether or not the ownership, control or hold-
ing of such voting stock constitutes or would constitute control of such
licensee for purposes of this section.
  S  7.  Sections  584-a  and  584-b  of  the banking law are renumbered
sections 584-c and 584-d and two new sections 584-a and 584-b are  added
to read as follows:
  S 584-A. DISCLOSURES. BEFORE A DEBTOR SIGNS A CONTRACT WITH A LICENSEE
FOR  BUDGET  PLANNING, THE LICENSEE MUST DISCLOSE TRUTHFULLY, IN A CLEAR
AND CONSPICUOUS MANNER, THE FOLLOWING MATERIAL INFORMATION:
  1. THE AMOUNT OF TIME NECESSARY TO ACHIEVE  THE  REPRESENTED  RESULTS,
AND  TO  THE  EXTENT  THAT  THE BUDGET PLANNING MAY INCLUDE A SETTLEMENT
OFFER TO ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE  TIME  BY
WHICH  THE  LICENSEE  WILL  MAKE A BONA FIDE SETTLEMENT OFFER TO EACH OF
THEM;
  2. TO THE EXTENT THAT THE BUDGET PLANNING  MAY  INCLUDE  A  SETTLEMENT
OFFER TO ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE AMOUNT OF
MONEY  OR  THE  PERCENTAGE OF EACH OUTSTANDING DEBT THAT THE DEBTOR MUST
ACCUMULATE BEFORE THE LICENSEE WILL MAKE A BONA FIDE SETTLEMENT OFFER TO
EACH OF THEM;
  3. TO THE EXTENT THAT ANY ASPECT OF THE BUDGET PLANNING RELIES UPON OR
RESULTS IN THE DEBTOR'S FAILURE TO MAKE TIMELY PAYMENTS TO CREDITORS  OR
DEBT  COLLECTORS,  THAT  THE  USE  OF  THE  BUDGET  PLANNING WILL LIKELY
ADVERSELY AFFECT THE DEBTOR'S CREDITWORTHINESS, MAY RESULT IN THE DEBTOR
BEING SUBJECT TO COLLECTION ACTIONS OR SUED BY CREDITORS OR DEBT COLLEC-
TORS, AND MAY INCREASE THE AMOUNT OF MONEY THE DEBTOR OWES  DUE  TO  THE
ACCRUAL OF FEES AND INTEREST; AND
  4.  TO THE EXTENT THAT THE LICENSEE REQUESTS OR REQUIRES THE DEBTOR TO
PLACE FUNDS IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITUTION, THAT  THE
DEBTOR  OWNS THE FUNDS HELD IN THE ACCOUNT, THE DEBTOR MAY WITHDRAW FROM
THE BUDGET PLANNING AT ANY TIME WITHOUT  PENALTY,  AND,  IF  THE  DEBTOR
WITHDRAWS,  THE DEBTOR MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER THAN
FEES EARNED BY THE LICENSEE, WITHIN SEVEN BUSINESS DAYS OF THE  DEBTOR'S
REQUEST.
  S  584-B.  FEES.  A  LICENSEE  SHALL NOT RECEIVE PAYMENT OF ANY FEE OR
CONSIDERATION FOR ANY BUDGET PLANNING UNTIL AND UNLESS:
  1. THE LICENSEE  HAS  RENEGOTIATED,  SETTLED,  REDUCED,  OR  OTHERWISE
ALTERED  THE  TERMS  OF  AT LEAST ONE DEBT PURSUANT TO A DEBT SETTLEMENT
PLAN OR DEBT MANAGEMENT PLAN;
  2. THE DEBTOR HAS MADE AT LEAST ONE  PAYMENT  PURSUANT  TO  THAT  DEBT
SETTLEMENT PLAN OR DEBT MANAGEMENT PLAN; AND
  3. THE FEE OR CONSIDERATION FOR SETTLING EACH INDIVIDUAL DEBT ENROLLED
IN  A  DEBT  SETTLEMENT PLAN SHALL NOT EXCEED TWENTY-FIVE PERCENT OF THE
DEBT AT THE TIME IT WAS ENROLLED, AND MUST EITHER:
  (A) BEAR 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  THOSE  OWED AT THE TIME THE DEBT WAS ENROLLED IN THE BUDGET
PLANNING; OR
  (B) BE A PERCENTAGE OF THE AMOUNT SAVED AS A RESULT OF THE SETTLEMENT.
THE PERCENTAGE CHARGED CANNOT CHANGE FROM ONE INDIVIDUAL DEBT TO  ANOTH-
ER.  THE  AMOUNT  SAVED IS THE DIFFERENCE BETWEEN THE AMOUNT OWED AT THE
TIME THE DEBT WAS ENROLLED IN THE BUDGET PLANNING AND THE AMOUNT ACTUAL-
LY PAID TO SATISFY THE DEBT.

S. 5215                             5

  4. NOTHING IN THIS  SECTION  PROHIBITS  REQUESTING  OR  REQUIRING  THE
DEBTOR  TO  PLACE FUNDS IN AN ACCOUNT TO BE USED FOR THE LICENSEE'S FEES
AND FOR PAYMENTS TO CREDITORS OR DEBT COLLECTORS, PROVIDED THAT:
  (A)  THE FUNDS ARE HELD IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITU-
TION;
  (B) THE DEBTOR OWNS THE FUNDS HELD IN THE ACCOUNT AND IS PAID  ACCRUED
INTEREST ON THE ACCOUNT, IF ANY;
  (C) IF THE LICENSEE DOES NOT ADMINISTER THE ACCOUNT, THE ENTITY ADMIN-
ISTERING THE ACCOUNT IS NOT OWNED OR CONTROLLED BY, OR IN ANY WAY AFFIL-
IATED WITH, THE LICENSEE;
  (D)  THE  ENTITY ADMINISTERING THE ACCOUNT DOES NOT GIVE OR ACCEPT ANY
MONEY OR OTHER COMPENSATION IN EXCHANGE FOR REFERRALS OF BUSINESS BY THE
LICENSEE; AND
  (E) THE DEBTOR MAY WITHDRAW FROM THE BUDGET PLANNING AT ANY TIME WITH-
OUT PENALTY, AND MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER THAN  FEES
EARNED  BY  THE  LICENSEE,  WITHIN  SEVEN  BUSINESS DAYS OF THE DEBTOR'S
REQUEST.
  S 8. Section 584-d of the banking law, as renumbered by section  seven
of  this  act,  is  amended  by  adding a new subdivision 3-a to read as
follows:
  3-A. NO LICENSEE SHALL MISREPRESENT, DIRECTLY OR BY  IMPLICATION,  ANY
MATERIAL  ASPECT  OF ANY BUDGET PLANNING, INCLUDING, BUT NOT LIMITED TO,
THE AMOUNT OF MONEY OR THE PERCENTAGE OF THE DEBT AMOUNT THAT  A  DEBTOR
MAY  SAVE BY USING SUCH SERVICE; THE AMOUNT OF TIME NECESSARY TO ACHIEVE
THE REPRESENTED RESULTS; THE AMOUNT OF MONEY OR THE PERCENTAGE  OF  EACH
OUTSTANDING DEBT THAT THE DEBTOR MUST ACCUMULATE BEFORE THE BUDGET PLAN-
NER  WILL  INITIATE ATTEMPTS WITH THE DEBTOR'S CREDITORS OR DEBT COLLEC-
TORS OR MAKE A BONA FIDE OFFER TO NEGOTIATE, SETTLE, OR MODIFY THE TERMS
OF THE DEBTOR'S DEBT; THE EFFECT OF THE SERVICE ON A DEBTOR'S CREDITWOR-
THINESS; THE EFFECT OF THE SERVICE ON COLLECTION EFFORTS OF THE DEBTOR'S
CREDITORS OR DEBT COLLECTORS; THE PERCENTAGE OR NUMBER  OF  DEBTORS  WHO
ATTAIN  THE  REPRESENTED  RESULTS;  AND  WHETHER  THE BUDGET PLANNING IS
OFFERED OR PROVIDED BY A NON-PROFIT ENTITY.
  S 9. This act shall take effect immediately.

Co-Sponsors

S5215A - Bill Details

See Assembly Version of this Bill:
A8212A
Current Committee:
Law Section:
General Business Law
Laws Affected:
Amd §§455 - 457, Gen Bus L; ren §579 to be §579-a, add §579, amd §§579-a & 583-a, ren §§584-a & 584-b to be 584-c & 584-d, add §§584-a & 584-b, amd §584-d, Bank L

S5215A - Bill Texts

view summary

Defines certain terms related to budget planners and regulates the activities of budget planners.

view sponsor memo
BILL NUMBER:S5215A

TITLE OF BILL:
An act
to amend the general business law and the banking law, in relation to
defining terms related to budget planning and regulating the activities
of budget planners

PURPOSE:
The purpose of this bill is to expand the scope of current law to
require persons conducting debt settlement and debt management
services to be registered as budget planners under the jurisdiction
of the Department of Financial Regulation and require all budget
planners to disclose specific information necessary for consumers to
make informed decision regarding whether budget planning services are
appropriate for them. The bill further regulates fees paid by
consumers to budget planners.

SUMMARY OF PROVISIONS:
Includes in the definition of budget planning those persons who
provide debt settlement and debt management services and removes the
requirement that all budget planners have not-for-profit tax status.

Adds new definitions of the terms "person", "principal amount of the
debt", "debt management plan" and "debt settlement plan." The bill
requires that persons engaged in the business of budget planning must
first obtain a license from the superintendent. The bill also
provides exemptions from the license requirement for: attorneys
licensed to practice law and who don't hold themselves out as budget
planners; any public officer while acting in an official capacity and
any persons acting under a court order; persons performing services
as part of a dissolution of a business enterprise; any bank, trust
company, savings bank, savings and loan association or credit union;
and any attorney providing legal services under the federal
bankruptcy code.

Requires budget planners to make four specific disclosures to
consumers including: how long it will take for consumers to see
results; how much the services will likely cost; the negative
consequences that could result from using debt relief services; and
key information about dedicated accounts if they choose to require
them.

Prohibits up front fees to be paid by consumers prior to receiving
budget planning services. The bill also establishes a fee structure
that provides a25 percent cap on fees whether the fees are paid as a
proportion to the entire debt balance as the individual debt amount
bears to the entire debt amount or as a percentage of the amount
saved as a result of the debt settlement.

The bill requires that if a consumer must establish an account for the
purposes of licensee's fees or the payment of funds to creditors the
account must be held in an insured financial institution;
the debtor maintains ownership of the funds; if the licensee doesn't
manage the account, the manager of the account must not have any
affiliation with the licensee; the manager of the account must not


give or accept any compensation in exchange for referrals; and the
debtor may withdraw from the budget plan at any time without penalty
and receive all funds minus fees earned by the licensee. Lastly, the
bill prohibits a licensee from misrepresenting any material aspect of
budget planning.

JUSTIFICATION:
As the size and scope of consumer debt has risen in this country so
has the growth of the debt settlement industry. As more and more New
Yorkers have become unable to pay their debts, the option of debt
settlement has become even more attractive.

The expansion of this industry, however, has come with its share of
burdens. Legitimate debt settlement companies are being tarnished by
the fraud and abuse that is apparent throughout the industry.
Hundreds of debt settlement companies are operating in an
under-regulated environment and lack enforceable standards and
regulations, which has eroded confidence in debt settlement among
regulators and consumers. For the debt settlement industry to remain
relevant and succeed as an effective option for New Yorkers facing
financial hardship over the long-term, the state must adopt
enforceable standards and seek appropriate oversight from regulators.

In October, 2010, the Federal Trade Commission (FTC) amended the Tele-
marketing Sales Rule (TSR) to add specific provisions to curb
deceptive and abusive practices associated with debt settlement
services. The new rule, however, only applies to for-profit sellers
of debt relief services and telemarketers for debt settlement
companies. In addition, the new rule does not apply to in-person
marketing of debt settlement services.

The new rule expands the scope of the TSR to cover not only outbound
telemarketing calls but now will cover inbound calls from consumers
to debt settlement companies as well. The rule further makes it
illegal to charge up front fees and requires the disclosure of
certain information before signing people up for services. This bill
would codify the FTC rules into New York Law strengthening the
state's current budget planner statute and providing necessary
protections to New York consumers. Furthermore, this bill goes beyond
the FTC rule to cover both for-profit and not-for-profit debt
settlement providers and will also apply to in-person sales and
marketing of services that the FTC rule fails to provide.

The bill further protects consumers by prohibiting a debt settlement
company from charging more than twenty-five percent of the debt
balance as the individual debt amount bears to the entire debt amount
or as a percentage of the amount saved as a result of the debt
settlement.

In addition to the enhanced consumer protection provisions of this
bill, the legislation seeks to remedy a long-standing misconception
regarding for-profit debt settlement companies. Current New York law
requires "budget planners" to be non-profit organizations. The
current approach to regulating budget planners by allowing only
non-profit providers to become licensed is based on the false
conclusion that non-profit providers offer a better service to
consumers than taxable providers. Taxable and non-profit providers


coexist and compete in health care, education, utilities and social
services across the state of New York. These services should not be
regulated on the basis of tax status, but on the provider's
qualifications and service to consumers. No state has ever determined
that the tax status of a legitimate debt settlement provider
influences the quality of service being offered.

Effective laws and regulations governing this industry will help
ensure that consumers are sufficiently protected when seeking the
services of debt settlement providers. Requiring high standards for
providing these services will ensure that only organizations
committed to helping consumers will be permitted to operate.

LEGISLATIVE HISTORY:
New.

FISCAL IMPLICATIONS:
Undetermined.

EFFECTIVE DATE:
Immediate.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 5215--A

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 3, 2011
                               ___________

Introduced  by  Sens.  GRIFFO, ZELDIN -- read twice and ordered printed,
  and when  printed  to  be  committed  to  the  Committee  on  Consumer
  Protection  -- reported favorably from said committee and committed to
  the Committee on Banks -- committee discharged, bill amended,  ordered
  reprinted as amended and recommitted to said committee

AN  ACT  to  amend  the  general  business  law  and the banking law, in
  relation to defining terms related to budget planning  and  regulating
  the activities of budget planners

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Section 455 of the general  business  law,  as  amended  by
chapter  629  of  the  laws  of 2002, subdivisions 1 and 4 as amended by
chapter 456 of the laws of 2006, is amended to read as follows:
  S 455. Definitions. 1. Budget planning, as used in this article, means
the making of a contract between a person [or  entity]  engaged  in  the
business  of budget planning with a particular debtor whereby THE DEBTOR
AGREES TO PAY TO SUCH PERSON ANY  VALUABLE  CONSIDERATION  AND  (i)  the
debtor  agrees  to  pay a sum or sums of money in any manner or form and
the person [or entity]  engaged  in  the  business  of  budget  planning
distributes, or supervises, coordinates or controls the distribution of,
or  has  a contractual relationship with another person [or entity] that
distributes, or supervises, coordinates or  controls  such  distribution
of, the same among certain specified creditors in accordance with a plan
agreed  upon  [and]; OR (ii) the [debtor agrees to pay to such person or
entity, or such other person or entity that distributes, or  supervises,
coordinates  or  controls  such distribution of, a sum or sums of money,
any valuable consideration for such services or for any  other  services
rendered  in  connection  therewith.]  PERSON ENGAGED IN THE BUSINESS OF
BUDGET PLANNING PROVIDES ADVICE OR SERVICES, OR ACTS AS AN  INTERMEDIARY
BETWEEN  OR ON BEHALF OF A DEBTOR AND ONE OR MORE OF THE DEBTOR'S CREDI-
TORS, WHERE THE PRIMARY PURPOSE OF THE ADVICE, SERVICE, OR ACTION IS  TO

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11381-02-1

S. 5215--A                          2

OBTAIN  A  SETTLEMENT, ADJUSTMENT, OR SATISFACTION OF THE DEBTOR'S UNSE-
CURED DEBT TO A CREDITOR IN AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT  OF
THE DEBT OR IN AN AMOUNT LESS THAN THE CURRENT  OUTSTANDING  BALANCE  OF
THE DEBT; OR (III) THE PERSON ENGAGED IN THE BUSINESS OF BUDGET PLANNING
PROVIDES  SERVICES  RELATED TO, OR PROVIDES SERVICES ADVISING, ENCOURAG-
ING, ASSISTING, OR COUNSELING A DEBTOR  TO,  ACCUMULATE  FUNDS  FOR  THE
PRIMARY  PURPOSE OF PROPOSING, OBTAINING, OR SEEKING TO OBTAIN A SETTLE-
MENT, ADJUSTMENT, OR SATISFACTION OF THE DEBTOR'S UNSECURED  DEBT  TO  A
CREDITOR  IN  AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT OF THE DEBT OR IN
AN AMOUNT LESS THAN THE CURRENT OUTSTANDING BALANCE OF THE DEBT  TO  PAY
TO  SUCH  PERSON. For the purposes of this article, a person [or entity]
shall be considered as engaged in the business of budget planning in New
York, and subject to this article and the licensing and  other  require-
ments of article twelve-C of the banking law, if such person [or entity]
solicits  budget  planning business within this state and, in connection
with such solicitation, enters into a contract for budget planning  with
an individual then resident in this state.
  2.  PERSON,  AS  USED  IN  THIS  ARTICLE, MEANS AN INDIVIDUAL, LIMITED
LIABILITY COMPANY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.
  3. Person, as used in this article, shall not include a person [admit-
ted to practice law in this state.
  3. Entity, as used in this article, shall not include a firm, partner-
ship, professional  corporation,  or  other  organization,  all  of  the
members  or  principals  of  which  are admitted to practice law in this
state.
  4. Person or entity as used in this article shall not include a type B
not-for-profit corporation as defined in section two hundred one of  the
not-for-profit  corporation law of this state, or an entity incorporated
in another state and having a similar not-for-profit  status,]  licensed
by  the  superintendent[,]  to engage in the business of budget planning
[as defined in this section] OR EXEMPT FROM LICENSURE AS A BUDGET  PLAN-
NER UNDER ARTICLE TWELVE-C OF THE BANKING LAW.
  [5. Any attorney licensed to practice law in this state who is engaged
in budget planning shall (a) negotiate directly with creditors on behalf
of  the  client; (b) ensure that all moneys received from the client are
deposited in the attorney's account maintained for client funds; (c) pay
creditors from such account; and  (d)  offer  budget  planning  services
through the same legal entity that the attorney uses to practice law.]
  S  2.  Section  456 of the general business law, as amended by chapter
456 of the laws of 2006, is amended to read as follows:
  S 456. Budget planning prohibited. No person [or entity] shall  engage
in  the  business  of budget planning as defined in section four hundred
fifty-five of this article, except as authorized in article twelve-C  of
the banking law.
  S  3.  Section  457 of the general business law, as amended by chapter
629 of the laws of 2002, is amended to read as follows:
  S 457. Penalty. Whoever either individually or as officer, director or
employee of any person[, firm, association or corporation,] violates any
of the provisions of [the preceding] section FOUR HUNDRED  FIFTY-SIX  OF
THIS ARTICLE shall be guilty of a misdemeanor for each such violation.
  S  4. Section 579 of the banking law is renumbered section 579-a and a
new section 579 is added to read as follows:
  S 579. DEFINITIONS. AS USED IN THIS ARTICLE:
  1. "PERSON" MEANS AN INDIVIDUAL, PARTNERSHIP, LIMITED LIABILITY COMPA-
NY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.

S. 5215--A                          3

  2. "PRINCIPAL AMOUNT OF THE DEBT" MEANS THE TOTAL  AMOUNT  OWED  BY  A
DEBTOR  TO  ONE  OR MORE CREDITORS FOR A DEBT THAT IS INCLUDED IN A DEBT
SETTLEMENT PLAN AT THE TIME WHEN THE DEBTOR ENTERS INTO SUCH DSP.
  3.  "DEBT  MANAGEMENT PLAN" OR "DMP" MEANS A CONTRACT BETWEEN A PERSON
AND A DEBTOR WHEREBY  THE  PERSON  WILL  PROVIDE  BUDGET  PLANNING  THAT
CONTEMPLATES THAT CREDITORS WILL REDUCE FINANCE CHARGES OR FEES FOR LATE
PAYMENT, DEFAULT OR DELINQUENCY.
  4.  "DEBT  SETTLEMENT PLAN" OR "DSP" MEANS A CONTRACT BETWEEN A PERSON
AND A DEBTOR WHEREBY  THE  PERSON  WILL  PROVIDE  BUDGET  PLANNING  THAT
CONTEMPLATES  THAT CREDITORS WILL SETTLE DEBTS FOR LESS THAN THE PRINCI-
PAL AMOUNT OF THE DEBT.
  S 5. Section 579-a of the banking law, as amended by  chapter  629  of
the  laws  of  2002  and  as  renumbered by section four of this act, is
amended to read as follows:
  S 579-a.  Doing business without license prohibited. [Only  a  type  B
not-for-profit  corporation as defined in section two hundred one of the
not-for-profit corporation law of this state, or an entity  incorporated
in  another state and having a similar not-for-profit status,] NO PERSON
shall engage in the business of budget planning as defined  in  subdivi-
sion  one of section four hundred fifty-five of the general business law
of this state except as authorized by this  article  and  without  first
obtaining a license from the superintendent, EXCEPT:
  1.  ANY ATTORNEY LICENSED TO PRACTICE LAW IN THIS STATE WHEN ACTING IN
THE ORDINARY PRACTICE OF LAW AND THROUGH THE ENTITY USED BY THE ATTORNEY
IN THE ORDINARY PRACTICE OF LAW, AND NOT HOLDING HIMSELF OR HERSELF  OUT
AS  A BUDGET PLANNER, AND NOT PROVIDING BUDGET PLANNING SERVICES, EXCEPT
AS INCIDENTAL TO LEGAL REPRESENTATION; OR
  2. ANY PUBLIC OFFICER WHILE ACTING IN AN  OFFICIAL  CAPACITY  AND  ANY
PERSON ACTING UNDER COURT ORDER; OR
  3. ANY PERSON WHILE PERFORMING SERVICES INCIDENTAL TO THE DISSOLUTION,
WINDING UP, OR LIQUIDATING OF A PARTNERSHIP, CORPORATION, OR OTHER BUSI-
NESS ENTERPRISE; OR
  4.  ANY  BANK,  TRUST  COMPANY, SAVINGS BANK, SAVINGS AND LOAN ASSOCI-
ATION, OR CREDIT UNION, WHETHER INCORPORATED,  CHARTERED,  OR  ORGANIZED
UNDER THE LAWS OF THIS STATE OR ANY OTHER STATE OR THE UNITED STATES, OR
ANY  OPERATING  SUBSIDIARY OR AFFILIATE OF ANY SUCH BANK, TRUST COMPANY,
SAVINGS BANK, SAVINGS AND LOAN ASSOCIATION OR CREDIT  UNION  WHICH  DOES
NOT  ENGAGE  IN  BUDGET  PLANNING  EXCEPT  AS  INCIDENTAL TO ITS BANKING
SERVICES; OR
  5. AN ATTORNEY IN PROVIDING INFORMATION, ADVICE,  OR  LEGAL  REPRESEN-
TATION  WITH RESPECT TO FILING A CASE OR PRECEDING UNDER TITLE 11 OF THE
UNTIES STATES CODE; OR
  6. SUCH OTHER PERSONS AS MAY BE SPECIFICALLY EXEMPTED  BY  THE  SUPER-
INTENDENT IN HIS OR HER SOLE DISCRETION AND CONSISTENT WITH THE PURPOSES
OF THIS ARTICLE AND THE RULES AND REGULATIONS PROMULGATED HEREUNDER.
  S  6.  Subdivision  4 of section 583-a of the banking law, as added by
chapter 142 of the laws of 1992, is amended to read as follows:
  4. As used in this section[: (a)],  the  term  ["person"  includes  an
individual, partnership, corporation, association or any other organiza-
tion,  and  (b)  the  term]  "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the manage-
ment and policies of a licensee, whether through the ownership of voting
stock of such licensee, the ownership of  voting  stock  of  any  person
which  possesses  such  power or otherwise. Control shall be presumed to
exist if any person, directly or indirectly,  owns,  controls  or  holds
with  power  to  vote  ten per centum or more of the voting stock of any

S. 5215--A                          4

licensee or of any person which owns, controls or holds  with  power  to
vote  ten per centum or more of the voting stock of any licensee, but no
person shall be deemed to control a licensee solely by reason  of  being
an  officer  or  director of such licensee or person. The superintendent
may in his discretion, upon the application of a licensee or any  person
who,  directly or indirectly, owns, controls or holds with power to vote
or seeks to own, control or hold with power to vote any voting stock  of
such  licensee, determine whether or not the ownership, control or hold-
ing of such voting stock constitutes or would constitute control of such
licensee for purposes of this section.
  S 7. Sections 584-a and  584-b  of  the  banking  law  are  renumbered
sections  584-c and 584-d and two new sections 584-a and 584-b are added
to read as follows:
  S 584-A. DISCLOSURES. BEFORE A DEBTOR SIGNS A CONTRACT WITH A LICENSEE
FOR BUDGET PLANNING, THE LICENSEE MUST DISCLOSE TRUTHFULLY, IN  A  CLEAR
AND CONSPICUOUS MANNER, THE FOLLOWING MATERIAL INFORMATION:
  1.  THE  AMOUNT  OF TIME NECESSARY TO ACHIEVE THE REPRESENTED RESULTS,
AND TO THE EXTENT THAT THE BUDGET  PLANNING  MAY  INCLUDE  A  SETTLEMENT
OFFER  TO  ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE TIME BY
WHICH THE LICENSEE WILL MAKE A BONA FIDE SETTLEMENT  OFFER  TO  EACH  OF
THEM;
  2.  TO  THE  EXTENT  THAT THE BUDGET PLANNING MAY INCLUDE A SETTLEMENT
OFFER TO ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE AMOUNT OF
MONEY OR THE PERCENTAGE OF EACH OUTSTANDING DEBT THAT  THE  DEBTOR  MUST
ACCUMULATE BEFORE THE LICENSEE WILL MAKE A BONA FIDE SETTLEMENT OFFER TO
EACH OF THEM;
  3. TO THE EXTENT THAT ANY ASPECT OF THE BUDGET PLANNING RELIES UPON OR
RESULTS  IN THE DEBTOR'S FAILURE TO MAKE TIMELY PAYMENTS TO CREDITORS OR
DEBT COLLECTORS, THAT  THE  USE  OF  THE  BUDGET  PLANNING  WILL  LIKELY
ADVERSELY AFFECT THE DEBTOR'S CREDITWORTHINESS, MAY RESULT IN THE DEBTOR
BEING SUBJECT TO COLLECTION ACTIONS OR SUED BY CREDITORS OR DEBT COLLEC-
TORS,  AND  MAY  INCREASE THE AMOUNT OF MONEY THE DEBTOR OWES DUE TO THE
ACCRUAL OF FEES AND INTEREST; AND
  4. TO THE EXTENT THAT THE LICENSEE REQUESTS OR REQUIRES THE DEBTOR  TO
PLACE  FUNDS IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITUTION, THAT THE
DEBTOR OWNS THE FUNDS HELD IN THE ACCOUNT, THE DEBTOR MAY WITHDRAW  FROM
THE  BUDGET  PLANNING  AT  ANY  TIME WITHOUT PENALTY, AND, IF THE DEBTOR
WITHDRAWS, THE DEBTOR MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER  THAN
FEES  EARNED BY THE LICENSEE, WITHIN SEVEN BUSINESS DAYS OF THE DEBTOR'S
REQUEST.
  S 584-B. FEES. A LICENSEE SHALL NOT RECEIVE  PAYMENT  OF  ANY  FEE  OR
CONSIDERATION FOR ANY BUDGET PLANNING UNTIL AND UNLESS:
  1.  THE  LICENSEE  HAS  RENEGOTIATED,  SETTLED,  REDUCED, OR OTHERWISE
ALTERED THE TERMS OF AT LEAST ONE DEBT PURSUANT  TO  A  DEBT  SETTLEMENT
PLAN OR DEBT MANAGEMENT PLAN;
  2.  THE  DEBTOR  HAS  MADE  AT LEAST ONE PAYMENT PURSUANT TO THAT DEBT
SETTLEMENT PLAN OR DEBT MANAGEMENT PLAN; AND
  3. THE FEE OR CONSIDERATION FOR SETTLING EACH INDIVIDUAL DEBT ENROLLED
IN A DEBT SETTLEMENT PLAN SHALL NOT EXCEED TWENTY-FIVE  PERCENT  OF  THE
DEBT AT THE TIME IT WAS ENROLLED, AND MUST EITHER:
  (A)  BEAR  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 THOSE OWED AT THE TIME THE DEBT WAS ENROLLED  IN  THE  BUDGET
PLANNING; OR

S. 5215--A                          5

  (B) BE A PERCENTAGE OF THE AMOUNT SAVED AS A RESULT OF THE SETTLEMENT.
THE  PERCENTAGE CHARGED CANNOT CHANGE FROM ONE INDIVIDUAL DEBT TO ANOTH-
ER. THE AMOUNT SAVED IS THE DIFFERENCE BETWEEN THE AMOUNT  OWED  AT  THE
TIME THE DEBT WAS ENROLLED IN THE BUDGET PLANNING AND THE AMOUNT ACTUAL-
LY PAID TO SATISFY THE DEBT.
  4.  NOTHING  IN  THIS  SECTION  PROHIBITS  REQUESTING OR REQUIRING THE
DEBTOR TO PLACE FUNDS IN AN ACCOUNT TO BE USED FOR THE  LICENSEE'S  FEES
AND FOR PAYMENTS TO CREDITORS OR DEBT COLLECTORS, PROVIDED THAT:
  (A)  THE FUNDS ARE HELD IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITU-
TION;
  (B) THE DEBTOR OWNS THE FUNDS HELD IN THE ACCOUNT AND IS PAID  ACCRUED
INTEREST ON THE ACCOUNT, IF ANY;
  (C) IF THE LICENSEE DOES NOT ADMINISTER THE ACCOUNT, THE ENTITY ADMIN-
ISTERING THE ACCOUNT IS NOT OWNED OR CONTROLLED BY, OR IN ANY WAY AFFIL-
IATED WITH, THE LICENSEE;
  (D)  THE  ENTITY ADMINISTERING THE ACCOUNT DOES NOT GIVE OR ACCEPT ANY
MONEY OR OTHER COMPENSATION IN EXCHANGE FOR REFERRALS OF BUSINESS BY THE
LICENSEE; AND
  (E) THE DEBTOR MAY WITHDRAW FROM THE BUDGET PLANNING AT ANY TIME WITH-
OUT PENALTY, AND MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER THAN  FEES
EARNED  BY  THE  LICENSEE,  WITHIN  SEVEN  BUSINESS DAYS OF THE DEBTOR'S
REQUEST.
  S 8. Section 584-d of the banking law, as renumbered by section  seven
of  this  act,  is  amended  by  adding a new subdivision 3-a to read as
follows:
  3-A. NO LICENSEE SHALL MISREPRESENT, DIRECTLY OR BY  IMPLICATION,  ANY
MATERIAL  ASPECT  OF ANY BUDGET PLANNING, INCLUDING, BUT NOT LIMITED TO,
THE AMOUNT OF MONEY OR THE PERCENTAGE OF THE DEBT AMOUNT THAT  A  DEBTOR
MAY  SAVE BY USING SUCH SERVICE; THE AMOUNT OF TIME NECESSARY TO ACHIEVE
THE REPRESENTED RESULTS; THE AMOUNT OF MONEY OR THE PERCENTAGE  OF  EACH
OUTSTANDING DEBT THAT THE DEBTOR MUST ACCUMULATE BEFORE THE BUDGET PLAN-
NER  WILL  INITIATE ATTEMPTS WITH THE DEBTOR'S CREDITORS OR DEBT COLLEC-
TORS OR MAKE A BONA FIDE OFFER TO NEGOTIATE, SETTLE, OR MODIFY THE TERMS
OF THE DEBTOR'S DEBT; THE EFFECT OF THE SERVICE ON A DEBTOR'S CREDITWOR-
THINESS; THE EFFECT OF THE SERVICE ON COLLECTION EFFORTS OF THE DEBTOR'S
CREDITORS OR DEBT COLLECTORS; THE PERCENTAGE OR NUMBER  OF  DEBTORS  WHO
ATTAIN  THE  REPRESENTED  RESULTS;  AND  WHETHER  THE BUDGET PLANNING IS
OFFERED OR PROVIDED BY A NON-PROFIT ENTITY.
  S 9. This act shall take effect immediately.

Co-Sponsors

S5215B - Bill Details

See Assembly Version of this Bill:
A8212A
Current Committee:
Law Section:
General Business Law
Laws Affected:
Amd §§455 - 457, Gen Bus L; ren §579 to be §579-a, add §579, amd §§579-a & 583-a, ren §§584-a & 584-b to be 584-c & 584-d, add §§584-a & 584-b, amd §584-d, Bank L

S5215B - Bill Texts

view summary

Defines certain terms related to budget planners and regulates the activities of budget planners.

view sponsor memo
BILL NUMBER:S5215B

TITLE OF BILL: An act to amend the general business law and the
banking law, in relation to defining terms related to budget planning
and regulating the activities of budget planners

PURPOSE:
The purpose of this bill is to expand the scope of current law to
require persons conducting debt settlement and debt management
services to be registered as budget planners under the jurisdiction of
the Department of Financial Regulation and require all budget planners
to disclose specific information necessary for consumers to make
informed decision regarding whether budget planning services are
appropriate for them. The bill further regulates fees paid by
consumers to budget planners.

SUMMARY OF PROVISIONS:
Includes in the definition of budget planning those persons who
provide debt settlement and debt management services and removes the
requirement that all budget planners have not-for-profit tax status.

Adds new definitions of the terms "person", "principal amount of the
debt", "debt management plan" and "debt settlement plan." The bill
requires that persons engaged in the business of budget planning must
first obtain a license from the superintendent. The bill also provides
exemptions from the license requirement for: attorneys licensed to
practice law and who don't hold themselves out as budget planners; any
public officer while acting in an official capacity and any persons
acting under a court order; persons performing services as part of a
dissolution of a business enterprise; any bank, trust company, savings
bank, savings and loan association or credit union; and any attorney
providing legal services under the federal bankruptcy code.

Requires budget planners to make four specific disclosures to
consumers including: how long it will take for consumers to see
results; how much the services will likely cost; the negative
consequences that could result from using debt relief services; and
key information about dedicated accounts if they choose to require
them.

Prohibits upfront fees to be paid by consumers prior to receiving
budget planning services. The bill also establishes a fee structure
that provides a 25 percent cap on fees whether the fees are paid as a
proportion to the entire debt balance as the individual debt amount
bears to the entire debt amount or as a percentage of the amount saved
as a result of the debt settlement.

The bill requires that if a consumer must establish an account for the
purposes of licensee's fees or the payment of funds to creditors the
account must be held in an insured financial institution; the debtor
maintains ownership of the funds; if the licensee doesn't manage the
account, the manager of the account must not have any affiliation with
the licensee; the manager of the account must not give or accept any
compensation in exchange for referrals; and the debtor may withdraw
from the budget plan at any time without penalty and receive all funds


minus fees earned by the licensee. Lastly, the bill prohibits a
licensee from misrepresenting any material aspect of budget planning.

JUSTIFICATION:
As the size and scope of consumer debt has risen in this country so
has the growth of the debt settlement industry. As more and more New
Yorkers have become unable to pay their debts, the option of debt
settlement has become even more attractive.

The expansion of this industry, however, has come with its share of
burdens. Legitimate debt settlement companies are being tarnished by
the fraud and abuse that is apparent throughout the industry.
Hundreds of debt settlement companies are operating in an
under-regulated environment and lack enforceable standards and
regulations, which has eroded confidence in debt settlement among
regulators and consumers. For the debt settlement industry to remain
relevant and succeed as an effective option for New Yorkers facing
financial hardship over the long-term, the state must adopt
enforceable standards and seek appropriate oversight from regulators.

In October, 2010, the Federal Trade Commission (FTC) amended the Tele-
marketing Sales Rule (TSR) to add specific provisions to curb
deceptive and abusive practices associated with debt settlement
services. The new rule, however, only applies to for-profit sellers of
debt relief services and telemarketers for debt settlement companies.
In addition, the new rule does not apply to in-person marketing of
debt settlement services.

The new rule expands the scope of the TSR to cover not only outbound
telemarketing calls but now will cover inbound calls from consumers to
debt settlement companies as well. The rule further makes it illegal
to charge upfront fees and requires the disclosure of certain
information before signing people up for services. This bill would
codify the FTC rules into New York Law strengthening the state's
current budget planner statute and providing necessary protections to
New York consumers. Furthermore, this bill goes beyond the FTC rule to
cover both for-profit and not-for-profit debt settlement providers and
will also apply to in-person sales and marketing of services that the
FTC rule fails to provide.

The bill further protects consumers by prohibiting a debt settlement
company from charging more than twenty-five percent of the debt
balance as the individual debt amount bears to the entire debt amount
or as a percentage of the amount saved as a result ofthe debt
settlement.

In addition to the enhanced consumer protection provisions of this
bill, the legislation seeks to remedy a long-standing misconception
regarding for-profit debt settlement companies. Current New York law
requires "budget planners" to be non-profit organizations. The current
approach to regulating budget planners by allowing only non-profit
providers to become licensed is based on the false conclusion that
non-profit providers offer a better service to consumers than taxable
providers. Taxable and non-profit providers coexist and compete in
health care, education, utilities and social services across the state
of New York. These services should not be regulated on the basis of
tax status, but on the provider's qualifications and service to


consumers. No state has ever determined that the tax status of a
legitimate debt settlement provider influences the quality of service
being offered.

Effective laws and regulations governing this industry will help
ensure that consumers are sufficiently protected when seeking the
services of debt settlement providers. Requiring high standards for
providing these services will ensure that only organizations committed
to helping consumers will be permitted to operate.

LEGISLATIVE HISTORY:
New.

FISCAL IMPLICATIONS:
Undetermined.

EFFECTIVE DATE:
This act shall take effect on the 180th day after it shall have become
a law.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 5215--B
    Cal. No. 1060

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 3, 2011
                               ___________

Introduced  by  Sens.  GRIFFO, ZELDIN -- read twice and ordered printed,
  and when  printed  to  be  committed  to  the  Committee  on  Consumer
  Protection  -- reported favorably from said committee and committed to
  the Committee on Banks -- committee discharged, bill amended,  ordered
  reprinted  as  amended  and  recommitted to said committee -- reported
  favorably from said committee, ordered to  first  and  second  report,
  ordered  to  a third reading, amended and ordered reprinted, retaining
  its place in the order of third reading

AN ACT to amend the  general  business  law  and  the  banking  law,  in
  relation  to  defining terms related to budget planning and regulating
  the activities of budget planners

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Section  455  of  the general business law, as amended by
chapter 629 of the laws of 2002, subdivisions 1  and  4  as  amended  by
chapter 456 of the laws of 2006, is amended to read as follows:
  S 455. Definitions. 1. Budget planning, as used in this article, means
the  making  of  a  contract between a person [or entity] engaged in the
business of budget planning with a particular debtor whereby THE  DEBTOR
AGREES  TO  PAY  TO  SUCH  PERSON ANY VALUABLE CONSIDERATION AND (i) the
debtor agrees to pay a sum or sums of money in any manner  or  form  and
the  person  [or  entity]  engaged  in  the  business of budget planning
distributes, or supervises, coordinates or controls the distribution of,
or has a contractual relationship with another person [or  entity]  that
distributes,  or  supervises,  coordinates or controls such distribution
of, the same among certain specified creditors in accordance with a plan
agreed upon [and]; OR (ii) the [debtor agrees to pay to such  person  or
entity,  or such other person or entity that distributes, or supervises,
coordinates or controls such distribution of, a sum or  sums  of  money,
any  valuable  consideration for such services or for any other services
rendered in connection therewith.] PERSON ENGAGED  IN  THE  BUSINESS  OF

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11381-04-1

S. 5215--B                          2

BUDGET  PLANNING PROVIDES ADVICE OR SERVICES, OR ACTS AS AN INTERMEDIARY
BETWEEN OR ON BEHALF OF A DEBTOR AND ONE OR MORE OF THE DEBTOR'S  CREDI-
TORS,  WHERE THE PRIMARY PURPOSE OF THE ADVICE, SERVICE, OR ACTION IS TO
OBTAIN  A  SETTLEMENT, ADJUSTMENT, OR SATISFACTION OF THE DEBTOR'S UNSE-
CURED DEBT TO A CREDITOR IN AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT  OF
THE DEBT OR IN AN AMOUNT LESS THAN THE CURRENT  OUTSTANDING  BALANCE  OF
THE DEBT; OR (III) THE PERSON ENGAGED IN THE BUSINESS OF BUDGET PLANNING
PROVIDES  SERVICES  RELATED TO, OR PROVIDES SERVICES ADVISING, ENCOURAG-
ING, ASSISTING, OR COUNSELING A DEBTOR  TO,  ACCUMULATE  FUNDS  FOR  THE
PRIMARY  PURPOSE OF PROPOSING, OBTAINING, OR SEEKING TO OBTAIN A SETTLE-
MENT, ADJUSTMENT, OR SATISFACTION OF THE DEBTOR'S UNSECURED  DEBT  TO  A
CREDITOR  IN  AN AMOUNT LESS THAN THE PRINCIPAL AMOUNT OF THE DEBT OR IN
AN AMOUNT LESS THAN THE CURRENT OUTSTANDING BALANCE OF THE DEBT  TO  PAY
TO  SUCH  PERSON. For the purposes of this article, a person [or entity]
shall be considered as engaged in the business of budget planning in New
York, and subject to this article and the licensing and  other  require-
ments of article twelve-C of the banking law, if such person [or entity]
solicits  budget  planning business within this state and, in connection
with such solicitation, enters into a contract for budget planning  with
an individual then resident in this state.
  2.  PERSON,  AS  USED  IN  THIS  ARTICLE, MEANS AN INDIVIDUAL, LIMITED
LIABILITY COMPANY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.
  3. Person, as used in this article, shall not include a person [admit-
ted to practice law in this state.
  3. Entity, as used in this article, shall not include a firm, partner-
ship, professional  corporation,  or  other  organization,  all  of  the
members  or  principals  of  which  are admitted to practice law in this
state.
  4. Person or entity as used in this article shall not include a type B
not-for-profit corporation as defined in section two hundred one of  the
not-for-profit  corporation law of this state, or an entity incorporated
in another state and having a similar not-for-profit  status,]  licensed
by  the  superintendent[,]  to engage in the business of budget planning
[as defined in this section] OR EXEMPT FROM LICENSURE AS A BUDGET  PLAN-
NER UNDER ARTICLE TWELVE-C OF THE BANKING LAW.
  [5. Any attorney licensed to practice law in this state who is engaged
in budget planning shall (a) negotiate directly with creditors on behalf
of  the  client; (b) ensure that all moneys received from the client are
deposited in the attorney's account maintained for client funds; (c) pay
creditors from such account; and  (d)  offer  budget  planning  services
through the same legal entity that the attorney uses to practice law.]
  S  2.  Section  456 of the general business law, as amended by chapter
456 of the laws of 2006, is amended to read as follows:
  S 456. Budget planning prohibited. No person [or entity] shall  engage
in  the  business  of budget planning as defined in section four hundred
fifty-five of this article, except as authorized in article twelve-C  of
the banking law.
  S  3.  Section  457 of the general business law, as amended by chapter
629 of the laws of 2002, is amended to read as follows:
  S 457. Penalty. Whoever either individually or as officer, director or
employee of any person[, firm, association or corporation,] violates any
of the provisions of [the preceding] section FOUR HUNDRED  FIFTY-SIX  OF
THIS ARTICLE shall be guilty of a misdemeanor for each such violation.
  S  4. Section 579 of the banking law is renumbered section 579-a and a
new section 579 is added to read as follows:
  S 579. DEFINITIONS. AS USED IN THIS ARTICLE:

S. 5215--B                          3

  1. "PERSON" MEANS AN INDIVIDUAL, PARTNERSHIP, LIMITED LIABILITY COMPA-
NY, CORPORATION, ASSOCIATION, OR ANY OTHER LEGAL ENTITY.
  2.  "PRINCIPAL  AMOUNT  OF  THE DEBT" MEANS THE TOTAL AMOUNT OWED BY A
DEBTOR TO ONE OR MORE CREDITORS FOR A DEBT THAT IS INCLUDED  IN  A  DEBT
SETTLEMENT PLAN AT THE TIME WHEN THE DEBTOR ENTERS INTO SUCH DSP.
  3.  "DEBT  MANAGEMENT PLAN" OR "DMP" MEANS A CONTRACT BETWEEN A PERSON
AND A DEBTOR WHEREBY  THE  PERSON  WILL  PROVIDE  BUDGET  PLANNING  THAT
CONTEMPLATES THAT CREDITORS WILL REDUCE FINANCE CHARGES OR FEES FOR LATE
PAYMENT, DEFAULT OR DELINQUENCY.
  4.  "DEBT  SETTLEMENT PLAN" OR "DSP" MEANS A CONTRACT BETWEEN A PERSON
AND A DEBTOR WHEREBY  THE  PERSON  WILL  PROVIDE  BUDGET  PLANNING  THAT
CONTEMPLATES  THAT CREDITORS WILL SETTLE DEBTS FOR LESS THAN THE PRINCI-
PAL AMOUNT OF THE DEBT.
  S 5. Section 579-a of the banking law, as amended by  chapter  629  of
the  laws  of  2002  and  as  renumbered by section four of this act, is
amended to read as follows:
  S 579-a.  Doing business without license prohibited. [Only  a  type  B
not-for-profit  corporation as defined in section two hundred one of the
not-for-profit corporation law of this state, or an entity  incorporated
in  another state and having a similar not-for-profit status,] NO PERSON
shall engage in the business of budget planning as defined  in  subdivi-
sion  one of section four hundred fifty-five of the general business law
of this state except as authorized by this  article  and  without  first
obtaining a license from the superintendent, EXCEPT:
  1.  ANY ATTORNEY LICENSED TO PRACTICE LAW IN THIS STATE WHEN ACTING IN
THE ORDINARY PRACTICE OF LAW AND THROUGH THE ENTITY USED BY THE ATTORNEY
IN THE ORDINARY PRACTICE OF LAW, AND NOT HOLDING HIMSELF OR HERSELF  OUT
AS  A BUDGET PLANNER, AND NOT PROVIDING BUDGET PLANNING SERVICES, EXCEPT
AS INCIDENTAL TO LEGAL REPRESENTATION; OR
  2. ANY PUBLIC OFFICER WHILE ACTING IN AN  OFFICIAL  CAPACITY  AND  ANY
PERSON ACTING UNDER COURT ORDER; OR
  3. ANY PERSON WHILE PERFORMING SERVICES INCIDENTAL TO THE DISSOLUTION,
WINDING UP, OR LIQUIDATING OF A PARTNERSHIP, CORPORATION, OR OTHER BUSI-
NESS ENTERPRISE; OR
  4.  ANY  BANK,  TRUST  COMPANY, SAVINGS BANK, SAVINGS AND LOAN ASSOCI-
ATION, OR CREDIT UNION, WHETHER INCORPORATED,  CHARTERED,  OR  ORGANIZED
UNDER THE LAWS OF THIS STATE OR ANY OTHER STATE OR THE UNITED STATES, OR
ANY  OPERATING  SUBSIDIARY OR AFFILIATE OF ANY SUCH BANK, TRUST COMPANY,
SAVINGS BANK, SAVINGS AND LOAN ASSOCIATION OR CREDIT  UNION  WHICH  DOES
NOT  ENGAGE  IN  BUDGET  PLANNING  EXCEPT  AS  INCIDENTAL TO ITS BANKING
SERVICES; OR
  5. AN ATTORNEY IN PROVIDING INFORMATION, ADVICE,  OR  LEGAL  REPRESEN-
TATION  WITH RESPECT TO FILING A CASE OR PRECEDING UNDER TITLE 11 OF THE
UNTIES STATES CODE; OR
  6. SUCH OTHER PERSONS AS MAY BE SPECIFICALLY EXEMPTED  BY  THE  SUPER-
INTENDENT IN HIS OR HER SOLE DISCRETION AND CONSISTENT WITH THE PURPOSES
OF THIS ARTICLE AND THE RULES AND REGULATIONS PROMULGATED HEREUNDER.
  S  6.  Subdivision  4 of section 583-a of the banking law, as added by
chapter 142 of the laws of 1992, is amended to read as follows:
  4. As used in this section[: (a)],  the  term  ["person"  includes  an
individual, partnership, corporation, association or any other organiza-
tion,  and  (b)  the  term]  "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the manage-
ment and policies of a licensee, whether through the ownership of voting
stock of such licensee, the ownership of  voting  stock  of  any  person
which  possesses  such  power or otherwise. Control shall be presumed to

S. 5215--B                          4

exist if any person, directly or indirectly,  owns,  controls  or  holds
with  power  to  vote  ten per centum or more of the voting stock of any
licensee or of any person which owns, controls or holds  with  power  to
vote  ten per centum or more of the voting stock of any licensee, but no
person shall be deemed to control a licensee solely by reason  of  being
an  officer  or  director of such licensee or person. The superintendent
may in his discretion, upon the application of a licensee or any  person
who,  directly or indirectly, owns, controls or holds with power to vote
or seeks to own, control or hold with power to vote any voting stock  of
such  licensee, determine whether or not the ownership, control or hold-
ing of such voting stock constitutes or would constitute control of such
licensee for purposes of this section.
  S 7. Sections 584-a and  584-b  of  the  banking  law  are  renumbered
sections  584-c and 584-d and two new sections 584-a and 584-b are added
to read as follows:
  S 584-A. DISCLOSURES. BEFORE A DEBTOR SIGNS A CONTRACT WITH A LICENSEE
FOR BUDGET PLANNING, THE LICENSEE MUST DISCLOSE TRUTHFULLY, IN  A  CLEAR
AND CONSPICUOUS MANNER, THE FOLLOWING MATERIAL INFORMATION:
  1.  THE  AMOUNT  OF TIME NECESSARY TO ACHIEVE THE REPRESENTED RESULTS,
AND TO THE EXTENT THAT THE BUDGET  PLANNING  MAY  INCLUDE  A  SETTLEMENT
OFFER  TO  ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE TIME BY
WHICH THE LICENSEE WILL MAKE A BONA FIDE SETTLEMENT  OFFER  TO  EACH  OF
THEM;
  2.  TO  THE  EXTENT  THAT THE BUDGET PLANNING MAY INCLUDE A SETTLEMENT
OFFER TO ANY OF THE DEBTOR'S CREDITORS OR DEBT COLLECTORS, THE AMOUNT OF
MONEY OR THE PERCENTAGE OF EACH OUTSTANDING DEBT THAT  THE  DEBTOR  MUST
ACCUMULATE BEFORE THE LICENSEE WILL MAKE A BONA FIDE SETTLEMENT OFFER TO
EACH OF THEM;
  3. TO THE EXTENT THAT ANY ASPECT OF THE BUDGET PLANNING RELIES UPON OR
RESULTS  IN THE DEBTOR'S FAILURE TO MAKE TIMELY PAYMENTS TO CREDITORS OR
DEBT COLLECTORS, THAT  THE  USE  OF  THE  BUDGET  PLANNING  WILL  LIKELY
ADVERSELY AFFECT THE DEBTOR'S CREDITWORTHINESS, MAY RESULT IN THE DEBTOR
BEING SUBJECT TO COLLECTION ACTIONS OR SUED BY CREDITORS OR DEBT COLLEC-
TORS,  AND  MAY  INCREASE THE AMOUNT OF MONEY THE DEBTOR OWES DUE TO THE
ACCRUAL OF FEES AND INTEREST; AND
  4. TO THE EXTENT THAT THE LICENSEE REQUESTS OR REQUIRES THE DEBTOR  TO
PLACE  FUNDS IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITUTION, THAT THE
DEBTOR OWNS THE FUNDS HELD IN THE ACCOUNT, THE DEBTOR MAY WITHDRAW  FROM
THE  BUDGET  PLANNING  AT  ANY  TIME WITHOUT PENALTY, AND, IF THE DEBTOR
WITHDRAWS, THE DEBTOR MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER  THAN
FEES  EARNED BY THE LICENSEE, WITHIN SEVEN BUSINESS DAYS OF THE DEBTOR'S
REQUEST.
  S 584-B. FEES. A LICENSEE SHALL NOT RECEIVE  PAYMENT  OF  ANY  FEE  OR
CONSIDERATION FOR ANY BUDGET PLANNING UNTIL AND UNLESS:
  1.  THE  LICENSEE  HAS  RENEGOTIATED,  SETTLED,  REDUCED, OR OTHERWISE
ALTERED THE TERMS OF AT LEAST ONE DEBT PURSUANT  TO  A  DEBT  SETTLEMENT
PLAN OR DEBT MANAGEMENT PLAN;
  2.  THE  DEBTOR  HAS  MADE  AT LEAST ONE PAYMENT PURSUANT TO THAT DEBT
SETTLEMENT PLAN OR DEBT MANAGEMENT PLAN; AND
  3. THE FEE OR CONSIDERATION FOR SETTLING EACH INDIVIDUAL DEBT ENROLLED
IN A DEBT SETTLEMENT PLAN SHALL NOT EXCEED TWENTY-FIVE  PERCENT  OF  THE
DEBT AT THE TIME IT WAS ENROLLED, AND MUST EITHER:
  (A)  BEAR  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

S. 5215--B                          5

AMOUNT ARE THOSE OWED AT THE TIME THE DEBT WAS ENROLLED  IN  THE  BUDGET
PLANNING; OR
  (B) BE A PERCENTAGE OF THE AMOUNT SAVED AS A RESULT OF THE SETTLEMENT.
THE  PERCENTAGE CHARGED CANNOT CHANGE FROM ONE INDIVIDUAL DEBT TO ANOTH-
ER. THE AMOUNT SAVED IS THE DIFFERENCE BETWEEN THE AMOUNT  OWED  AT  THE
TIME THE DEBT WAS ENROLLED IN THE BUDGET PLANNING AND THE AMOUNT ACTUAL-
LY PAID TO SATISFY THE DEBT.
  4.  NOTHING  IN  THIS  SECTION  PROHIBITS  REQUESTING OR REQUIRING THE
DEBTOR TO PLACE FUNDS IN AN ACCOUNT TO BE USED FOR THE  LICENSEE'S  FEES
AND FOR PAYMENTS TO CREDITORS OR DEBT COLLECTORS, PROVIDED THAT:
  (A)  THE FUNDS ARE HELD IN AN ACCOUNT AT AN INSURED FINANCIAL INSTITU-
TION;
  (B) THE DEBTOR OWNS THE FUNDS HELD IN THE ACCOUNT AND IS PAID  ACCRUED
INTEREST ON THE ACCOUNT, IF ANY;
  (C) IF THE LICENSEE DOES NOT ADMINISTER THE ACCOUNT, THE ENTITY ADMIN-
ISTERING THE ACCOUNT IS NOT OWNED OR CONTROLLED BY, OR IN ANY WAY AFFIL-
IATED WITH, THE LICENSEE;
  (D)  THE  ENTITY ADMINISTERING THE ACCOUNT DOES NOT GIVE OR ACCEPT ANY
MONEY OR OTHER COMPENSATION IN EXCHANGE FOR REFERRALS OF BUSINESS BY THE
LICENSEE; AND
  (E) THE DEBTOR MAY WITHDRAW FROM THE BUDGET PLANNING AT ANY TIME WITH-
OUT PENALTY, AND MUST RECEIVE ALL FUNDS IN THE ACCOUNT, OTHER THAN  FEES
EARNED  BY  THE  LICENSEE,  WITHIN  SEVEN  BUSINESS DAYS OF THE DEBTOR'S
REQUEST.
  S 8. Section 584-d of the banking law, as renumbered by section  seven
of  this  act,  is  amended  by  adding a new subdivision 3-a to read as
follows:
  3-A. NO LICENSEE SHALL MISREPRESENT, DIRECTLY OR BY  IMPLICATION,  ANY
MATERIAL  ASPECT  OF ANY BUDGET PLANNING, INCLUDING, BUT NOT LIMITED TO,
THE AMOUNT OF MONEY OR THE PERCENTAGE OF THE DEBT AMOUNT THAT  A  DEBTOR
MAY  SAVE BY USING SUCH SERVICE; THE AMOUNT OF TIME NECESSARY TO ACHIEVE
THE REPRESENTED RESULTS; THE AMOUNT OF MONEY OR THE PERCENTAGE  OF  EACH
OUTSTANDING DEBT THAT THE DEBTOR MUST ACCUMULATE BEFORE THE BUDGET PLAN-
NER  WILL  INITIATE ATTEMPTS WITH THE DEBTOR'S CREDITORS OR DEBT COLLEC-
TORS OR MAKE A BONA FIDE OFFER TO NEGOTIATE, SETTLE, OR MODIFY THE TERMS
OF THE DEBTOR'S DEBT; THE EFFECT OF THE SERVICE ON A DEBTOR'S CREDITWOR-
THINESS; THE EFFECT OF THE SERVICE ON COLLECTION EFFORTS OF THE DEBTOR'S
CREDITORS OR DEBT COLLECTORS; THE PERCENTAGE OR NUMBER  OF  DEBTORS  WHO
ATTAIN  THE  REPRESENTED  RESULTS;  AND  WHETHER  THE BUDGET PLANNING IS
OFFERED OR PROVIDED BY A NON-PROFIT ENTITY.
  S 9. This act shall take effect on the one hundred eightieth day after
it shall have become a law.

Co-Sponsors

S5215C (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A8212A
Current Committee:
Law Section:
General Business Law
Laws Affected:
Amd §§455 - 457, Gen Bus L; ren §579 to be §579-a, add §579, amd §§579-a & 583-a, ren §§584-a & 584-b to be 584-c & 584-d, add §§584-a & 584-b, amd §584-d, Bank L

S5215C (ACTIVE) - Bill Texts

view summary

Defines certain terms related to budget planners and regulates the activities of budget planners.

view sponsor memo
BILL NUMBER:S5215C

TITLE OF BILL:

An act
to amend the general business law and the banking law, in relation to
defining terms related to budget planning and regulating the activities
of budget planners

PURPOSE:

The purpose of the bill is to provide clarity with regard to fees paid
by debtors to budget planners; brings the New York budget planning
statute in line with the majority of other state with respect to
non-profit and for-profit providers; and gives the attorney general
enforcement powers with respect to violations of the statute.

SUMMARY OF PROVISIONS:

Section one of the bill amends the general business law to make a
clarification with regard to payments made by debtors and repeals the
statutory language that allows only not-for-profit corporations to
provide budget planning services.

Section two of the bill amends the general business law to make
violations of the article punishable by a class A misdemeanor as
provided in the penal law and gives the attorney general the
authority to make an application to a court or justice to issue an
injunction to enjoin and restrain any violations of the article. The
section also allows the court or justice to impose a civil penalty of
not more than $500 per contract for a violation of the section.

Section three of the bill amends the banking law to repeal the
statutory language that allows only not-for-profit corporations to
provide budget planning services.

Section four and five of the bill amend the banking law to require
that fees or charges imposed must be fair, reasonable and easily
understood by the consumer and that no budget planner shall charge
any consumer for any other service not directly related to budget
planning unless pre-approved by the superintendent.

Section six of the bill clarifies the superintendent's role when
determining fees or charges so to ensure they are not unfair or
unclear.

Section seven of the bill provides for an effective date.

JUSTIFICATION:

Budget planning offers programs and services to help consumers regain
their financial footing.
Across the country budget planners consist of nonprofit and for-profit
providers that offer financial counseling, education, budgeting and
debt management products designed to assist consumer in repaying
unsecured debt through methods other than bankruptcy. Each year this
industry serves an estimated ten million consumers and moves
approximately $20 billion between debtors and their creditors on
structured repayment plans.

The industry is regulated primarily on the state level. Forty nine
states and the District of Columbia have laws that range from a full
licensing and regulatory structure, such as New York, to misdemeanor
penalties for violating statutory requirements. Most states have
updated their laws in the past five years to reflect the changing
industry and the Federal Trade Commission has utilized its authority
to police unfair and deceptive trade practices by unscrupulous
providers.

New York's budget planning statute was enacted nearly sixty years ago.
The current law provides for significant consumer protections and
establishes a high bar for licensure. The law however does not
reflect recent changes in the industry. For instance, the law does
not allow licensure of taxable entities that provide budget planning
services. A common misconception about budget planners is that only
nonprofit entities can provide appropriate budget planning services.
Forty states make no distinction between providers based on their tax
status. Instead, they regulate and oversee the products and services
of all providers. Regulating based on the products and services,
rather than the service provider, is consistent with other financial
services regulation. This legislation moves New York toward a more
modern approach to regulating budget planners by regulating based on
the services they provide and not based on the tax status of the
provider.

The bill also provides clarity in the statute by requiring regulators
to ensure that fees are fair, reasonable and clearly understood. The
bill also enhances the oversight of the budget planning industry by
giving the attorney general greater authority to police bad actors as
well as imposes enhanced penalties to deter bad behavior.

LEGISLATIVE HISTORY:

This is a new bill.

FISCAL IMPLICATIONS:

Additional revenue to the Department of Financial Services from
licensing fees.

EFFECTIVE DATE:

This act shall take effect in 180 days from enactment.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 5215--C

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 3, 2011
                               ___________

Introduced  by  Sens.  GRIFFO, ZELDIN -- read twice and ordered printed,
  and when  printed  to  be  committed  to  the  Committee  on  Consumer
  Protection  -- reported favorably from said committee and committed to
  the Committee on Banks -- committee discharged, bill amended,  ordered
  reprinted  as  amended  and  recommitted to said committee -- reported
  favorably from said committee, ordered to  first  and  second  report,
  ordered  to  a third reading, amended and ordered reprinted, retaining
  its place in the order of third reading -- recommitted to the  Commit-
  tee on Consumer Protection in accordance with Senate Rule 6, sec. 8 --
  reported  favorably from said committee and committed to the Committee
  on Finance -- committee discharged, bill amended, ordered reprinted as
  amended and recommitted to said committee

AN ACT to amend the  general  business  law  and  the  banking  law,  in
  relation  to  defining terms related to budget planning and regulating
  the activities of budget planners

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Section  455  of  the general business law, as amended by
chapter 629 of the laws of 2002, subdivisions 1  and  4  as  amended  by
chapter 456 of the laws of 2006, is amended to read as follows:
  S 455. Definitions. 1. Budget planning, as used in this article, means
the making of a contract between a person or entity engaged in the busi-
ness of budget planning with a particular debtor whereby:
  (i)  the  debtor agrees to pay a sum or sums of money in any manner or
form and the person or entity engaged in the business of budget planning
distributes, or supervises, coordinates or controls the distribution of,
or has a contractual relationship with another  person  or  entity  that
distributes,  or  supervises,  coordinates or controls such distribution
of, the same among certain specified  creditors  in  accordance  with  a
PERIODIC  PAYMENT  plan agreed upon BY THE DEBTOR'S CREDITORS AT OR NEAR
THE TIME THE CONTRACT IS ENTERED; and

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD11381-06-2

S. 5215--C                          2

  (ii) the debtor agrees to pay to such person or entity, or such  other
person  or  entity  that  distributes,  or  supervises,  coordinates  or
controls such distribution of, a sum or  sums  of  money,  any  valuable
consideration  for  such  services or for any other services rendered in
connection  therewith.    For  the purposes of this article, a person or
entity shall be considered as engaged in the business of budget planning
in New York, and subject to this article and  the  licensing  and  other
requirements  of  article twelve-C of the banking law, if such person or
entity solicits budget planning  business  within  this  state  and,  in
connection  with  such  solicitation,  enters into a contract for budget
planning with an individual then resident in this state.
  2. Person, as used in this article, shall not include a person  admit-
ted to practice law in this state.
  3. Entity, as used in this article, shall not include a firm, partner-
ship,  professional  corporation,  or  other  organization,  all  of the
members or principals of which are admitted  to  practice  law  in  this
state.
  4.  [Person or entity as used in this article shall not include a type
B not-for-profit corporation as defined in section two  hundred  one  of
the  not-for-profit corporation law of this state, or an entity incorpo-
rated in another state  and  having  a  similar  not-for-profit  status,
licensed  by  the  superintendent,  to  engage in the business of budget
planning as defined in this section.
  5.] Any attorney licensed to practice law in this state who is engaged
in budget planning shall:
  (a) negotiate directly with creditors on behalf of the client;
  (b) ensure that all moneys received from the client are  deposited  in
the attorney's account maintained for client funds;
  (c) pay creditors from such account; and
  (d)  offer budget planning services through the same legal entity that
the attorney uses to practice law.
  S 2. Section 457 of the general business law, as  amended  by  chapter
629 of the laws of 2002, is amended to read as follows:
  S 457. [Penalty] PENALTIES FOR VIOLATION OF THIS ARTICLE; CRIMINAL AND
CIVIL.    (A)  Whoever  either  individually  or as officer, director or
employee of any person, firm, association or corporation,  violates  any
of  the provisions of the preceding section shall be guilty of a CLASS A
misdemeanor [for each such violation] PUNISHABLE AS PROVIDED IN ARTICLES
SEVENTY AND EIGHTY OF THE PENAL LAW.
  (B) WHENEVER THERE SHALL BE A VIOLATION OF THIS  ARTICLE,  APPLICATION
MAY  BE  MADE  BY  THE ATTORNEY GENERAL IN THE NAME OF THE PEOPLE OF THE
STATE OF NEW YORK TO A COURT OR JUSTICE HAVING JURISDICTION BY A SPECIAL
PROCEEDING TO ISSUE AN INJUNCTION, AND UPON NOTICE TO THE  DEFENDANT  OF
NOT  LESS THAN FIVE DAYS, TO ENJOIN AND RESTRAIN THE CONTINUANCE OF SUCH
VIOLATIONS; AND IF IT SHALL APPEAR TO THE SATISFACTION OF THE  COURT  OR
JUSTICE  THAT  THE  DEFENDANT  HAS,  IN  FACT, VIOLATED THIS ARTICLE, AN
INJUNCTION MAY BE  ISSUED  BY  SUCH  COURT  OR  JUSTICE,  ENJOINING  AND
RESTRAINING  ANY  FURTHER  VIOLATION,  WITHOUT  REQUIRING PROOF THAT ANY
PERSON HAS, IN FACT, BEEN INJURED OR DAMAGED THEREBY. IN CONNECTION WITH
ANY SUCH PROPOSED APPLICATION, THE ATTORNEY  GENERAL  IS  AUTHORIZED  TO
TAKE  PROOF  AND MAKE A DETERMINATION OF THE RELEVANT FACTS AND TO ISSUE
SUBPOENAS IN ACCORDANCE WITH THE CIVIL PRACTICE LAW AND RULES.  WHENEVER
THE  COURT  SHALL  DETERMINE  THAT  A  VIOLATION OF SECTION FOUR HUNDRED
FIFTY-SIX OF THIS ARTICLE HAS OCCURRED, THE COURT  MAY  IMPOSE  A  CIVIL
PENALTY  OF  NOT  MORE  THAN  FIVE  HUNDRED DOLLARS PER CONTRACT MADE IN
VIOLATION OF SUCH SECTION, NOT TO EXCEED ONE HUNDRED THOUSAND DOLLARS.

S. 5215--C                          3

  S 3. Section 579 of the banking law, as amended by chapter 629 of  the
laws of 2002, is amended to read as follows:
  S  579. Doing business without license prohibited. [Only a type B not-
for-profit corporation as defined in section  two  hundred  one  of  the
not-for-profit  corporation law of this state, or an entity incorporated
in another state and having a similar not-for-profit status,] NO  PERSON
OR  ENTITY shall engage in the business of budget planning as defined in
subdivision one of section four hundred fifty-five of the general  busi-
ness  law [of this state] except as authorized by this article and with-
out first obtaining a license from the superintendent.
  S 4. Subdivision 2 of section 584-a of the banking law,  as  added  by
chapter 629 of the laws of 2002, is amended to read as follows:
  2.  the  total fees agreed to for such services, including any adjust-
ments for estimated available  rebates  from  creditors,  provided  that
nothing  in  this  subdivision shall require a licensee to share rebates
with its clients AND PROVIDED THAT ANY FEES OR CHARGES IMPOSED  MUST  BE
FAIR, REASONABLE AND EASILY UNDERSTOOD;
  S  5.  Section  584-b  of the banking law is amended by adding two new
subdivisions 4-a and 14 to read as follows:
  4-A.  NO LICENSEE SHALL IMPOSE ANY FEE OR CHARGE  WHATSOEVER  THAT  IS
NOT FAIR, REASONABLE AND ABLE TO BE EASILY UNDERSTOOD.
  14. NO LICENSEE SHALL CHARGE THE DEBTOR FOR OR PROVIDE CREDIT OR OTHER
INSURANCE,  COUPONS  FOR GOODS OR SERVICES, MEMBERSHIP IN A CLUB, ACCESS
TO COMPUTERS OR THE INTERNET, OR ANY OTHER MATTER NOT  DIRECTLY  RELATED
TO BUDGET PLANNING SERVICES UNLESS PRE-APPROVED BY THE SUPERINTENDENT.
  S  6. Section 585 of the banking law, as amended by chapter 629 of the
laws of 2002, is amended to read as follows:
  S 585. Superintendent  authorized  to  examine.  For  the  purpose  of
discovering  violations of this article or securing information lawfully
required by him or her hereunder, the superintendent may  at  any  time,
and  as  often  as  he  or  she may determine, either personally or by a
person duly designated by him or her, investigate the business and exam-
ine the books, accounts, records, and files used therein of every licen-
see hereunder. For that purpose the superintendent and his or  her  duly
designated  representative  shall  have  free  access to the offices and
place of business, books, accounts, papers, records,  files,  safes  and
vaults  of  all  such  licensees. The superintendent and any person duly
designated by him or her shall have authority to require the  attendance
of  and  to examine under oath all persons whose testimony he or she may
require relative to such business. The expenses incurred in  making  any
examination  pursuant to this section shall be assessed against and paid
by the licensee so  examined,  except  that  traveling  and  subsistence
expenses  so  incurred shall be charged against and paid by licensees in
such proportions as the superintendent shall deem just  and  reasonable,
and  such  proportionate charges shall be added to the assessment of the
other expenses incurred upon each examination. Upon  written  notice  by
the  superintendent of the total amount of such assessment, the licensee
shall become liable for and shall pay such assessment to the superinten-
dent. If, upon review, the superintendent shall determine that the  fees
or  service  charges  set  by  the  licensee are UNFAIR, unreasonable OR
UNCLEAR, he or she shall direct the licensee to make adjustments in said
fees and service charges in accordance with his or her  findings,  which
shall  set  forth a detailed factual basis and reasoning supporting such
finding.
  S 7. This act shall take effect on the one hundred eightieth day after
it shall have become a law  and  shall  apply  to  all  debt  settlement

S. 5215--C                          4

services  agreements  entered  into  or  offered  on or after such date;
provided, however, that effective  immediately,  the  superintendent  of
financial  services  shall  add,  amend, and/or repeal any rule or regu-
lation he or she deems necessary or desirable for implementation of this
act.

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