June 1, 2006, Introduced by Rep. Hunter and referred to the Committee on Banking and Financial Services.
A bill to amend 1975 PA 148, entitled
"Debt management act,"
by amending sections 2, 4, 5, 6, 8, 12, 13, 14, 16, 18, and 19 (MCL
451.412, 451.414, 451.415, 451.416, 451.418, 451.422, 451.423,
451.424, 451.426, 451.428, and 451.429), as amended by 2000 PA 255.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 2. As used in this act:
(a) "Budget analysis" means a written, comprehensive
assessment of a debtor's financial condition that includes the
debtor's income, expenses, debt, housing costs, creditors, and
other financial information.
(b) (a)
"Business of debt management" or "debt management
services business" means providing or offering to provide debt
management services to 1 or more residents of this state.
(c) (b)
"Counselor" means an employee or agent of
a licensee
who engages in counseling and budget analysis functions and
scheduling of debtor's funds.
(d) (c)
"Creditor" means a person for whose
benefit money is
being collected and disbursed by a licensee. A licensee is not a
creditor for purposes of this act.
(e) (d)
"Debt management" means the
planning and management
of
the financial affairs of a debtor and the receipt of money from
the
debtor for distribution to a creditor in payment or partial
payment
of the debtor's obligations. providing
1 or more debt
management services.
(f) "Debt management services" means any of the following:
(i) Receiving money from a debtor for the purpose of
distributing 1 or more payments to or among 1 or more creditors of
the debtor in full or partial payment of the debtor's obligations.
(ii) Arranging or assisting a debtor to arrange for the
distribution of 1 or more payments to or among 1 or more creditors
of the debtor in full or partial payment of the debtor's
obligations.
(iii) Exercising control, directly or indirectly, or arranging
for the exercise of control over funds of a debtor for the purpose
of distributing payments to or among 1 or more creditors of the
debtor in full or partial payment of the debtor's obligations.
(iv) Acting or offering to act as an intermediary between a
debtor and 1 or more creditors of the debtor for the purpose of
adjusting, settling, discharging, reaching a compromise on, or
otherwise altering the terms of payment of the debtor's
obligations.
(g) "Debt management services agreement" means a written
contract, plan, or agreement between a counselor and a debtor for
the performance of debt management services.
(h) (e)
"Debtor" means a person from
whom money is being
collected
for the benefit of a creditor of the debtor who seeks
debt management services or enters into a debt management services
agreement.
(i) (f)
"Department" means the office of financial
and
insurance services.
(j) (g)
"Director" means the commissioner of the
department
or his or her authorized representative.
(k) (h)
"Fees and charges of the licensee" means
the total
amount of money to be charged a debtor by the licensee, including
the $25.00
$50.00 initial payment and any charges for advice,
materials, or referrals.
(l) (i)
"License" means a written certificate or
exemption
order issued by the director.
(m) (j)
"Licensee" means a person licensed under
this act to
perform debt management services and located inside or outside the
boundaries of this state.
(n) (k)
"Office" means each location, including, but not
limited to, any branch office or affiliate location where a person
engages in the business of debt management, identified by street
name,
building number, city, and state.
where a person engages in
the
business of debt management.
(o) (l) "Office manager" means an employee or
owner charged
with the supervision, oversight, or approval of the functions of
budget analysis, counseling, or scheduling.
(p) (m)
"Person" means an individual, corporation,
partnership, association, joint stock company, trust where the
interests of the beneficiaries are evidenced by a security, limited
liability company, or other legal entity.
(q) (n)
"Sweep arrangement" means an arrangement
that
provides for a temporary or permanent transfer of funds from 1
trust account to another trust account when a predetermined time,
account balance, or other condition occurs or is fulfilled.
Sec.
4. (1) After January 1, 1976, a A person
located
within
inside or outside of the boundaries of this state shall not
engage in the business of debt management without first obtaining a
license
as required in this act. A contract of debt management
as
defined by this act services
agreement made with a debtor by a
person without a license is null and void.
(2) A person who is performing a debt management service and
receiving compensation primarily from governmental organizations,
governmentally sponsored organizations, charitable trusts, or
foundations
tax exempt pursuant to under section 501(c) of the
internal
revenue code, of 1986 26 USC 501, upon a showing
of
safeguards in the handling of debtor funds, may be granted an
exemption from any provision of this act if the director finds that
the
exemption is found
to be in the public interest.
Sec. 5. (1) An applicant for a license to engage in the
business of debt management shall file an application with the
director in writing and under oath that includes all of the
following:
(a) The name and exact address of the applicant and the name
and address of each of the following, as applicable:
(i) If the applicant is a corporation, its officers and
directors.
(ii) If the applicant is an association, its officers and
directors.
(iii) If the applicant is a partnership, its partners.
(iv) If the applicant is a limited liability company, its
manager or managers.
(v) If the applicant is any other legal entity, its manager or
other person designated to control the operation of that legal
entity.
(b) A copy of a certificate of an assumed name, if applicable.
(c) One or more of the following, as applicable:
(i) If the applicant is a corporation, a copy of the articles
of incorporation.
(ii) If the applicant is an association, a copy of the
organizational documents of the association.
(iii) If the applicant is a partnership, a copy of the
partnership agreement.
(iv) If the applicant is a limited liability company, a copy of
the articles of organization.
(d) Telephone number, e-mail address, and website URL of the
applicant.
(e) The address of each office in this state where the
applicant will provide debt management services.
(f) If the applicant is a tax exempt entity under section
501(c) of the internal revenue code, 26 USC 501, evidence of that
status.
(g) A description of any consumer education program that it
provides to its debtors.
(h) A description or sample forms of the applicant's budget
analysis and initial budget plan, including any form or electronic
model, that are used to evaluate the financial condition of
debtors.
(i) A copy of the debt management services agreement that the
applicant will use in its debt management services business.
(j) A copy of the credit agreement form that the applicant
will use in its debt management services business.
(2) Upon
When filing the application, the applicant shall do
all of the following:
(a)
Pay to the department a an
initial license fee of
$50.00
for each office $500.00.
(b)
Pay to the department an investigation fee of $50.00
additional license fee of $100.00 for each office in this state.
(c) Furnish a surety bond to the people of the state of
Michigan. The amount of the surety bond must equal or exceed the
total amount of Michigan clients' funds in the applicant's or
licensee's trust account at the time of application for license or
renewal, as determined by the department, but in no event shall a
surety bond be less than $25,000.00 or be greater than $100,000.00.
The surety bond shall be conditioned upon the faithful accounting
of all money collected upon accounts entrusted to a licensee
engaged in the business of debt management or the licensee's
employees and agents. The surety bond shall be approved by the
department. In lieu of a surety bond, the department may by rule
provide for an appropriate deposit of cash or securities, a letter
of credit, or the assignment of coverage of other bonds if the
department is satisfied that comparable or more extensive coverage
results.
(d) File an appointment of the director as the agent of the
applicant for service of process in this state.
(3)
Service of process upon the director
shall be is
considered service upon an applicant or licensee, including an
applicant who complies with or fails to comply with subsection
(2)(d).
(4) Unless surrendered, revoked, or suspended, a license
issued under this act expires on December 31 of the year for which
it is issued. A licensee may renew a license before the expiration
date as provided under this act.
(5) A licensee shall create, maintain, and preserve accurate
and complete books and records relating to the licensee's business.
The
A licensee shall maintain
the books and records shall
be
maintained
according to generally accepted accounting
principles.
A licensee or an applicant shall notify the department in writing
of the address where the books and records are kept. If a licensee
changes the location of the books and records, the licensee shall
notify the department in writing within 10 business days after the
change. The director may prescribe by rule or order the form and
contents of books and records relating to a licensee's business.
(6) An applicant shall file a financial statement with an
application for a debt management license. The director may require
that
an audit or review of the financial statement be
audited or
reviewed
by an independent certified public accountant.
(7) If a licensee has a board of directors or the equivalent,
the director shall not require that the licensee provide
information concerning a member of the board of directors or
equivalent, nor require that the member satisfy the examination
provisions of this act, if that member does not receive a salary,
stock dividend, or other financial benefit from that corporation
other than reimbursement of the actual expenses incurred in
carrying out the duties of a director of that corporation.
Sec. 6. (1) Upon receiving the application and approving the
fees and surety bond, the department shall investigate the
applicant's responsibility, experience, character, and general
fitness. If the result of the investigation warrants a belief that
the business will be operated fairly and honestly within the
provisions of this act, the department shall issue a license. The
investigation of the applicant shall at least include investigation
of the following as applicable:
(a) If the applicant is a corporation, its officers and
directors.
(b) If the applicant is a partnership, its partners.
(c) If the applicant is an association, its officers.
(d) If the applicant is a limited liability company, its
manager or managers.
(e) If the applicant is any other legal entity, its manager or
other person designated to control the operation of that legal
entity.
(2) A license shall not be issued if the investigation reveals
1 or more of the following:
(a) That an individual investigated under subsection (1) meets
any of the following:
(i) Was ever convicted of a crime involving moral turpitude
including forgery, embezzlement, obtaining money under false
pretenses, larceny, extortion, conspiracy to defraud, or any other
similar offense.
(ii) Violated or failed to comply with this act or a rule
promulgated under this act.
(iii) Had a license to engage in the business of debt management
revoked or suspended for any reason other than failure to pay
licensing fees in this state or another state.
(iv) Defaulted in the payment of money collected for others,
including the discharge of debts through bankruptcy proceedings.
The director may, at his or her discretion, waive this restriction
if provided with evidence of justifiable cause for the bankruptcy,
plus convincing evidence of the fitness of the bankrupt party to
carry out his or her functions under this act.
(b) An individual applicant is not at least 18 years of age
and a citizen of the United States.
(c) An applicant that is a partnership, corporation, limited
liability company, association, or other legal entity required by
statute to obtain authority to do business in this state has not
been granted authority to do business in this state.
(d) The applicant is an employee or owner of a collection
agency as defined in section 901 of the occupational code, 1980 PA
299, MCL 339.901, or process serving business or in any manner is
affiliated with a collection agency or process serving business.
The director may, in his or her discretion, waive this restriction
on a showing of sufficient safeguards in the operation of the
collection agency.
(3) An applicant shall pass an examination administered by the
director or his or her designee before the director grants a
license to the applicant under this act. A counselor shall pass an
examination within the first 180 days of employment administered by
the director or his or her designee. The examination may be oral or
written, or partly oral and partly written, and shall be practical
in nature and sufficiently thorough to ascertain the applicant's
fitness. Questions on bookkeeping, credit adjusting, business
ethics, agency, contracts, debtor and creditor relationships, trust
funds, and the provisions of this act and rules promulgated under
this act may be included in the examination. The director may
charge
an examination fee of $25.00 for administering this
examination that does not exceed the actual cost of administering
this examination.
Sec. 8. (1) Before December 1 of each year, a licensee shall
file an application with the department for renewal of its license
.
The application shall be on the form prescribed by the
department. and
shall be accompanied by a fee of $50.00 for each
office
together with The applicant
shall include with the
application a renewal fee of $250.00, an additional renewal fee of
$100.00 for each office in this state, and a surety bond in the
same
manner as an original application. The application shall
cover
include each branch
office
that is under the ownership
and
control of the applying entity of
the licensee in this state.
Financial
statements shall be filed
(2) In addition to the requirements of subsection (1), a
licensee shall file financial statements with the application for
renewal
of a license. The director may require
that an audit or
review
of the financial statements be
audited or reviewed by an
independent certified public accountant.
Sec. 12. (1) Before a contract is formed between a licensee
and
a debtor, a thorough and written the licensee shall compile a
budget
analysis shall be compiled and a copy delivered of the
debtor
and deliver a copy to the debtor. A
licensee shall not
accept
an account unless a written and thorough budget analysis
indicates
that the debtor can reasonably meet the requirements
required
by the budget analysis. The budget analysis shall contain
all of the following information about the debtor:
(a) Name and address.
(b) Marital status and number of dependents.
(c) Amount and source of all employment compensation, payments
from government programs, child support and alimony payments, and
other income.
(d) Number of exemptions claimed on the debtor's most recent
federal income tax return.
(e) Gross income per pay period, type and amount of all
payroll deductions, and net income per pay period.
(f) Monthly home mortgage or rental payment. If the home
mortgage payment does not include an escrow for real estate taxes,
the budget analysis shall contain the amount and due dates of the
real estate taxes on the property.
(g) Type and amount of all other fixed periodic payments.
(h) Type and amount of food, clothing, utility, vehicle,
insurance, and all other living expenses.
(i) List of creditors included in the plan.
(j) A description of and amount owed for any outstanding
garnishments and judgments.
(k) Periodic amount available for payment toward a debt
management plan.
(2) A licensee shall not accept an account unless the budget
analysis described in subsection (1) indicates that the debtor can
reasonably meet the debtor's payment obligations described in the
budget analysis.
(3) A licensee that is or claims it is a tax exempt entity
under section 501(c) of the internal revenue code, 26 USC 501,
shall not charge an applicant a fee for preparing a budget analysis
described in subsection (1).
Sec. 13. (1) Upon establishing a debt management plan for a
debtor,
a licensee may charge and receive an initial fee of $25.00
$50.00. However, unless 51% or more in number and dollar amount of
all the debtor's creditors consent to the debt management program
within 45 days of establishing the debt management plan, the
licensee
shall return the fee shall
be returned to the debtor and
close
the debtor's account. closed.
(2) Consent
from a creditor shall be recorded A
licensee
shall record the consent of a creditor to a debt management program
described
in subsection (1) on a separate form .
The form shall
contain
that contains all of the following:
(a) A list of all the creditors.
(b) The manner in which consent was sought.
(c) The date of each contact.
(d) The name of the person contacted, if applicable.
(e) The response obtained from the person contacted.
(f) Any revised or special conditions or arrangements that
condition the consent.
(g) The date on which the required consent was secured.
(3) The
A licensee may seek the consent of a creditor may
be
sought under this section by sending a notice of a debt
management plan to a creditor by an appropriate means including by
telephone,
facsimile, electronic mail, or first-class mail. If the
a creditor does not respond within 14 days after the sending of the
notice,
it may be is
presumed that the creditor has given
consent.
(4) If a payment under the debt management plan is sent to a
creditor,
acceptance of the payment or plan
may be is presumed
7
days after sending the payment.
Sec.
14. (1) A contract debt management services agreement
between
a licensee and debtor shall include meet all of the
following:
(a)
Each creditor to whom payments will be made and the amount
owed
each creditor.
(b)
The total amount of the licensee's charges.
(c)
The beginning and ending dates of the contract.
(d)
The number of months and the total principal amount plus
approximate
interest charges required to liquidate in full the
debts,
except mortgage or land contract interest payments,
described
in the contract.
(e)
The name and address of the licensee and of the debtor.
(f)
Other provisions or disclosures that the director
determines
are necessary for the protection of the debtor and the
proper
conduct of business by a licensee.
(a) Be signed and dated by the licensee and debtor.
(b) Include all of the following in at least 12-point type:
(i) The name, address, and telephone number of the debtor.
(ii) The name, address, telephone number, and license number of
the licensee.
(iii) A description of the debt management services the licensee
will provide to the debtor and any fees the licensee will charge to
the debtor for the debt management services.
(iv) A disclosure of the existence of the surety bond required
under section 5.
(v) The name and address of the financial institutions in
which the licensee will hold funds paid by the debtor to the
licensee for disbursement to the debtor's creditors.
(vi) A notice of the right of any party to the debt management
services agreement to rescind the debt management services
agreement by giving written notice of rescission to the other
party.
(vii) A schedule of payments that the debtor must make under
the debt management services agreement. The schedule shall include
the amount of each payment and the date on which each payment is
due, an itemization of the maintenance fees that the licensee will
retain from each payment, and the amount of money that the licensee
will pay to the debtor's creditors from each payment.
(viii) A list of each participating creditor of the debtor to
which the licensee will make payments under the debt management
services agreement. The list shall include the amount owed to each
creditor and a schedule of payments that the licensee will make to
each participating creditor from the debtor's payments that
includes the amount of each payment and the date on which each
payment will be made.
(ix) A list of creditors the licensee reasonably expects not to
participate in the debt management of the debtor's debt under the
debt management services agreement.
(x) A disclosure that the licensee also may receive
compensation from the debtor's creditors for providing debt
management services to the debtor.
(xi) A disclosure that the licensee may not require a debtor to
purchase for a fee a counseling session, an educational program, or
materials and supplies as a condition of entering into a debt
management services agreement.
(xii) A disclosure that the licensee may not require or compel
a voluntary contribution from a debtor for any service provided by
the licensee to the debtor.
(xiii) A disclosure that execution of a debt management services
agreement may impact the debtor's credit rating and credit scores.
(xiv) A disclosure that the debtor must read and receive a copy
of the complete debt management services agreement.
(xv) The following notice:
"The Office of Financial and Insurance Services for the State
of Michigan will accept questions and complaints from Michigan
residents regarding _______________________(name and license number
of the debt management services provider) at ___________________.".
(2) Unless otherwise approved by the department and except for
an amount due for 1 or more monthly fees or a closeout fee, a
licensee
shall distribute to the creditors of the debtor , at
least
monthly, all money received from a debtor or on behalf of a
debtor at least monthly.
Sec. 16. A licensee shall do all of the following:
(a) Create and maintain records of the accounts,
correspondence, memoranda, papers, books, and other records of the
debt management services business. If the licensee elects not to
retain original records, the licensee may utilize electronic,
photocopy, or computerized methods of record keeping. The licensee
shall preserve the records created under this subdivision for at
least 6 years after they are created.
(b) Make all the records created and maintained under
subdivision (a) available for examination by examiners of the
department.
(c) Upon contracting with a debtor for debt management
services, give a copy of the contract debt management services
agreement to the debtor.
(d) Deliver a receipt to a debtor upon receiving cash from a
debtor or within 3 business days after receiving a noncash payment
from a debtor, and at least monthly beginning with the first month
after contracting with a debtor deliver a statement that includes
the dates and amounts received and disbursed on behalf of the
debtor.
(e) Within 5 business days after a request from a debtor,
provide a written statement that includes all of the following:
(i) All transactions concerning the money received from or on
behalf of the debtor.
(ii) The total amount paid to each creditor.
(iii) The total amount of charges deducted from the payments
received.
(iv) The amount held in reserve.
(f) At least every 90 days after contracting with a debtor for
debt management services, provide a written statement to the debtor
that includes all of the following:
(i) The total amount received from and on behalf of the debtor.
(ii) The total amount paid to each creditor.
(iii) The total amount deducted from the payments received.
(iv) The amount held in reserve.
(g) At least annually, verify or cause the verification of
payments to selected creditor accounts and do or designate 1 or
more persons to do all of the following:
(i) Review each debtor's account file.
(ii) Review checks paid by the licensee.
(iii) Review procedures used by the licensee for processing
checks and handling cash.
(iv) Review the complaint file maintained by the licensee.
(v) Verify payments to selected creditor accounts.
(vi) Review selected counselor records and work papers.
(h)
If a contract with a debtor debt management services
agreement is lawfully sold, transferred, or assigned to a licensee
from another licensee, furnish to the debtor a written notice of
the sale, transfer, or assignment. The notice shall contain the
name and address of the licensee and the name of the counselor
authorized
by the licensee to manage the contract agreement.
Sec. 18. (1) A licensee may charge a reasonable fee under a
debt
management services contract agreement. The fees and
charges
of the licensee shall not exceed 15% of the amount of the debt to
be
liquidated during the express term of the contract. The
agreement. A licensee may require the debtor to make an initial
payment
of not more than $25.00, which $50.00. The initial
payment
is part of the fees and charges of the
licensee . The
initial
payment and may be deducted from the amount of a
subsequent fee that is amortized, if any.
(2) Except for a cancellation described in subsection (3), for
which a licensee may not collect the additional fee described in
this subsection, in the event of cancellation or default on the
performance
of the contract debt management services agreement by
the debtor before its successful completion, the licensee may
collect $25.00 in addition to fees and charges of the licensee
previously received. This $25.00 fee is not subject to the 15%
limitation on fees and charges of the licensee in subsection (1).
(3)
A contract debt management services agreement is in
effect when it is signed by the licensee and the debtor and the
debtor has made a payment to the licensee. The debtor has the right
to
cancel the contract agreement until 12 midnight of
the third
business
day after the first day the contract agreement is in
effect by delivering written notice of cancellation to the
licensee.
(4) If a debtor fails to make a payment to a licensee within
60
days after the date a payment is due under a contract debt
management
services agreement, the contract
agreement is
considered canceled by the debtor. A debtor may file a letter of
continuation
of a contract debt management services agreement
even if the debtor did not make a payment within 60 days after a
payment was due. All of the following apply to a letter of
continuation
of a contract debt management services agreement:
(a) A debtor may file only 1 letter of continuation with a
licensee
for any contract agreement.
(b) A letter of continuation must contain a detailed
explanation of the reason or reasons for the missed payment or
payments.
(c) A
contract An agreement for which a letter of
continuation that meets the requirements of this subsection is
filed remains in effect and subject to cancellation for any future
failure to make a payment or payments as described in this
subsection.
(d) A
contract An agreement between a licensee and a debtor
shall clearly provide for 1 letter of continuation by a debtor.
(e) A debtor may not file a letter of continuation with a
licensee
at the beginning of a contract an agreement.
(5) A licensee shall not contract for, receive, or charge a
debtor an amount greater than authorized by this act. A person who
violates this subsection, except as the result of an inadvertent
clerical or computer error, shall return to the debtor the amount
of the payments received from or on behalf of the debtor and not
distributed to creditors, and, as a penalty, an amount equal to the
amount overcharged.
Sec. 19. A licensee shall not do any of the following:
(a) Purchase from a creditor any obligation of a debtor.
(b)
Execute a contract or debt management services agreement
to
be signed by the debtor unless the
contract or agreement
is
fully and completely filled in and finished.
(c) Lend money or credit except under a plan approved by the
department.
(d) Take a confession of judgment or power of attorney to
confess judgment against the debtor or appear as the debtor in a
judicial proceeding.
(e) Receive or charge a fee in the form of a promissory note
or other promise to pay, or receive or accept a mortgage or other
security in real or personal property for a fee, or both.
(f) Take,
concurrent Concurrent with the signing of the
contract
a debt management services
agreement or as a part of the
contract
agreement or as part of the application for the contract
agreement, take a release of an obligation to be performed on the
part of the licensee.
(g) Offer, pay, or give any cash, fee, gift, bonus, premiums,
reward, or other compensation to a person for referring a
prospective customer to the licensee. A payment by the licensee for
the
lawful sale, transfer, or assignment of a contract debt
management services agreement to the licensee from another licensee
is not subject to this subdivision.
(h) Receive any cash, fee, gift, bonus, premium, reward, or
other compensation from a person other than the debtor or a person
in the debtor's behalf in connection with the licensee's business
of debt management, except under a plan approved by order of the
department.
(i) Disclose the debtors who have contracted with the licensee
other than to the director or his or her authorized representative,
or disclose the creditors of a debtor to anyone other than the
debtor, or the director or his or her authorized representative, or
another creditor of the debtor and then only to the extent
necessary to secure the cooperation of the creditor in a debt
management plan.
(j) Use or permit the use of a false, misleading, or deceptive
statement or representation with regard to the services or charges
of the licensee in any advertisement, display, broadcast, or offer
of the licensee's services.
(k) Use an advertisement that gives a telephone number or post
office box without identifying the licensee and the licensee's
office address.
(l) Use advertisements containing any of the following
representations:
(i) That the licensee will provide funds to pay bills or
prevent attachments.
(ii) That a certain payment schedule will handle a certain
amount or range of indebtedness.
(iii) That garnishment, attachment, repossession, or loss of job
will be prevented.
(m) Fail to provide to the debtor the full benefit of a
compromise of a debt arranged by the licensee with a creditor.
(n) In connection with the making of a debt management
contract
services agreement or with operation of the debtor's
account:
(i) Employ any device, scheme, or artifice to defraud.
(ii) Make any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they are made,
not misleading.
(iii) Engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon any person.
(o) Conduct the business of debt management without a surety
bond, or deposit or assignment satisfactory to the department in
lieu of a surety bond, as described in section 5(2), in place.