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                                                      PRINTER'S NO. 1756

THE GENERAL ASSEMBLY OF PENNSYLVANIA


SENATE BILL

No. 1276 Session of 2008


        INTRODUCED BY BROWNE, WASHINGTON, M. WHITE, RAFFERTY, WOZNIAK,
           BOSCOLA, C. WILLIAMS, EARLL, A. WILLIAMS, FUMO, COSTA AND
           GREENLEAF, FEBRUARY 11, 2008

        REFERRED TO BANKING AND INSURANCE, FEBRUARY 11, 2008

                                     AN ACT

     1  Providing for the licensure of credit counseling agencies and
     2     for the powers and duties of the Department of Banking;
     3     requiring surety bonds; prohibiting certain fees and costs;
     4     providing for debt management plans; and prohibiting certain
     5     acts by credit counseling agencies.

     6     The General Assembly of the Commonwealth of Pennsylvania
     7  hereby enacts as follows:
     8  Section 1.  Short title.
     9     This act shall be known and may be cited as the Debt
    10  Management Services and Credit Counseling Act.
    11  Section 2.  Definitions.
    12     The following words and phrases when used in this act shall
    13  have the meanings given to them in this section unless the
    14  context clearly indicates otherwise:
    15     "Branch office."  A business location within this
    16  Commonwealth of a person required to be licensed under this act.
    17  The term does not include a person's principal office location.
    18     "Consumer."  An individual who resides in this Commonwealth
    19  and is seeking debt management services or has entered into a

     1  debt management plan.
     2     "Consumer education program."  A program or plan that seeks
     3  to improve the financial literacy of consumers.
     4     "Credit counseling agency."  An individual, organization or
     5  corporation that provides debt management plan services to
     6  consumers, usually for a fee, contribution or other
     7  consideration.
     8     "Debt management plan."  A program whereby money is received
     9  from a consumer by a credit counseling agency for the purpose of
    10  distributing that money to one or more creditors of the consumer
    11  in full or partial payment of the consumer's obligations.
    12     "Department."  The Department of Banking of the Commonwealth.
    13     "Licensee."  A credit counseling agency licensed under this
    14  act to provide debt management or credit counseling services.
    15     "Principal office."  The main office location of a person
    16  required to be licensed under this act.
    17     "Secretary."  The Secretary of Banking of the Commonwealth.
    18  Section 3.  Scope.
    19     This act shall not apply to:
    20         (1)  A financial institution, personal property broker,
    21     agent or title company.
    22         (2)  Debt management or credit counseling provided in the
    23     practice of law.
    24         (3)  A consumer reporting agency as defined in the
    25     Federal Fair Credit Reporting Act (Public Law 91-508, 15
    26     U.S.C. § 1681 et seq.).
    27         (4)  A certified public accountant when services are
    28     rendered in the course of his practice as a certified public
    29     accountant and fees for such services are not in excess of
    30     those stated in this act.
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     1  Section 4.  Duties of department.
     2     (a)  Internet website information.--Department must provide
     3  the following on its Internet website:
     4         (1)  Information for credit counseling agencies on the
     5     provisions of this act.
     6         (2)  Information for consumers regarding the protections
     7     of this act.
     8         (3)  Information on filing consumer complaints, including
     9     a toll-free telephone number.
    10         (4)  A list of current licensed credit counseling
    11     agencies.
    12  Section 5.  Licensure required.
    13     (a)  General rule.--A credit counseling agency that, in its
    14  own name or on behalf of other persons, engages in the business
    15  of providing debt management plan or credit counseling services
    16  in this Commonwealth or with persons located in this
    17  Commonwealth shall obtain a license from the department.
    18     (b)  Fees.--Each applicant for a license shall include with
    19  its application payments for the following fees:
    20         (1)  $200 for principal office.
    21         (2)  $100 for each branch office.
    22  The fees shall be deposited into the Banking Department Fund.
    23     (c)  Renewal.--License must be renewed every calendar year,
    24  subject to the renewal fees set forth in subsection (b).
    25     (d)  Designated agents.--No license shall be issued to any
    26  credit counseling agency whose principal place of business is
    27  located outside of this Commonwealth, unless the credit
    28  counseling agency designates an agent residing within this
    29  Commonwealth for service of process.
    30     (e)  Conditions of licensure.--As a condition of licensure,
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     1  each applicant shall provide evidence that it satisfies the
     2  following criteria:
     3         (1)  A separate trust account with an FDIC-insured
     4     financial institution for the handling of client funds. A
     5     licensee may not commingle any trust account established for
     6     the benefit of consumers with any operating accounts of the
     7     licensee.
     8         (2)  Counselor certification through a third-party
     9     certification provider.
    10         (3)  A board of directors, a majority of which does not
    11     include individuals who would have a direct stake in the
    12     outcome of the debt management or counseling process.
    13         (4)  Agency accreditation provided by a third-party
    14     accreditation body. Such accreditation shall ensure
    15     compliance to industry standards and best practices.
    16         (5)  Annual audits by an independent certified public
    17     account, with such audits, taking place within six months of
    18     the close of the applicant's fiscal year.
    19  Section 6.  License.
    20     The secretary may by order, after notice and opportunity for
    21  hearing, assess penalties and deny, refuse to renew, suspend or
    22  revoke a license issued under this act if it is in the public
    23  interest and the applicant or licensee, any partner, officer or
    24  director, any person occupying a similar status or performing
    25  similar functions or any person directly or indirectly
    26  controlling the applicant or licensee:
    27         (1)  Has violated any provision of this act or
    28     regulations promulgated under this act.
    29         (2)  Has not met the standards established in this act.
    30         (3)  Has filed an application for a license under this
    20080S1276B1756                  - 4 -     

     1     act which as of its effective date, or as of any date after
     2     the filing in the case of an order denying of the filing, was
     3     incomplete in any material respect or contained any statement
     4     which was, in light of the circumstances under which it was
     5     made, false or misleading with respect to any material fact.
     6         (4)  Has made a false or misleading statement to the
     7     secretary or in any reports to the secretary.
     8         (5)  Has made fraudulent misrepresentations or
     9     circumvented or concealed, through whatever subterfuge or
    10     device, any of the material particulars or the nature thereof
    11     required to be stated or furnished to a person under the
    12     provisions of this act.
    13         (6)  Has failed to supervise its agents, managers or
    14     employees.
    15         (7)  Is the subject of an order entered within the past
    16     five years by this Commonwealth, any other Federal or state
    17     regulator denying, suspending or revoking license or
    18     registration.
    19         (8)  Is permanently, preliminarily or temporarily
    20     enjoined by any court of competent jurisdiction from engaging
    21     in or continuing any conduct or practice involving any aspect
    22     of debt adjustment or collection activities.
    23         (9)  Has engaged in dishonest or unethical practices in
    24     the conduct of the business of debt adjustment.
    25         (10)  Has violated applicable Federal laws or regulations
    26     promulgated under Federal law.
    27         (11)  Has been convicted of a crime involving moral
    28     turpitude.
    29         (12)  Has maintained a continuous course of unfair
    30     conduct.
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     1         (13)  Is insolvent or has filed in bankruptcy or
     2     receivership or made assignments for the benefit of
     3     creditors.
     4         (14)  For other good cause shown.
     5  Section 7.  Surety bond.
     6     (a)  Terms of bond.--
     7         (1)  With application for a new or renewal license, the
     8     applicant or licensee shall file a surety bond or bond
     9     renewal certificate with the secretary. The bond shall be
    10     issued in favor of the Commonwealth for the benefit of any
    11     consumer who is injured by a violation of this act or a
    12     regulation adopted under this act committed by a licensee or
    13     agent of a licensee, including an agent managing a trust
    14     account.
    15         (2)  The bond shall be in an amount between $10,000 and
    16     $350,000, as established by regulation of the secretary and
    17     issued by a bonding, surety or insurance company that is
    18     authorized to do business in this Commonwealth.
    19         (3)  The bond shall remain if effect until the surety is
    20     released from liability by the secretary or until the bond is
    21     canceled by the surety.
    22     (b)  Cancellation.--Any surety may cancel a bond upon 30
    23  days' written notice to the Insurance Commissioner, but no such
    24  cancellation shall affect any liability which arises prior to
    25  the termination of such 30-day period. Upon the cancellation of
    26  a bond by a surety, the licensee shall file a new bond with the
    27  commissioner or the license shall be automatically suspended at
    28  the end of such 30-day period.
    29  Section 8.  Unlawful fees and costs.
    30     (a)  Limitation.--
    20080S1276B1756                  - 6 -     

     1         (1)  It shall be unlawful for a credit counseling agency
     2     to charge or accept from a consumer, directly or indirectly,
     3     a fee or contribution greater than $50 for the initial setup
     4     or initial consultation.
     5         (2)  After the initial setup or initial consultation, a
     6     credit counseling agency may not charge or accept a fee or
     7     contribution from a consumer greater that $120 per year for
     8     additional consultations or, alternatively, if debt
     9     management services are provided, may charge either 7.5% of
    10     the amount paid monthly by the consumer or $35 per month,
    11     whichever is more.
    12     (b)  Construction.--Nothing in this section shall be
    13  construed to prohibit a credit counseling agency, while engaging
    14  in debt management or credit counseling services, from imposing
    15  upon and receiving from a consumer a reasonable and separate
    16  charge or fee for insufficient funds transactions.
    17  Section 9.  Debt management plans.
    18     (a)  Consumer education program.--A credit counseling agency
    19  may not perform debt management services for a consumer unless
    20  it provides the consumer with a consumer education program at no
    21  additional cost.
    22     (b)  Agreement required.--
    23         (1)  A debt management plan evidenced by an agreement
    24     between the licensee and the consumer shall be clearly
    25     acknowledged by both parties. A copy of the agreement must be
    26     provided to the consumer.
    27         (2)  The agreement shall contain:
    28             (i)  The name and address of both the consumer and
    29         credit counseling agency.
    30             (ii)  Full description of all services to be
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     1         performed for the consumer.
     2             (iii)  Clear indication of costs to the consumer,
     3         including contributions or fees, highlighted in boldface
     4         type.
     5             (iv)  A statement that the agreement can be
     6         terminated for any reason by the consumer and that the
     7         consumer has no obligation to continue the arrangement
     8         unless satisfied with the services provided.
     9             (v)  An indication of how to resolve disputes under
    10         the agreement.
    11             (vi)  A complete list of consumer and agency
    12         obligations that are subject to the agreement.
    13  Section 10.  Prohibited act.
    14     No credit counseling agency may:
    15         (1)  Purchase any debt or obligation of a consumer.
    16         (2)  Lend money or provide credit to any consumer.
    17         (3)  Obtain a mortgage or any other security interest in
    18     the property of a consumer.
    19         (4)  Operate as a debt collector.
    20         (5)  Structure an agreement for the consumer that, at the
    21     conclusion of the debt management plan, would result in
    22     negative amortization of any of the consumer's obligations to
    23     his creditors.
    24  Section 11.  Advertising.
    25     A credit counseling agency may not engage in false or
    26  misleading advertising concerning the terms or conditions of
    27  service or assistance offered.
    28  Section 12.  Conflict.
    29     If a provision of this act conflicts with any other law, the
    30  provisions of this act shall control.
    20080S1276B1756                  - 8 -     

     1  Section 20.  Effective date.
     2     This act shall take effect in 60 days.



















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