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Uniform Debt-Management Services Act - Page 11

SECTION 19. FORM AND CONTENTS OF AGREEMENT.

(a) An agreement must:

(1) be in a record;

(2) be dated and signed by the provider and the individual;

(3) include the name of the individual and the address where the individual resides;

(4) include the name, business address, and telephone number of the provider;

(5) be delivered to the individual immediately upon formation of the agreement; and

(6) disclose:

(A) the services to be provided;

(B) the amount, or method of determining the amount, of all fees, individually itemized, to be paid by the individual;

(C) the schedule of payments to be made by or on behalf of the individual, including the amount of each payment, the date on which each payment is due, and an estimate of the date of the final payment;

(D) if a plan provides for regular periodic payments to creditors:

(i) each creditor of the individual to which payment will be made, the amount owed to each creditor, and any concessions the provider reasonably believes each creditor will offer; and

(ii) the schedule of expected payments to each creditor, including the amount of each payment and the date on which it will be made;

(E) each creditor that the provider believes will not participate in the plan and to which the provider will not direct payment;

(F) how the provider will comply with its obligations under Section 27(a);

(G) that the provider may terminate the agreement for good cause, upon return of unexpended money of the individual;

(H) that the individual may cancel the agreement as provided in Section 20;

(I) that the individual may contact the administrator with any questions or complaints regarding the provider; and

(J) the address, telephone number, and Internet address or website of the administrator.

(b) For purposes of subsection (a)(5), delivery of an electronic record occurs when it is made available in a format in which the individual may retrieve, save, and print it and the individual is notified that it is available.

(c) If the administrator supplies the provider with any information required under subsection (a)(6)(J), the provider may comply with that requirement only by disclosing the information supplied by the administrator.

(d) An agreement must provide that:

(1) the individual has a right to terminate the agreement at any time, without penalty or obligation, by giving the provider written or electronic notice, in which event:

(A) the provider will refund all unexpended money that the provider or its agent has received from or on behalf of the individual for the reduction or satisfaction of the individual’s debt;

(B) with respect to an agreement that contemplates that creditors will settle debts for less than the principal amount of debt, the provider will refund 65 percent of any portion of the set-up fee that has not been credited against the settlement fee; and

(C) all powers of attorney granted by the individual to the provider are revoked and ineffective;

(2) the individual authorizes any bank in which the provider or its agent has established a trust account to disclose to the administrator any financial records relating to the trust account; and

(3) the provider will notify the individual within five days after learning of a creditor’s decision to reject or withdraw from a plan and that this notice will include:

(A) the identity of the creditor; and

(B) the right of the individual to modify or terminate the agreement.

(e) An agreement may confer on a provider a power of attorney to settle the individual’s debt for no more than 50 percent of the principal amount of the debt. An agreement may not confer a power of attorney to settle a debt for more than 50 percent of that amount, but may confer a power of attorney to negotiate with creditors of the individual on behalf of the individual. An agreement must provide that the provider will obtain the assent of the individual after a creditor has assented to a settlement for more than 50 percent of the principal amount of the debt.

(f) An agreement may not:

(1) provide for application of the law of any jurisdiction other than the United States and this state;

(2) except as permitted by Section 2 of the Federal Arbitration Act, 9 U.S.C. Section 2, [as amended,] [or [insert citation to the Uniform Arbitration Act or other statute authorizing predispute arbitration agreements]] contain a provision that modifies or limits otherwise available forums or procedural rights, including the right to trial by jury, that are generally available to the individual under law other than this [act];

(3) contain a provision that restricts the individual’s remedies under this [act] or law other than this [act]; or

(4) contain a provision that:

(A) limits or releases the liability of any person for not performing the agreement or for violating this [act]; or

(B) indemnifies any person for liability arising under the agreement or this [act].

(g) All rights and obligations specified in subsection (d) and Section 20 exist even if not provided in the agreement. A provision in an agreement which violates subsection (d), (e), or (f) is void.

Legislative Note: In states in which the constitution does not permit use of the phrase, “as amended,” when federal statutes are incorporated into state law, delete that phrase in subsection (f)(2)

If the state has no statute authorizing predispute arbitration agreements, delete the second bracketed language, “or [insert . . . agreements,” in subsection (f)(2).

Comment

1. In this section “provider” refers to the provider that is a party to the agreement. It does not contemplate an employee or other agent that forms an agreement on behalf of the provider, even if the employee or agent serves as an intermediary between an individual and the individual’s creditors.

2. Subsection (a)(5) requires immediate delivery of the record to the individual. Subsection (b) clarifies that if the record is electronic, delivery occurs when the provider makes it available in retrievable and printable form and notifies the individual that it is available.

3. In subsection (a), subparagraphs (6)(A) and (B) carry into the agreement the matter that section 17(a) requires to be disclosed before an agreement is formed. See Official Comment 1 to that section.

4. In subsection (a)(6)(C), as in section 2(13) (defining “plan”), the word “payments” includes deposits, that is, transfers to a bank account of the individual. The date of the last payment depends on the creditors’ concessions and the amount of the monthly payment by the individual, each of which may change during the course of the plan. It also depends on the timeliness of payment by the individual. None of this can be known in advance. Therefore, paragraph (6)(C) requires a good faith estimate of the date of the final payment.

5. Paragraph (6)(D) applies primarily to credit-counseling entities. At the very outset of the agreement, the provider may not have communicated with an individual’s creditors to ascertain their willingness to participate and the concessions that they will make. This paragraph requires the provider to use its best judgment, based on its past experience with each creditor, to disclose the likely payment amounts and concessions.

6. As with section 17(c)(3) (pre-agreement disclosure of creditor participation), identification in paragraph (6)(E) of nonparticipating creditors includes secured creditors but refers only to creditors that the individual has disclosed to the provider or that the provider otherwise actually knows to be a creditor of the individual. Subparagraph (E) does not require the provider to make any disclosures with respect to creditors of which it is unaware.

7. Section 27 requires a provider to make periodic reports to an individual, accounting for payments, charges, and disbursements. Paragraph (6)(F) of this section requires disclosure of the timing of those reports (monthly or more frequently) and the individual’s right to receive an accounting upon request and upon termination of the agreement.

8. The good cause for termination by a provider pursuant to this paragraph (6)(G) does not encompass a desire to escape the fee structure to which the provider may have committed. For example, when a plan nears completion, the monthly revenue, which is capped by reference to the number of creditors still in the plan, may not generate the revenue desired or needed by the provider. This does not amount to good cause for terminating an agreement. Rather, “good cause” contemplates such things as the individual’s failure to make monthly payments or to cooperate with the provider. The standard of good cause may vary depending on whether the provider is a credit-counseling entity or a debt-settlement entity, because the adverse consequences to the individual in the event of termination may be different.

9. Section 20 gives an individual a three-day right of cancellation and the return of all money paid to or at the direction of the provider. It extends the three-day period to 30 days if the provider fails to comply with this section or section 20(b) or 28. Paragraph (6)(H) requires disclosure of this right, in addition to the separate notice required by section 20.

10. The administrator may have multiple phone numbers, e-mail addresses, etc. If the administrator informs the provider of the details by which individuals may make complaints or inquiries relating to this Act, subsection (c) requires the provider to disclose those details in the agreement. Compliance with this requirement will mean that a provider that serves individuals in multiple states may have to have a different form for each state. Computerization of the standard document may minimize the difficulty of complying with this disclosure requirement.

11. The historic practice by many credit-counseling agencies has been to permit termination at any time; they do not even purport to bind the individual to a contract. Subsection (d) mandates this right of termination as against all providers. If the individual has an unlimited right of termination, it is questionable whether there is a contract at all. The requirement of notice may supply sufficient obligation to support a contract, but even if it does not, there is no reason why the industry, and regulation of the industry, cannot operate on the basis of agreements that are not enforceable under the common law of contracts. This Act provides the authorization for the industry, as well as the regulation of it.

For all providers, if an individual terminates an agreement, paragraph (1)(A) requires return of any unexpended money intended for payment to creditors. For credit-counseling entities, no refund of set-up or monthly fees is required. For debt-settlement entities, however, paragraph (1)(B) requires the agreement to provide for refund of a portion of the set-up fee. Section 23(f) requires the provider to credit any set-up fee against a settlement fee. It also requires the provider to credit the monthly service fees against the settlement fee. To maximize the refund under this section, as contemplated here, the monthly service fees should credited first. To determine the refund due under paragraph (1)(B), the provider must deduct from the total amount of any settlement fees the total amount of monthly fees paid up to the time of termination. If the result is less than 0 (or if there have been no settlement fees), then no part of the set-up fee has yet been credited against the settlement fee, and the refund is 65% of the set-up fee. If the result is greater than 0, subtract that result from the set-up fee. The refund is 65% of the difference.

12. Paragraph (1)(C) requires the agreement to provide that in the event of termination, all powers of attorney terminate. Section 28(a)(4) complements this provision by making it unlawful for a provider to attempt to exercise a power of attorney after the individual has terminated the agreement.

13. Paragraph (2), in conjunction with section 5(b)(3), is designed to satisfy privacy laws in such a way that the administrator has access to information about a provider’s trust account.

14. Subsection (e) permits an agreement to confer on the provider a power of attorney to settle debts for 50 cents on the dollar. Because “principal amount of the debt” is a defined term (see section 2(14)), the percentage is calculated with respect to the amount of debt at the inception of the plan, not the amount of debt at the time of settlement. For settlements less favorable than that, the provider must secure the assent of the individual and must do so after the creditor has assented to a settlement. This affords the individual an opportunity to review the terms of a settlement before it becomes final.

15. Subsection (f) seeks to preserve the individual’s common law and statutory rights against the unilateral decision of a provider to remove or restrict them. Thus a provider may not evade this Act by adopting the law of another jurisdiction. Nor may a provider contract for a distant forum or the surrender of rights or remedies under other law, including the right to proceed by way of a class action when appropriate.

16. The failure of a provider to include in an agreement the provisions required by this section is a violation of the Act and justifies administrative enforcement under sections 32-33 and private enforcement under section 35. Even if omitted, however, subsection (g) makes the required provisions part of the agreement. Conversely, a provision that violates subsections (d)- (f) is void, but this does not render the entire agreement void.