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Uniform Debt-Management Services Act - Page 12

SECTION 20. CANCELLATION OF AGREEMENT; WAIVER.

(a) An individual may cancel an agreement before midnight of the third business day after the individual assents to it, unless the agreement does not comply with subsection (b) or Section 19 or 28, in which event the individual may cancel the agreement within 30 days after the individual assents to it. To exercise the right to cancel, the individual must give notice in a record to the provider. Notice by mail is given when mailed.

(b) An agreement must be accompanied by a form that contains in bold-face type, surrounded by bold black lines:

Notice of Right to Cancel

You may cancel this agreement, without any penalty or obligation, at any time before midnight of the third business day that begins the day after you agree to it by electronic communication or by signing it.

To cancel this agreement during this period, send an e-mail to (E-mail address of provider) ____________________________ or mail or deliver a signed, dated copy of this notice, or any other written notice to (Name of provider) ___________________________________ at (Address of provider Date) _______________________________ before midnight on ____________________.

If you cancel this agreement within the 3-day period, we will refund all money you already have paid us.

You also may terminate this agreement at any later time, but we are not required to refund fees you have paid us.

I cancel this agreement,

__________________________________

Print your name

__________________________________

Signature

__________________________________

Date

(c) If a personal financial emergency necessitates the disbursement of an individual’s money to one or more of the individual’s creditors before the expiration of three days after an agreement is signed, an individual may waive the right to cancel. To waive the right, the individual must send or deliver a signed, dated statement in the individual’s own words describing the circumstances that necessitate a waiver. The waiver must explicitly waive the right to cancel. A waiver by means of a standard-form record is void.

Comment

1. This section derives from section 125 of the Truth-in-Lending Act, 15 U.S.C. § 1635. Subsection (a) confers a right of cancellation for three days after an agreement that complies with sections 19 and 28. Section 19 specifies the form and contents of the agreement, and section 28 lists prohibited conduct. If the agreement calls for the performance of conduct prohibited by section 28, or if the agreement does not comply with subsection (b) or section 19, the individual has 30 days in which to cancel. Failure to comply with subsection (b) includes putting the incorrect date in the notice required by that subsection. If the individual cancels within the threeday period, subsection (b) calls for a return of all amounts paid, even those amounts already paid over to creditors. If the agreement does not comply with section 19 or 28 and the provider fails to honor the individual’s attempt to cancel during the 30-day period, the remedy is found in section 35(e) (recovery of all amounts paid or deposited by the individual (including all set-up and service fees), less amounts transmitted to creditors, plus damages under section 35(c)). If the right to cancel has expired, the individual still has the right to terminate under section 19(d)(1).

2. The individual may waive the right to cancel in the event of an emergency. The individual must honestly believe that it is necessary for the provider to disburse his or her money before expiration of the three days. The waiver must disclose the reasons for such haste, and the use of a standard-form record—be it written or electronic—is ineffective.

SECTION 21. REQUIRED LANGUAGE. Unless the administrator, by rule, provides otherwise, the disclosures and documents required by this [act] must be in English. If a provider communicates with an individual primarily in a language other than English, the provider must furnish a translation into the other language of the disclosures and documents required by this [act].

Comment

1. Disclosures and documents required by this Act must be in English. The administrator may by rule permit providers to satisfy their obligations under the Act by giving disclosures and using documents in specified languages other than English if the provider communicates with an individual primarily in the other language. The promulgation of such a rule is discretionary with the administrator, since it may be unduly burdensome for the administrator to enforce the Act with respect to documents in the other language.

2. If a provider communicates primarily in a foreign language, it must provide a translation of documents and disclosures in that language. If the provider is not willing to do this, then it must communicate primarily in English. This places the burden on the individual to bring a translator along or assume the risk of not understanding any disclosures or documents that are beyond the individual’s English-language reading skills.

SECTION 22. TRUST ACCOUNT.

(a) All money paid to a provider by or on behalf of an individual pursuant to a plan for distribution to creditors is held in trust. Within two business days after receipt, the provider shall deposit the money in a trust account established for the benefit of individuals to whom the provider is furnishing debt-management services.

(b) Money held in trust by a provider is not property of the provider or its designee. The money is not available to creditors of the provider or designee, except an individual from whom or on whose behalf the provider received money, to the extent that the money has not been disbursed to creditors of the individual.

(c) A provider shall:

(1) maintain separate records of account for each individual to whom the provider is furnishing debt-management services;

(2) disburse money paid by or on behalf of the individual to creditors of the individual as disclosed in the agreement, except that:

(A) the provider may delay payment to the extent that a payment by the individual is not final; and

(B) if a plan provides for regular periodic payments to creditors, the disbursement must comply with the due dates established by each creditor; and

(3) promptly correct any payments that are not made or that are misdirected as a result of an error by the provider or other person in control of the trust account and reimburse the individual for any costs or fees imposed by a creditor as a result of the failure to pay or misdirection.

(d) A provider may not commingle money in a trust account established for the benefit of individuals to whom the provider is furnishing debt-management services with money of other persons.

(e) A trust account must at all times have a cash balance equal to the sum of the balances of each individual’s account.

(f) If a provider has established a trust account pursuant to subsection (a), the provider shall reconcile the trust account at least once a month. The reconciliation must compare the cash balance in the trust account with the sum of the balances in each individual’s account. If the provider or its designee has more than one trust account, each trust account must be individually reconciled.

(g) If a provider discovers, or has a reasonable suspicion of, embezzlement or other unlawful appropriation of money held in trust, the provider immediately shall notify the administrator by a method approved by the administrator. Unless the administrator by rule provides otherwise, within five days thereafter, the provider shall give notice to the administrator describing the remedial action taken or to be taken.

(h) If an individual terminates an agreement or it becomes reasonably apparent to a provider that a plan has failed, the provider shall promptly refund to the individual all money paid by or on behalf of the individual which has not been paid to creditors, less fees that are payable to the provider under Section 23.

(i) Before relocating a trust account from one bank to another, a provider shall inform the administrator of the name, business address, and telephone number of the new bank. As soon as practicable, the provider shall inform the administrator of the account number of the trust account at the new bank.

Comment

1. This section requires that persons that receive money for disbursement to creditors establish trust accounts. Providers may operate under any of several business models. Some providers receive the individual’s money directly. Others use third parties for the purpose of receiving the funds and managing the accounts. Under any such model, the provider is a fiduciary and must establish a trust account. This is true even if the third party is an independent contractor. A provider may delegate its duties under this section, but it remains responsible for complying with the section. For purposes of this Act, money transmitted to, or received by, a designee of a provider is to be treated as money transmitted to, or received by, the provider itself. If the provider (or its designee) does not receive money for distribution to creditors, but instead leaves the individual in control of that money, this section does not require a trust account. If the individual’s account is accessible to the provider, for example, by means of the power to initiate an electronic transfer, section 28(a)(5) limits the purposes for which a provider may initiate a transfer.

2. For providers at brick and mortar locations in this state, it would be feasible to require the trust account to be located in this state. For providers that operate (via the Internet or telephone) out of an office not located in this state, it may be unduly burdensome to require a trust account in this state and, by extension, each state in which the provider operates. By not prohibiting it, subsection (a) implicitly permits a provider, wherever located, to deposit money of residents of this state into a trust account located in another state and containing the money of individuals who reside in other states.

3. Money in the trust account must not be subject to the claims of the provider’s creditors. As a person with a claim against a provider, the individual is a creditor of the provider. Nevertheless, subsection (b) permits that individual to have access to the trust account, but only to the extent the provider has received money from or on behalf of the individual and has not distributed it to creditors. Without this limitation, the individual’s compensation out of the trust account would come at the expense of other individuals whose money comprises the trust account. Compensation of the individual for other loss or damage must come from assets of the provider or the bond required by section 13. Since money in the trust account is not the property of the provider, any interest on the money of the individuals in the account must be credited to those individuals.

4. Subsection (b) does not address the question of the process by which an individual may access the trust account. This Act leaves that question to other law, but as a creditor of the provider, the individual has whatever rights creditors generally have. In addition, the individual may be the beneficiary of action by the administrator under sections 32-33.

5. Subsection (c) imposes obligations on the provider. If the provider uses a third party to administer the trust account, the provider may delegate these obligations to the third party. The provider, however, is responsible for performance of the obligations and is liable if they are not performed. See section 31.

6. The subsection contemplates that the agreement may establish a date by which the individual must remit to the provider and a date by which the provider must remit to the creditors. Paragraph (2)(A) accommodates the use of payment systems other than checks. Paragraph (2)(B) applies primarily to credit-counseling entities and requires that the agreement—and the provider’s performance—must conform to the due dates established by the creditors. The obligation to act in good faith (section 15) means that, if necessary or desirable, the provider must attempt to secure the creditors’ assent to modify the original due dates to maximize the feasibility of the plan.

7. Subsection (d) prohibits a person in control of a trust account from commingling money held in the trust with money of the provider or any other person other than the individuals with whom the provider has agreements. In speaking of a “provider,” the prohibition encompasses a person to whom the provider has delegated any of its obligations under this section. See section 31. The delegee also may be liable. Section 35(c).

8. Section 34(c), which provides that failure to maintain the proper balance is cause for summary suspension of registration, supplements subsections (e) and (f).

9. Subsection (g) specifies the circumstances under which a provider must notify the administrator that something may be amiss with respect to money held in trust. As used here, “appropriation” includes all kinds of taking, including theft of cash, electronic debiting of an account, etc. The administrator may authorize notice by courier, facsimile, electronic mail, telephone, etc.

10. Subsection (h) requires a provider to refund an individual’s money if the individual terminates the agreement or if it becomes clear that a plan will not work. Examples of the latter might include a total cessation of payments or sporadic payments by the individual with no indication that the payments will become regular. The test under this subsection is the vague standard, “reasonably apparent,” which must be applied in conjunction with the good faith requirement of section 15. The subsection supplements the individual’s right under section 19(d)(1) to terminate the agreement, in which event this subsection and section 19(d)(1)(A) require the provider to refund all unexpended funds. Presumably, the money is in a trust account, but the obligation applies regardless of where the money is, unless it already is under the individual’s control.