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Uniform Debt-Management Services Act - Page 16

SECTION 29. NOTICE OF LITIGATION. No later than 30 days after a provider has been served with notice of a civil action for violation of this [act] by or on behalf of an individual who resides in this state at either the time of an agreement or the time the notice is served, the provider shall notify the administrator in a record that it has been sued.

Comment

The purpose of this section is to alert the administrator to the possibility of the need for action.

SECTION 30. ADVERTISING. A provider that advertises debt-management services shall disclose, in an easily comprehensible manner, the information specified in Section 17(d)(3) and (4).

Comment

1. This section applies to advertising in any medium, be it print, broadcast, telecast, electronic, or other. But a mere listing in a directory, such as the Yellow Pages, is not an advertisement if the entry consists solely of the name, address, and phone number of a provider. If it goes beyond this, however, the entry is an advertisement and must comply with this section.

2. To counteract the deception and pressure often exercised by providers that engage in extensive advertising, this section requires disclosure of the likely impact on credit rating and the likelihood of collection efforts. To prevent the disclosures from becoming incomprehensible on TV and radio, it requires that the information be disclosed “in an easily comprehensible manner.” To be easily comprehensible, the type in a print ad must be large enough to be legible to an individual of average eyesight; and the type in a video ad must be large enough and must appear on the screen long enough to be legible to an individual of average eyesight. The audio portion of an ad must be spoken slowly enough to be understood by an individual of average hearing and comprehension.

3. If a provider advertises its debt-management services, it must comply with this section. If a third party advertises the debt-management services of a provider, the third party should be viewed as an agent of the provider, and the provider is liable under the law of agency if the advertisement fails to comply with this section. See also section 31.

SECTION 31. LIABILITY FOR THE CONDUCT OF OTHER PERSONS. If a provider delegates any of its duties or obligations under an agreement or this [act] to another person, including an independent contractor, the provider is liable for conduct of the person which, if done by the provider, would violate the agreement or this [act].

Comment

The agreement between a provider and an individual imposes duties and obligations on the provider. The provisions of this Act also impose duties and obligations, some affirmative (e.g., requirement that provider supply education) and some negative (e.g., prohibition against deception). A provider may not escape its obligations and duties under the agreement and this Act by contracting with others for the others to perform them. The delegee whose conduct fails to conform to the agreement or the Act may be liable as a provider if the delegee meets the definition of “provider” in section 2(15) or may be liable under section 35 as a person that caused a provider to violate the Act. Regardless, the provider that delegated the fulfillment of its duties or the performance of its obligations also is liable. This section imposes liability on the provider for the failure of the delegee to conform its conduct to both the affirmative and the negative duties and obligations.

To illustrate, if a provider uses the services of another person to solicit individuals and secure their assent to agreements, which agreements then are to be performed by the provider, the provider necessarily has delegated its obligations under sections 17 (requiring pre-agreement analyses and disclosures) and 19 (prescribing the terms of an agreement). If the person fails to perform the duties imposed on providers by those sections, this section imposes liability on the provider. If the person’s role stops short of securing the assent of the individual, so that section 19 is not implicated, the provider must comply with section 17. If the other person has not performed the obligations of section 17, the provider must.

Similarly, if a provider uses the services of an independent contractor to receive and disburse the individuals’ money to their creditors, or to provide the periodic reports required by section 27, the provider necessarily has delegated some of its obligations under this Act. If the conduct of the independent contractor fails to conform to the obligations placed on providers, the provider is liable under this section.

SECTION 32. POWERS OF ADMINISTRATOR.

(a) The administrator may act on its own initiative or in response to complaints and may receive complaints, take action to obtain voluntary compliance with this [act], [refer cases to the [attorney general]], and seek or provide remedies as provided in this [act].

(b) The administrator may investigate and examine, in this state or elsewhere, by subpoena or otherwise, the activities, books, accounts, and records of a person that provides or offers to provide debt-management services, or a person to which a provider has delegated its obligations under an agreement or this [act], to determine compliance with this [act]. Information that identifies individuals who have agreements with the provider shall not be disclosed to the public. In connection with the investigation, the administrator may:

(1) charge the person the reasonable expenses necessarily incurred to conduct the examination;

(2) require or permit a person to file a statement under oath as to all the facts and circumstances of a matter to be investigated; and

(3) seek a court order authorizing seizure from a bank at which the person maintains a trust account required by Section 22, any or all money, books, records, accounts, and other property of the provider that is in the control of the bank and relates to individuals who reside in this state.

(c) The administrator may adopt rules to implement the provisions of this [act] in accordance with [insert the appropriate section of the Administrative Procedure Act or other statute governing administrative procedure].

(d) The administrator may enter into cooperative arrangements with any other federal or state agency having authority over providers and may exchange with any of those agencies information about a provider, including information obtained during an examination of the provider.

(e) The administrator, by rule, shall establish reasonable fees to be paid by providers for the expense of administering this [act].

(f) The administrator, by rule, shall adopt dollar amounts instead of those specified in Sections 2, 5, 9, 13, 23, 33, and 35 to reflect inflation, as measured by the United States Bureau of Labor Statistics Consumer Price Index for All Urban Consumers or, if that index is not available, another index adopted by rule by the administrator. The administrator shall adopt a base year and adjust the dollar amounts, effective on July 1 of each year, if the change in the index from the base year, as of December 31 of the preceding year, is at least 10 percent. The dollar amount must be rounded to the nearest $100, except that the amounts in Section 23 must be rounded to the nearest dollar.

(g) The administrator shall notify registered providers of any change in dollar amounts made pursuant to subsection (f) and make that information available to the public.

Legislative Note: If the administrator is the attorney general, the bracketed language in subsection (a) (“refer cases to the [attorney general]”) should be deleted. If the administrator is not the attorney general, those brackets and the brackets around “attorney general” should be deleted. If the state wishes the prosecution to be handled by some other official, the name of that official should be substituted for “attorney general.”

In states that do not empower administrative agencies to set fees, replace subsection (e) with the desired fees or fee structure.

Comment

1. Subsection (b) authorizes the administrator to investigate the activities of a provider and its delegees. If permitted by the law generally applicable to administrative agencies, the administrator may publicize the results of an investigation. The administrator may not, however, publicize or otherwise disclose information that identifies individual customers of a provider. This restriction applies both to general publicity and to freedom-of-information requests.

2. Paragraph (3) permits the administrator to obtain a court order to recover money and other property from the bank holding the trust account. The procedure for any such proceeding is determined by law other than this Act and, if authorized by that other law, may occur ex parte.

3. Subsection (c) gives the administrator broad powers to adopt rules to implement and, to the extent permitted by the law governing administrative procedure, further the purposes of this Act. In exercising this power, however, the administrator should be mindful of section 38, which exhorts those enforcing the Act to promote uniformity among the enacting states.

4. Under subsection (e) the administrator may establish a uniform fee to be paid by all providers. Alternatively, the administrator may adopt a fee structure in which the amount of the fee depends on some characteristic of the provider, such as the amount of money received from residents of this state, the total amount of debt owed by residents of this state, the number of customers who reside in this state, etc. The standard for establishing the fee is reasonableness, and a fee structure is reasonable if it is based on, inter alia, a provider’s presumptive ability to pay or on the administrative burden a provider places on the enforcement of the Act.

5. Subsection (f) requires the administrator to adjust annually all dollar amounts that appear in the Act. Those amounts are found in the following sections:

Section 2(2)(B)(iv): threshold for becoming an affiliate ($25,000)
Section 5(b)(4): employee theft insurance ($250,000)
Section 9(d)(2): independence of board of directors ($25,000)
Section 13(b): bond ($50,000)
Section 23(d)(1), (2), (3): fee caps
Section 23(g): NSF fee ($25)
Section 33(a), (b): civil penalty ($10,000, $20,000)
Section 35(c)(2): minimum damages ($5,000)
Section 35(d)(2): punitive damages ($10,000)

6. Since the adjustment will occur by promulgation of a rule, it will be a matter of public record, as is any other formally adopted rule. Nevertheless, subsection (g) requires the administrator to notify registered providers of the change, and the administrator may wish also to post the current amounts on a website dealing with this Act.