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Uniform Debt-Management Services Act - Page 2

8. Paragraph (9) (debt-management services): The definition encompasses the activity of entities that act as an intermediary between an individual and the individual’s creditors, for the purpose of changing the terms of the original contract between the individual and those creditors. There is no requirement that the individual’s money flow through the provider. Hence, the definition includes the services of credit-counseling agencies and debt-settlement companies even if they do not have control over the individual’s money, as when it is in an account managed by the individual or a third party.

The definition encompasses the services of persons that provide one-time assistance to an individual who has accumulated money and wants help negotiating with one or more of his or her creditors. This assistance is within the definition, and if the person provides this assistance to an individual who it has reason to know resides in this state, the person must, unless exempt under section 3, register and comply with the Act. Note that the assistance need not entail use of a “plan,” as defined in paragraph (13).

The definition includes the services of credit-counseling entities even if the concessions offered by creditors are not subject to negotiation. It does not include services that consist solely of counseling or education concerning the management of personal finance. Nor does it include the activity of a creditor that compromises a claim with its debtor, because the creditor is not operating as an intermediary.

9. A creditor may have an agent or other intermediary. Examples include independent collection agencies and corporate subsidiaries whose mission is the collection of debts. For the purposes of the definition of debt-management services, a person in this category is a representative of the creditor. As such, a person who acts as an intermediary between an individual and a debt collector (or other representative of the creditor) for the purpose of obtaining concessions is providing debt-management services. Similarly, if a creditor transfers a debt to a debt-collection agency or other person, the transferee becomes a creditor, and a person acting as an intermediary between the individual and the transferee of the debt for the purpose of obtaining concessions is providing debt-management services.

10. The definition excludes professional services provided by attorneys or certified public accountants, but only if the attorney is licensed or otherwise authorized to practice in this state or the accountant is licensed by this state. The phrase “or otherwise authorized” is to recognize bar rules that contemplate interstate practice of law.

The exclusion applies only if the services are rendered in an attorney-client, accountantclient, or financial planner-client relationship. Thus it does not suffice that the owner of a provider is an attorney, an accountant, or a financial planner. The attorney, accountant, or financial planner must be providing legal, accounting, or financial-planning services, respectively, to a client. Unless the services as an intermediary are provided in the course of providing legal, accounting, or financial-planning services, the exclusion does not apply, and the attorney, accountant, or financial planner is providing debt-management services and must comply with the Act.

The exclusion of legal services and accounting services exists if the services are provided by a person licensed to provide those services. For the exclusion of financial-planning services, however, there are additional requirements, enumerated in subparagraph (C)(ii)-(iv). There are several kinds of financial-planning services, including investment advice, estate planning, etc. Those services are excluded from the definition only if the administrator, by rule, determines that the suppliers of those services are subject to the requirements specified in subparagraph (C). Thus the administrator must determine that the financial-planning profession has in place a bona fide, reasonable system of professional responsibility, discipline, and continuing education.

11. Paragraph (11) (good faith): The term appears in section 15, which imposes on providers the obligation to “act in good faith in all matters under this Act.” The definition is relevant, then, under every section that governs the conduct of providers. In addition, the term is used in several provisions governing remedies (sections 33(e), 34(a), and 35(f)).

12. Paragraph (12) (person): The definition encompasses for-profit, not-for-profit, and tax-exempt entities. A “public corporation” is a corporation that is authorized to exercise governmental functions. It is not a “publicly traded” corporation.

13. Paragraph (13) (plan): The definition of “plan” encompasses both what creditcounseling agencies typically call “debt management plans” and what debt-settlement companies typically call “programs.” The operative provisions of the Act thus use the term “plan” to apply to both types of providers. To be a plan, the program or strategy need not encompass all the debts of the individual. E.g., debt-management plans by traditional credit-counseling agencies have not typically included secured debt or debts owed utilities. No provision of this Act requires that a provider deal with all the creditors of an individual to whom it provides debt-management services.

The definition requires a schedule of payments. As used here, “payments” includes the deposit or transfer of money into an individual’s checking or savings account, as well as a transfer to a provider (or the provider’s designee) for deposit into a trust account. The definition requires that the payments be used to pay debts of the individual. This requirement is satisfied even if part of the payment is used to pay a monthly service fee to the provider. The requirement of payments of the individual’s debts encompasses (a) full payment of some of the individual’s debts; (b) full payment of all of the individual’s debts; (c) partial payment of some of the individual’s debts; and (d) partial payment of all of the individual’s debts. Each of these arrangements suffices to bring the program or strategy within the definition of “plan.”

14. Paragraph (14) (principal amount of the debt): This term is used only in connection with debt settlement. Treatment of accruing charges, such as interest or default fees, may be different under various statutes, e.g., usury, Truth-in-Lending, etc. For purposes of this Act, the definition of principal is a snapshot of the debt at the time an individual assents to an agreement for debt-management services. Finance charges and other fees that accrue after formation of the debt-management-services agreement retain their character as finance charges, etc., even if the creditor adds them to the principal amount of debt and even if the creditor thereafter calculates finance charges and fees on the increased amount.

15. Paragraph (15) (provider): This definition makes no reference to the location of the person that provides debt-management services. This means that the location of that person is irrelevant to the definition. Regardless of a person’s location, if the person provides debtmanagement services, it is a provider under this Act. Subject to section 3, which exempts from the Act providers that do not enter agreements with individuals who reside in this state, the intention is for the Act to have as expansive a reach as is constitutionally permissible. See, e.g., Cambridge Credit Counseling Corp. v. Foulston, 303 F. Supp. 2d 1188 (D. Kan. 2003) (upholding the constitutionality of applying to a Massachusetts company the Kansas statute regulating credit counseling), appeal dismissed on motion of appellant and judgment vacated, No. 03-3317 (10th Cir. Oct. 19, 2004).

16. The definition includes persons that offer to provide debt-management services, as well as those that actually provide the services. Unless exempt under section 3, a person that offers to provide debt-management services must comply with all applicable provisions, e.g., section 28(a)(16) (prohibiting deceptive acts and practices). If a person forms an agreement with an individual and then transfers the account to another person, both those persons are within the definition of “provider.”

17. The definition of “debt-management services” speaks of “acting as an intermediary between an individual and one or more creditors.” A creditor acting on its own behalf is not acting as an intermediary and therefore is not a “provider.” The definition of “debt-management services” also speaks of acting as an intermediary “for the purpose of obtaining concessions.” This excludes from the definition of “provider” an entity that collects debts owed to its affiliate if the purpose is collection of the debt and not obtaining concessions from the creditor on behalf of the individual.

18. The definition of “provider” encompasses those who, acting directly or through others, act as intermediaries between an individual and the individual’s creditors. If a provider contracts with another person for that person to perform services other than acting as an intermediary, such as maintaining the trust account required by section 22 or sending out the notices required by section 25, the other person may not be a “provider.” But the provider for which it is performing services is liable for any conduct of the other person that does not comply with the duties and obligations that this Act places on providers. See section 31. Conversely, the person whose conduct fails to conform to the Act is liable for causing the provider to violate the Act. See section 35(c).

At several places the Act speaks of “provider or its designee,” referring to the person holding money of an individual pursuant to a plan. This is intended to foreclose any attempt by a provider to evade its responsibilities under the Act by delegating to an independent contractor the tasks incident to receiving money of the individuals with whom it has agreements.

19. Paragraph (17) (settlement fee): Use of the expression “a charge imposed on or paid by” is designed to be expansive. It does not matter what the provider calls the charge. Nor does it matter whether payment of the charge is described as voluntary or whether the payment occurs by debit to a demand-deposit account of the individual, debit to a trust account held by an agent of the provider, or otherwise. The definition encompasses any transfer of money from or on behalf of the individual.