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Uniform Debt-Management Services Act - Page 5

SECTION 6. APPLICATION FOR REGISTRATION: REQUIRED INFORMATION. An application for registration must be signed under [oath] [penalty of false statement] and include:

(1) the applicant’s name, principal business address and telephone number, and all other business addresses in this state, electronic-mail addresses, and Internet website addresses;

(2) all names under which the applicant conducts business;

(3) the address of each location in this state at which the applicant will provide debt-management services or a statement that the applicant will have no such location;

(4) the name and home address of each officer and director of the applicant and each person that owns at least 10 percent of the applicant;

(5) identification of every jurisdiction in which, during the five years immediately preceding the application:

(A) the applicant or any of its officers or directors has been licensed or registered to provide debt-management services; or

(B) individuals have resided when they received debt-management services from the applicant;

(6) a statement describing, to the extent it is known or should be known by the applicant, any material civil or criminal judgment or litigation and any material administrative or enforcement action by a governmental agency in any jurisdiction against the applicant, any of its officers, directors, owners, or agents, or any person who is authorized to have access to the trust account required by Section 22;

(7) the applicant’s financial statements, audited by an accountant licensed to conduct audits, for each of the two years immediately preceding the application or, if it has not been in operation for the two years preceding the application, for the period of its existence;

(8) evidence of accreditation by an independent accrediting organization approved by the administrator;

(9) evidence that, within 12 months after initial employment, each of the applicant’s counselors becomes certified as a certified counselor;

(10) a description of the three most commonly used educational programs that the applicant provides or intends to provide to individuals who reside in this state and a copy of any materials used or to be used in those programs;

(11) a description of the applicant’s financial analysis and initial budget plan, including any form or electronic model, used to evaluate the financial condition of individuals;

(12) a copy of each form of agreement that the applicant will use with individuals who reside in this state;

(13) the schedule of fees and charges that the applicant will use with individuals who reside in this state;

(14) at the applicant’s expense, the results of a criminal-records check, including fingerprints, conducted within the immediately preceding 12 months, covering every officer of the applicant and every employee or agent of the applicant who is authorized to have access to the trust account required by Section 22;

(15) the names and addresses of all employers of each director during the 10 years immediately preceding the application;

(16) a description of any ownership interest of at least 10 percent by a director, owner, or employee of the applicant in:

(A) any affiliate of the applicant; or

(B) any entity that provides products or services to the applicant or any individual relating to the applicant’s debt-management services;

(17) a statement of the amount of compensation of the applicant’s five most highly compensated employees for each of the three years immediately preceding the application or, if it has not been in operation for the three years preceding the application, for the period of its existence; and

(18) the identity of each director who is an affiliate, as defined in Section 2(2)(A) or (B)(i), (ii), (iv), (v), (vi), or (vii), of the applicant; and

(19) any other information that the administrator reasonably requires to perform the administrator’s duties under Section 9.

Legislative Note: In the introductory language to this section, the state must determine whether to require the application to be made “under oath” or “under penalty of false statement.” Similar choices are necessary in Sections 11 and 12.

Comment

1. Paragraph (1) requires disclosure of the applicant’s principal business address, in whatever jurisdiction it may be. It also requires disclosure of business addresses in this state, but not business addresses outside this state.

2. Paragraph (3) contemplates disclosure of the address of all facilities, like call centers and back-office operations, that are part of the provider’s operations. It does not, however, require disclosure of the addresses of employees who work from home. If the applicant has no physical presence in this state, that must be disclosed.

3. Paragraph (4) requires identification of any person that owns more than 10 percent of an applicant. This applies to for-profit applicants, if the state permits them, and to nonprofit applicants that are owned by others. Most nonprofit entities are not owned by anyone, and, if that is true of an applicant, the applicant need only disclose that fact.

4. Paragraph (5) (identification of jurisdictions in which the applicant has done business or has been registered or licensed to provide debt-management services) requires information to enhance the administrator’s ability to investigate the applicant and to coordinate enforcement efforts with administrators in other jurisdictions. Use of the word “jurisdiction” rather than “state” means that the applicant must disclose with respect to its activities in other countries, too. Unless required pursuant to paragraph (19), however, it does not mean that the applicant must break down its disclosures by county or other subdivision of a state or country.

5. Paragraph (6) requires disclosure of material judicial and administrative proceedings in any jurisdiction against the officers, directors, and owners (whether or not they are authorized to access the trust account containing customers’ funds), as well as material judicial and administrative proceedings against any other persons who may be authorized to access the trust account. Proceedings dealing with matters of importance to the administrator in determining whether to approve an application for registration, such as alleged deception or financial irregularities, are material. See section 9(b)(4). The administrator by rule can elaborate on what proceedings are material. This paragraph does not impose any disclosure requirement with respect to proceedings of which the applicant reasonably is unaware, but the concept “should be known” encompasses facts that a reasonable investigation would have revealed.

6. Paragraph (7) requires financial statements by an accountant licensed to conduct audits. The accountant need not be licensed by this state.

7. Independent, nationally recognized accrediting organizations have been accrediting credit-counseling agencies for many years, though not all agencies have sought to be accredited. Paragraph (8) establishes accreditation as prerequisite to registration under this Act. The accreditation requirement, which applies to both credit-counseling entities and debt-settlement entities, reinforces regulation by the administrator and subjects providers to periodic review to ensure that they continue to meet the standards of the accrediting agency. The administrator must approve the organizations that accredit providers.

8. Paragraph (9) requires a provider to ensure that its counselors are certified no later than 12 months after their initial employment. This requirement applies only with respect to employees who act as counselors and educators. It does not apply to such other employees as customer service representatives. Section 17 prohibits a plan unless a certified counselor has done specified things. Evidence that a provider has in place a system for certification of its counselors provides some assurance to the administrator that the provider will be able to comply with section 17.

9. As used in paragraph (10), “programs” encompasses both a course of instruction and computer software. Unless the administrator adopts a rule to the contrary, a course of instruction may be entirely oral.

10. An applicant, whether located in this state or elsewhere, need supply only those documents specified in paragraph (12) that it will use with residents of this state. If it will use more than one form, it must supply all of them. Section 32(b) empowers the administrator to investigate the activities in another jurisdiction of a provider that is doing business in this state. Under that section the administrator may obtain documents used in other jurisdictions.

11. As with the preceding paragraph, paragraph (13) only requires an applicant, regardless of its location, to supply the schedules of fees and charges for residents of this state, but if it uses more than one schedule, it must supply all of them. For purposes of this paragraph, “fees and charges” includes all costs, however denominated (e.g., “charitable subsidy”), to be paid by customers of the applicant. This information will enable the administrator to monitor the industry’s practices in the state and may assist the administrator in determining whether an individual provider is gouging individuals or whether the legislature should be encouraged to raise the fee cap because the passage of time or changed circumstances make it too low. Section 23 imposes limitations on the amount of fees, and Section 24 prohibits the solicitation of voluntary contributions.

12. Paragraphs (12) and (13) require information that is current as of the time of the application. Unless the administrator adopts a rule to the contrary, an applicant is free to modify its forms or fees without prior approval, but section 7 requires the provider to notify the administrator promptly of any such modification.

13. Paragraph (14) requires the results of a criminal-records check on every officer of the applicant. In addition, it requires the results of a criminal-records check covering every employee or agent who is authorized to access the applicant’s trust account. If the applicant is a natural person, the criminal-records check must cover the applicant, too.

This paragraph requires “the results of a criminal-records check, including fingerprints.” In some jurisdictions the mechanics and procedures for obtaining fingerprints are quite burdensome. This paragraph attempts to reduce that burden. It does not require that an applicant obtain a criminal-records check specifically for the application for registration in this state. If an applicant has obtained a criminal-records check in connection with obtaining permission to do business in another state and that criminal-records check meets the standards of this paragraph, the applicant may submit the results of it in its application to this state. The 12-month limitation applies to the criminal-records check, not the time of submission to the other state. The criminalrecords check must include a check of fingerprints, but the fingerprints need not have been obtained during the 12-month period.

14. Paragraphs (15)-(18) contain disclosures designed to enable the administrator to enforce the requirement of an independent board of directors and the restrictions on self-dealing. It requires these disclosures of all applicants, even for-profit entities, if they are permitted to provide debt-management services, because the restrictions on self-dealing (section 28(e)) apply to all providers. The disclosures also help the administrator monitor whether the fee limits are set at an appropriate level. Paragraph (16) requires the disclosure with respect to officers, since officers are included the category, “employees.” In paragraph (17) “compensation” includes cash and all other items that ordinarily are considered part of compensation.

15. Paragraph (19) authorizes the administrator to require additional information either by rulemaking procedure applicable to all applicants or by specific request in response to a specific application. Section 9 specifies the grounds for denying registration (including a finding that the general fitness of the applicant is not such as to warrant belief that the applicant will comply with the Act). This paragraph authorizes the administrator to seek additional information relevant to the application of that standard.