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Uniform Debt-Management Services Act - Page 9

SECTION 16. CUSTOMER SERVICE. A provider that is required to be registered under this [act] shall maintain a toll-free communication system, staffed at a level that reasonably permits an individual to speak to a certified counselor or customer-service representative, as appropriate, during ordinary business hours.

Comment

1. The purpose of this section is to ensure adequate service to individual who have entered agreements with a provider. The staffing required by this section therefore is in addition to whatever staffing the provider might have for soliciting or responding to potential customers.

2. Some inquiries require counseling services or assistance in dealing with creditors; others concern administrative matters such as confirmation of receipt of a payment, communication that a payment for a particular month will be late or in a different amount than scheduled, etc. The provider must provide sufficient staffing to meet the reasonably expectable demand for both kinds of requests.

3. Section 18 permits a provider to comply with sections 17, 19, and 27 by means of electronic communication. This section makes no exception for this provider. Even if a provider desires to operate exclusively via electronic communication, it must comply with this section. If a provider forms plans by electronic means, it must, consistent with the obligation of good faith under section 15, respond to electronically communicated requests for assistance within a reasonable time during ordinary business hours. This assistance must be individualized, not merely “frequently asked questions” or other standardized presentation of information. This section requires the provider also to maintain a system that enables individuals to speak with an appropriate representative of the provider.

SECTION 17. PREREQUISITES FOR PROVIDING DEBT-MANAGEMENT SERVICES.

(a) Before providing debt-management services, a registered provider shall give the individual an itemized list of goods and services and the charges for each. The list must be clear and conspicuous, be in a record the individual may keep whether or not the individual assents to an agreement, and describe the goods and services the provider offers:

(1) free of additional charge if the individual enters into an agreement;

(2) for a charge if the individual does not enter into an agreement; and

(3) for a charge if the individual enters into an agreement, using the following terminology, as applicable, and format:

Set-up fee _________________________________________

dollar amount of fee

Monthly service fee ___________________________________

dollar amount of fee or method of determining amount

Settlement fee _______________________________________

dollar amount of fee or method of determining amount

Goods and services in addition to those provided in connection with a plan:

__________ _________________________________________

(item) dollar amount or method of determining amount

__________ _________________________________________

(item) dollar amount or method of determining amount.

(b) A provider may not furnish debt-management services unless the provider, through the services of a certified counselor:

(1) provides the individual with reasonable education about the management of personal finance;

(2) has prepared a financial analysis; and

(3) if the individual is to make regular, periodic payments:

(A) has prepared a plan for the individual;

(B) has made a determination, based on the provider’s analysis of the information provided by the individual and otherwise available to it, that the plan is suitable for the individual and the individual will be able to meet the payment obligations under the plan; and

(C) believes that each creditor of the individual listed as a participating creditor in the plan will accept payment of the individual’s debts as provided in the plan.

(c) Before an individual assents to an agreement to engage in a plan, a provider shall:

(1) provide the individual with a copy of the analysis and plan required by subsection (b) in a record that identifies the provider and that the individual may keep whether or not the individual assents to the agreement;

(2) inform the individual of the availability, at the individual’s option, of assistance by a toll-free communication system or in person to discuss the financial analysis and plan required by subsection (b); and

(3) with respect to all creditors identified by the individual or otherwise known by the provider to be creditors of the individual, provide the individual with a list of:

(A) creditors that the provider expects to participate in the plan and grant concessions;

(B) creditors that the provider expects to participate in the plan but not grant concessions;

(C) creditors that the provider expects not to participate in the plan; and

(D) all other creditors.

(d) Before an individual assents to an agreement to engage in a plan, the provider shall inform the individual, in a record that contains nothing else, that is given separately, and that the individual may keep whether or not the individual assents to the agreement:

(1) of the name and business address of the provider;

(2) that plans are not suitable for all individuals and the individual may ask the provider about other ways, including bankruptcy, to deal with indebtedness;

(3) that establishment of a plan may adversely affect the individual’s credit rating or credit scores;

(4) that nonpayment of debt may lead creditors to increase finance and other charges or undertake collection activity, including litigation;

(5) unless it is not true, that the provider may receive compensation from the creditors of the individual; and

(6) that, unless the individual is insolvent, if a creditor settles for less than the full amount of the debt, the plan may result in the creation of taxable income to the individual, even though the individual does not receive any money.

(e) If a provider may receive payments from an individual’s creditors and the plan contemplates that the individual’s creditors will reduce finance charges or fees for late payment, default, or delinquency, the provider may comply with subsection (d) by providing the following disclosure, surrounded by black lines:

IMPORTANT INFORMATION FOR YOU TO CONSIDER

(1) Debt-management plans are not right for all individuals, and you may ask us to provide information about other ways, including bankruptcy, to deal with your debts.

(2) Using a debt-management plan may hurt your credit rating or credit scores.

(3) We may receive compensation for our services from your creditors.

_______________________________________

Name and business address of provider

(f) If a provider will not receive payments from an individual’s creditors and the plan contemplates that the individual’s creditors will reduce finance charges or fees for late payment, default, or delinquency, a provider may comply with subsection (d) by providing the following disclosure, surrounded by black lines:

IMPORTANT INFORMATION FOR YOU TO CONSIDER

(1) Debt-management plans are not right for all individuals, and you may ask us to provide information about other ways, including bankruptcy, to deal with your debts.

(2) Using a debt-management plan may hurt your credit rating or credit scores.

______________________________________

Name and business address of provider

(g) If a plan contemplates that creditors will settle debts for less than the full principal amount of debt owed, a provider may comply with subsection (d) by providing the following disclosure, surrounded by black lines:

IMPORTANT INFORMATION FOR YOU TO CONSIDER

(1) Our program is not right for all individuals, and you may ask us to provide information about bankruptcy and other ways to deal with your debts.

(2) Nonpayment of your debts under our program may

• hurt your credit rating or credit scores;
• lead your creditors to increase finance and other charges; and
• lead your creditors to undertake activity, including lawsuits, to collect the debts.

(3) Reduction of debt under our program may result in taxable income to you, even though you will not actually receive any money.

_________________________________________

Name and business address of provider

Comment

1. Subsection (a) requires a standardized disclosure and specifies the terminology and format to be used. The disclosure of charges must contain the dollar amounts or the method of determining the dollar amounts, e.g., “$5 per month for each creditor in the plan at the time the monthly charge is assessed, but not more than $25 in any month,” or “five percent of the amount of debt that a creditor writes off.” The subsection requires disclosure “as applicable. Therefore, if a provider does not impose one or more of the specified fees, it need not make any disclosure with respect to the omitted fee(s).

Paragraph (3) requires disclosure of “goods and services in addition to those provided in connection with a plan.” This must be read in conjunction with section 23(c), which sharply circumscribes the extent to which a provider is permitted to impose charges for education or counseling. Paragraph (3) requires disclosure of charges permitted by that section, but it does not enlarge the amount or kind of services for which a provider may charge.

2. Subsection (b) mandates that all providers, including debt-settlement companies, provide reasonable education through the services of a certified counselor. Section 6(9)-(10) requires the provider to supply the administrator with evidence that its counselors are certified, along with a description of its educational program and a copy of any materials used in that program. The education may consist of an individual session with a counselor (which may also include the analysis required by paragraph (2)), a group class, or an electronic educational program. The education must be substantially more than an explanation of the benefits of a plan. It must begin but need not be completed before commencement of a plan, since a course of education may take months to complete. Paragraph (1) of subsection (b) states a general standard for the quality of the education, viz., reasonableness. Education for financial literacy is receiving increased attention, and several entities are attempting to define standards for effectiveness. As these attempts come to fruition, the administrator may exercise rulemaking power under section 32(c) to establish more precise minimum standards for the education.

3. Paragraph (2) requires preparation of a financial analysis. Although the education required by paragraph (1) may be standardized or provided on a group basis, the financial analysis required by paragraph (2) must be prepared specifically for the individual and based on the specific circumstances of the individual. It must encompass the individual’s assets, income, and expenses for the purpose of enabling the provider to make the suitability and feasibility determinations required by paragraph (3)(B).

4. Paragraph (3) requires preparation of a plan, but only if the individual is to make regular, periodic payments. Thus the requirement does not apply when an individual has accumulated money and seeks the assistance of a debt-settlement entity in negotiating a settlement with one or more of his or her creditors. Subparagraph (B) requires that the provider believe that the plan is suitable for the individual. For providers that assist an individual to repay in full, this requires a determination that the individual has sufficient income to permit payment to creditors after payment of living expenses, but not enough income to repay them in full without some concessions. For providers that assist an individual to settle debts for less than full payment, the suitability requirement means at a minimum that the individual does not have the ability to satisfy creditors out of current income within a reasonable time even if the creditors were to reduce finance charges and fees for late payment, default, and delinquency. Section 15, which requires providers to act in good faith, is especially important in connection with this paragraph. The administrator may adopt rules articulating specific standards for suitability.

5. Subparagraph (C) permits a provider to secure an individual’s assent to a plan only if the provider believes that each creditor listed in the plan actually will participate in it. This limitation, too, must be read in conjunction with section 15, which requires the provider to act in good faith, defined as honesty and the observance of reasonable standards of fair dealing. If a provider knows or suspects that a particular creditor will not participate, the provider cannot in good faith believe that the creditor will participate, and therefore cannot satisfy this paragraph if that creditor is included as a participating creditor in the plan. The requirement that the provider believe that the creditors will accept the plan does not mandate communication with the creditors before an agreement is formed. The provider’s past experiences with the creditors may be a sufficient basis for the provider’s good faith belief.

6. Subsection (c)(2) requires a provider to inform the individual of the availability of assistance by telephone (or in person). It applies to all providers, but has special significance for providers that use electronic means to communicate with their customers. See section 16 and Official Comment 3. This requirement does not mean that the provider must maintain an office in this state. It does, however, require that the provider maintain an office somewhere with counselors available for in-person consultation, presumably at its principal business address. The obligation of good faith is relevant here, and locating the counselors in a state whose residents the provider does not serve would violate this subsection.

7. Since secured creditors are creditors, subsection (c)(3) requires the provider to include secured creditors in the various lists, as appropriate. Subparagraph (D) requires a listing of creditors as to whom the provider is ignorant with respect to their participation in the plan. Taken together, the lists must include all the creditors whose existence the provider knows.

8. Subsection (d) requires providers to give a warning to individuals before they commit to a plan, and it requires the warning to be given separately. This prohibits a provider from handing the warning over along with other documents or materials. The intention of the subsection is to require delivery in a form and context in which the individual will actually notice and read the warning.

9. Subsections (e) through (g) provide safe-harbor language for the provider to use. Subsection (e) is designed for credit-counseling entities that receive payments from the creditors of its customers. Subsection (f) is designed for credit-counseling entities that do not receive payments from their customers’ creditors. Subsection (g) is designed for debt-settlement entities. Use of the exact language in these subsections, contained in a box consisting of black lines, constitutes compliance with subsection (d). If the provider uses other language, the disclosure is subject to review to determine if it adequately discloses the required information. If the provider furnishes both credit-counseling and debt-settlement services, it may combine the disclosures into one form, but this section does not provide any safe harbor.