Defines certain terms related to budget planners and regulates the activities of budget planners.
TITLE OF BILL: An act to amend the general business law and the banking law, in relation to defining terms related to budget planning and regulating the activities of budget planners
PURPOSE: The purpose of the bill is to provide clarity with regard to fees paid by debtors to budget planners; brings the New York budget planning statute in line with the majority of other state with respect to non-profit and for-profit providers; and gives the attorney general enforcement powers with respect to violations of the statute.
SUMMARY OF PROVISIONS:
Section one of the bill amends the general business law to make a clarification with regard to payments made by debtors and repeals the statutory language that allows only not-for-profit corporations to provide budget planning services.
Section two of the bill amends the general business law to make violations of the article punishable by a class A misdemeanor as provided in the penal law and gives the attorney general the authority to make an application to a court or justice to issue an injunction to enjoin and restrain any violations of the article. The section also allows the court or justice to impose a civil penalty of not more than $500 per contract for a violation of the section.
Section three of the bill amends the banking law to repeal the statutory language that allows only not-for-profit corporations to provide budget planning services.
Section four and five of the bill amend the banking law to require that fees or charges imposed must be fair, reasonable and easily understood by the consumer and that no budget planner shall charge any consumer for any other service not directly related to budget planning unless pre-approved by the superintendent.
Section six of the bill clarifies the superintendent's role when determining fees or charges so to ensure they are not unfair or unclear.
Section seven of the bill provides for an effective date.
JUSTIFICATION: Budget planning offers programs and services to help consumers regain their financial footing. Across the country budget planners consist of nonprofit and for-profit providers that offer financial counseling, education, budgeting and debt management products designed to assist consumer in repaying unsecured debt through methods other than bankruptcy. Each year this industry serves an estimated ten million consumers and moves approximately S20 billion between debtors and their creditors on structured repayment plans.
The industry is regulated primarily on the state level. Forty nine states and the District of Columbia have laws that range from a full licensing and regulatory structure, such as New York, to misdemeanor penalties for violating statutory requirements. Most states have updated their laws in the past five years to reflect the changing
industry and the Federal Trade Commission has utilized its authority to police unfair and deceptive trade practices by unscrupulous providers.
New York's budget planning statute was enacted nearly sixty years ago. The current law provides for significant consumer protections and establishes a high bar for licensure. The law however does not reflect recent changes in the industry. For instance, the law does not allow licensure of taxable entities that provide budget planning services. A common misconception about budget planners is that only nonprofit entities can provide appropriate budget planning services. Forty states make no distinction between providers based on their tax status. Instead, they regulate and oversee the products and services of all providers. Regulating based on the products and services, rather than the service provider, is consistent with other financial services regulation. This legislation moves New York toward a more modern approach to regulating budget planners by regulating based on the services they provide and not based on the tax status of the provider.
The bill also provides clarity in the statute by requiring regulators to ensure that fees are fair, reasonable and clearly understood. The bill also enhances the oversight of the budget planning industry by giving the attorney general greater authority to police bad actors as well as imposes enhanced penalties to deter bad behavior.
LEGISLATIVE HISTORY: 2012 - S. 5215c Passed Senate/A. 8212b - Codes Committee.
FISCAL IMPLICATIONS: Additional revenue to the Department of Financial Services from licensing fees.
EFFECTIVE DATE: 180 days after enactment.
STATE OF NEW YORK ________________________________________________________________________ 2493 2013-2014 Regular Sessions IN SENATE January 17, 2013 ___________Introduced by Sens. GRIFFO, ZELDIN -- read twice and ordered printed, and when printed to be committed to the Committee on Consumer Protection AN ACT to amend the general business law and the banking law, in relation to defining terms related to budget planning and regulating the activities of budget planners THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 455 of the general business law, as amended by chapter 629 of the laws of 2002, subdivisions 1 and 4 as amended by chapter 456 of the laws of 2006, is amended to read as follows: S 455. Definitions. 1. Budget planning, as used in this article, means the making of a contract between a person or entity engaged in the busi- ness of budget planning with a particular debtor whereby: (i) the debtor agrees to pay a sum or sums of money in any manner or form and the person or entity engaged in the business of budget planning distributes, or supervises, coordinates or controls the distribution of, or has a contractual relationship with another person or entity that distributes, or supervises, coordinates or controls such distribution of, the same among certain specified creditors in accordance with a PERIODIC PAYMENT plan agreed upon BY THE DEBTOR'S CREDITORS AT OR NEAR THE TIME THE CONTRACT IS ENTERED; and (ii) the debtor agrees to pay to such person or entity, or such other person or entity that distributes, or supervises, coordinates or controls such distribution of, a sum or sums of money, any valuable consideration for such services or for any other services rendered in connection therewith. For the purposes of this article, a person or entity shall be considered as engaged in the business of budget planning in New York, and subject to this article and the licensing and other requirements of article twelve-C of the banking law, if such person or entity solicits budget planning business within this state and, inEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD06471-01-3 S. 2493 2
connection with such solicitation, enters into a contract for budget planning with an individual then resident in this state. 2. Person, as used in this article, shall not include a person admit- ted to practice law in this state. 3. Entity, as used in this article, shall not include a firm, partner- ship, professional corporation, or other organization, all of the members or principals of which are admitted to practice law in this state. 4.
[Person or entity as used in this article shall not include a type B not-for-profit corporation as defined in section two hundred one of the not-for-profit corporation law of this state, or an entity incorpo- rated in another state and having a similar not-for-profit status, licensed by the superintendent, to engage in the business of budget planning as defined in this section. 5.]Any attorney licensed to practice law in this state who is engaged in budget planning shall: (a) negotiate directly with creditors on behalf of the client; (b) ensure that all moneys received from the client are deposited in the attorney's account maintained for client funds; (c) pay creditors from such account; and (d) offer budget planning services through the same legal entity that the attorney uses to practice law. S 2. Section 457 of the general business law, as amended by chapter 629 of the laws of 2002, is amended to read as follows: S 457. [Penalty]PENALTIES FOR VIOLATION OF THIS ARTICLE; CRIMINAL AND CIVIL. (A) Whoever either individually or as officer, director or employee of any person, firm, association or corporation, violates any of the provisions of the preceding section shall be guilty of a CLASS A misdemeanor [for each such violation]PUNISHABLE AS PROVIDED IN ARTICLES SEVENTY AND EIGHTY OF THE PENAL LAW. (B) WHENEVER THERE SHALL BE A VIOLATION OF THIS ARTICLE, APPLICATION MAY BE MADE BY THE ATTORNEY GENERAL IN THE NAME OF THE PEOPLE OF THE STATE OF NEW YORK TO A COURT OR JUSTICE HAVING JURISDICTION BY A SPECIAL PROCEEDING TO ISSUE AN INJUNCTION, AND UPON NOTICE TO THE DEFENDANT OF NOT LESS THAN FIVE DAYS, TO ENJOIN AND RESTRAIN THE CONTINUANCE OF SUCH VIOLATIONS; AND IF IT SHALL APPEAR TO THE SATISFACTION OF THE COURT OR JUSTICE THAT THE DEFENDANT HAS, IN FACT, VIOLATED THIS ARTICLE, AN INJUNCTION MAY BE ISSUED BY SUCH COURT OR JUSTICE, ENJOINING AND RESTRAINING ANY FURTHER VIOLATION, WITHOUT REQUIRING PROOF THAT ANY PERSON HAS, IN FACT, BEEN INJURED OR DAMAGED THEREBY. IN CONNECTION WITH ANY SUCH PROPOSED APPLICATION, THE ATTORNEY GENERAL IS AUTHORIZED TO TAKE PROOF AND MAKE A DETERMINATION OF THE RELEVANT FACTS AND TO ISSUE SUBPOENAS IN ACCORDANCE WITH THE CIVIL PRACTICE LAW AND RULES. WHENEVER THE COURT SHALL DETERMINE THAT A VIOLATION OF SECTION FOUR HUNDRED FIFTY-SIX OF THIS ARTICLE HAS OCCURRED, THE COURT MAY IMPOSE A CIVIL PENALTY OF NOT MORE THAN FIVE HUNDRED DOLLARS PER CONTRACT MADE IN VIOLATION OF SUCH SECTION, NOT TO EXCEED ONE HUNDRED THOUSAND DOLLARS. S 3. Section 579 of the banking law, as amended by chapter 629 of the laws of 2002, is amended to read as follows: S 579. Doing business without license prohibited. [Only a type B not- for-profit corporation as defined in section two hundred one of the not-for-profit corporation law of this state, or an entity incorporated in another state and having a similar not-for-profit status,]NO PERSON OR ENTITY shall engage in the business of budget planning as defined in subdivision one of section four hundred fifty-five of the general busi-S. 2493 3
[of this state]except as authorized by this article and with- out first obtaining a license from the superintendent. S 4. Subdivision 2 of section 584-a of the banking law, as added by chapter 629 of the laws of 2002, is amended to read as follows: 2. the total fees agreed to for such services, including any adjust- ments for estimated available rebates from creditors, provided that nothing in this subdivision shall require a licensee to share rebates with its clients AND PROVIDED THAT ANY FEES OR CHARGES IMPOSED MUST BE FAIR, REASONABLE AND EASILY UNDERSTOOD; S 5. Section 584-b of the banking law is amended by adding two new subdivisions 4-a and 14 to read as follows: 4-A. NO LICENSEE SHALL IMPOSE ANY FEE OR CHARGE WHATSOEVER THAT IS NOT FAIR, REASONABLE AND ABLE TO BE EASILY UNDERSTOOD. 14. NO LICENSEE SHALL CHARGE THE DEBTOR FOR OR PROVIDE CREDIT OR OTHER INSURANCE, COUPONS FOR GOODS OR SERVICES, MEMBERSHIP IN A CLUB, ACCESS TO COMPUTERS OR THE INTERNET, OR ANY OTHER MATTER NOT DIRECTLY RELATED TO BUDGET PLANNING SERVICES UNLESS PRE-APPROVED BY THE SUPERINTENDENT. S 6. Section 585 of the banking law, as amended by chapter 629 of the laws of 2002, is amended to read as follows: S 585. Superintendent authorized to examine. For the purpose of discovering violations of this article or securing information lawfully required by him or her hereunder, the superintendent may at any time, and as often as he or she may determine, either personally or by a person duly designated by him or her, investigate the business and exam- ine the books, accounts, records, and files used therein of every licen- see hereunder. For that purpose the superintendent and his or her duly designated representative shall have free access to the offices and place of business, books, accounts, papers, records, files, safes and vaults of all such licensees. The superintendent and any person duly designated by him or her shall have authority to require the attendance of and to examine under oath all persons whose testimony he or she may require relative to such business. The expenses incurred in making any examination pursuant to this section shall be assessed against and paid by the licensee so examined, except that traveling and subsistence expenses so incurred shall be charged against and paid by licensees in such proportions as the superintendent shall deem just and reasonable, and such proportionate charges shall be added to the assessment of the other expenses incurred upon each examination. Upon written notice by the superintendent of the total amount of such assessment, the licensee shall become liable for and shall pay such assessment to the superinten- dent. If, upon review, the superintendent shall determine that the fees or service charges set by the licensee are UNFAIR, unreasonable OR UNCLEAR, he or she shall direct the licensee to make adjustments in said fees and service charges in accordance with his or her findings, which shall set forth a detailed factual basis and reasoning supporting such finding. S 7. This act shall take effect on the one hundred eightieth day after it shall have become a law and shall apply to all debt settlement services agreements entered into or offered on or after such date; provided, however, that effective immediately, the superintendent of financial services shall add, amend, and/or repeal any rule or regu- lation he or she deems necessary or desirable for implementation of this act.