SB3936 96TH GENERAL ASSEMBLY

LRB096 22312 RPM 41380 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB3936

Introduced 5/26/2010, by Sen. John J. Cullerton

SYNOPSIS AS INTRODUCED:

09600HB4781eng, Sec. 20
09600HB4781eng, Sec. 125
09600HB4781eng, Sec. 160 new

Amends the Debt Settlement Consumer Protection Act, if and only if House Bill 4781 of the 96th General Assembly becomes law. Deletes the provision that requires every applicant for a license to operate as a debt settlement provider to submit a bond in the sum of $100,000 or an additional amount as required by the Secretary of Financial and Professional Regulation. Provides instead that the surety bond must be in the amount of $50,000 or other larger or smaller amount that the Secretary determines. Sets forth other requirements concerning the surety bond. Provides that instead of the surety bond required under the Act, a provider may deliver to the Secretary, under certain conditions, a certificate of insurance or other instrument with the approval of the Secretary. Deletes the provision prohibiting a debt settlement provider from charging a settlement fee in an amount greater than 15% of the savings. Provides instead that a debt settlement provider may calculate fees on a percentage of debt basis or on a percentage of savings basis. Sets forth provisions concerning the calculation and collection of fees. Provides that the Act is repealed 2 years after its effective date. Makes other changes. Effective immediately or on the effective date of House Bill 4781, whichever is later.

A BILL FOR

AN ACT concerning debt settlement.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. If and only if House Bill 4781 of the 96th General Assembly becomes law, the Debt Settlement Consumer Protection Act is amended by changing Sections 20 and 125 and adding Section 160 as follows:

(09600HB4781eng, Sec. 20)

Sec. 20. Application for license. An application for a license to operate as a debt settlement provider in this State shall be made to the Secretary and shall be in writing, under oath, and in the form prescribed by the Secretary.

Each applicant, at the time of making such application, shall pay to the Secretary the required fee as set by rule.

Every applicant shall submit to the Secretary, at the time of the application for a license, a bond to be approved by the Secretary in which the applicant shall be the obligor and in which an insurance company, which is duly authorized by the State of Illinois to transact the business of fidelity and surety insurance, shall be a surety. The surety bond must:

(i) be in effect during the period of registration and for 2 years after the provider ceases providing debt-management services to individuals in this State;

(ii) run to this State for the benefit of this State and of individuals who reside in this State when they agree to receive debt-settlement services from the provider, as their interests may appear; and

(iii) be in the amount of $50,000 or other larger or smaller amount that the Secretary determines is warranted by the financial condition and business experience of the provider, the history of the provider in performing debt settlement services, the risk to individuals, and any other factor that the Secretary considers appropriate. Secretary in which the applicant shall be the obligor, in the sum of $100,000 or an additional amount as required by the Secretary, and in which an insurance company, which is duly authorized by the State of Illinois to transact the business of fidelity and surety insurance, shall be a surety.

The bond shall run to the Secretary for the use of the Department or of any person or persons who may have a cause of action against the obligor in said bond arising out of any violation of this Act or rules by a debt settlement provider. Such bond shall be conditioned that the obligor must faithfully conform to and abide by the provisions of this Act and of all rules, regulations, and directions lawfully made by the Secretary and pay to the Secretary or to any person or persons any and all money that may become due or owing to the State or to such person or persons, from the obligor under and by virtue of the provisions of this Act.

Instead of the surety bond required under this Section, a provider may deliver to the Secretary, in the amount required under this Section, payable or available to this State and to individuals who reside in this State when they agree to receive debt-settlement services from the provider, as their interests may appear:

(1) a certificate of insurance:

(A) issued by an insurance company authorized to do business in this State and rated at least A or equivalent by a nationally recognized rating organization approved by the Secretary; and

(B) with no deductible, or if the provider supplies a bond in the amount of $5,000, a deductible not exceeding $5,000; or

(2) with the approval of the Secretary:

(A) an irrevocable letter of credit, issued or confirmed by a bank approved by the Secretary, payable upon presentation of a certificate by the Secretary stating that the provider or its agent has not complied with this Act; or

(B) bonds or other obligations of the United States or guaranteed by the United States or bonds or other obligations of this State or a political subdivision of this State, to be deposited and maintained with a bank approved by the Secretary for this purpose.

(Source: 09600HB4781eng, Sec. 20.)

(09600HB4781eng, Sec. 125)

Sec. 125. Fees.

(a) A debt settlement provider shall not charge fees of any type or receive compensation from a consumer in a type, amount, or timing other than fees or compensation permitted in this Section.

(b) A debt settlement provider may calculate fees on a percentage of debt basis or on a percentage of savings basis. The fee structure shall be clearly disclosed and explained in the debt settlement services agreement. The debt settlement provider may only charge fees as provided in either paragraph (1) or (2) as follows:

(1) Fees calculated as a percentage of debt shall comport with the following provisions:

(A) The total amount of the fees claimed, demanded, charged, collected, or received under this paragraph (1) may not exceed 15% of the aggregate debt that a consumer enrolls in a debt settlement program. A debt settlement provider that calculates fees as a percentage of debt may:

(i) charge an origination fee or set-up fee, which may be designated by the debt settlement provider as nonrefundable, of:

(a) $200 on aggregate debt of less than $20,000; or

(b) $400 on aggregate debt of $20,000 or more;

(ii) charge a monthly account service fee of:

(a) no greater than $75 per month on aggregate debt of less than $40,000; or

(b) no greater than $100 per month on aggregate debt of $40,000 or more; and

(iii) charge a settlement fee for the remainder of the allowable fees, which may be demanded and collected no earlier than upon delivery to the debt settlement provider by a creditor of a bona fide written settlement offer consistent with the terms of the debt settlement services agreement; a settlement fee may be assessed for each debt settled, but the sum total of the origination fee, the monthly fee, and the settlement fee may not exceed 15% of the aggregate debt.

(B) The collection of monthly fees shall cease under this paragraph (1) when the total monthly fees and the origination fee together equal 40% of the total fees allowable under this paragraph.

(C) In no event may more than 40% of the total amount of fees allowable be claimed, demanded, charged, collected, or received by a debt settlement provider any earlier than upon delivery to the debt settlement provider by a creditor of a bona fide written settlement offer consistent with the terms of the debt settlement services agreement.

(2) Fees calculated as a percentage of savings shall comport with the following provisions:

(A) The total amount of the fees claimed, demanded, charged, collected, or received under this paragraph (2) may not exceed 30% of the amount a consumer is saved in a debt settlement program. More specifically, a debt settlement provider that calculates fees as a percentage of savings may:

(i) charge a fee for consultation, obtaining a credit report, and setting up an account in an amount not exceeding the lesser of $400 or 4% of the debt in the plan at the inception of the plan or a higher amount set forth by regulation;

(ii) charge a monthly service fee, not to exceed $10 or a higher amount set forth by regulation, multiplied by the number of creditors remaining in the plan at the time the fee is assessed, but not more than $50 total or a higher amount set forth by regulation, in any month; and

(iii) charge a settlement fee not to exceed 30% of the excess of the outstanding amount of each debt over the amount actually paid to the creditor, as calculated at the time of settlement; settlement fees authorized under this paragraph (2) shall become billable only as debts are settled, and the total aggregate amount of fees charged to any individual under this paragraph, including fees charged under items (i) and (ii) of this subparagraph (A), may not exceed 20% of the principal amount of debt included in the agreement at the agreement's inception.

(c) No fees, charges, assessments, or any other compensation may be claimed, demanded, charged, collected, or received other than the fees allowed under this Section. Any fees collected in excess of those allowed under this Section must be immediately returned to the debtor.

(d) No monthly fees shall be charged or collected by a debt settlement provider unless services are provided to an individual during that calendar month. Services shall be documented by the debt settlement provider and may include, but are not limited to, the following:

(1) client qualification;

(2) account management;

(3) debt program organization;

(4) negotiation and settlement discussions with creditors;

(5) consumer rights education and counseling;

(6) referral to legal assistance; and

(7) third-party payment management.

(b) A debt settlement provider shall not charge or receive from a consumer any enrollment fee, set up fee, up front fee of any kind, or any maintenance fee, except for a one-time enrollment fee of no more than $50.

(c) A debt settlement provider may charge a settlement fee, which shall not exceed an amount greater than 15% of the savings. If the amount paid by the debt settlement provider to the creditor or negotiated by the debt settlement provider and paid by the consumer to the creditor pursuant to a settlement negotiated by the debt settlement provider on behalf of the consumer as full and complete satisfaction of the creditor's claim with regard to that debt is greater than the principal amount of the debt, then the debt settlement provider shall not be entitled to any settlement fee.

(d) A debt settlement provider shall not collect any settlement fee from a consumer until a creditor enters into a legally enforceable agreement to accept funds in a specific dollar amount as full and complete satisfaction of the creditor's claim with regard to that debt and those funds are provided by the debt settlement provider on behalf of the consumer or are provided directly by the consumer to the creditor pursuant to a settlement negotiated by the debt settlement provider

(Source: 09600HB4781eng, Sec. 125.)

(09600HB4781eng, Sec. 160 new)

Sec. 160. Repeal of Act. This Act is repealed 2 years after its effective date.

Section 99. Effective date. This Act takes effect upon becoming law or on the effective date of House Bill 4781 of the 96th General Assembly, whichever is later.