Arizona Debt Management Companies

Title 6 Banks and Financial Institutions
Chapter 6 Debt Management Companies

6-701 Definitions

6-702 Exemptions

6-703 License required

6-704 Application for license; bonds; contract

6-705 Branch offices and agencies

6-706 Fees

6-707 Issuance of license; display; cancellation on termination

6-708 Denial; revocation or suspension of license

6-709 Requirements

6-710 Prohibitions

6-714 Advertising

6-715 Prohibitions

6-716 Fees collected

6-701. Definitions

In this chapter, unless the context otherwise requires:

1. "Agency" means any business serving the public, which as part of its services accepts money for and on behalf of a licensee.

2. "Branch office" means any office operated solely for the purpose of accepting money and performing other services for a licensee.

3. "Creditor" means a person for whose benefit monies are being collected and disbursed by a licensee.

4. "Debt management company" means a corporation, company, firm, partnership, association or society, as well as a natural person, that for compensation engages in the business of receiving money, or evidences thereof, in this state or from a resident of this state as agent of a debtor for the purpose of distributing the same to his creditors in payment or partial payment of his obligations.

5. "Debtor" means a person from whom monies are being accepted for disbursement to creditors.

6. "License" means a license issued under the provisions of this chapter.

7. "Licensee" means a corporation, company, firm, partnership, association or society, as well as a natural person, licensed by the superintendent to engage in the business of a debt management company pursuant to the provisions of this chapter.

8. "Nonprofit religious, fraternal or cooperative organizations" means religious, fraternal or cooperative organizations or entities whose primary functions or purposes are not the provision of debt management services.

6-702. Exemptions

The provisions of this chapter shall not be applicable to:

1. Attorneys at law, whose principal activities are other than debt management, when debt management is only incidental to their regular activities.

2. Banks, savings and loan associations or financing and lending institutions duly authorized and licensed to transact business under the laws of this state or of the United States.

3. Judicial officers or others acting under court orders.

4. Nonprofit religious, fraternal or cooperative organizations that:

(a) Are bonded as provided by section 6-704.

(b) Offer debt management service exclusively for their members.

(c) Do not collect any compensation directly or indirectly from debtors.

(d) File an annual report as provided in section 6-709, subsection M.

5. Nonprofit corporations or nonprofit debt counselor associations that:

(a) Are bonded as provided by section 6-704.

(b) Are organized to render financial planning service or debt management service to the public.

(c) Do not collect any compensation directly or indirectly from debtors.

(d) File an annual report as provided in section 6-709, subsection M.

6. Any transaction in which money or other property is paid to a joint control agent for dispersal or use in the payment of the cost of labor, materials, services, permits, fees, or other items of expense incurred in construction of improvements upon real property.

7. A person licensed pursuant to chapter 7 of this title.

8. A person licensed pursuant to chapter 9, article 2 of this title.

9. A bill paying service provider that complies with all of the following:

(a) Does not accept bills on invoices that are contractually past due at the time of receipt by the debtor.

(b) Does not initiate any contact with individual creditors of the debtor to compromise a debt or arrange a new payment schedule.

(c) Does not provide any debt counseling services.

(d) Makes a written contract with the debtor and immediately furnishes the debtor with a copy of the complete contract.

(e) Furnishes the debtor with a written statement of the debtor's account each month and a verbal accounting at any time the debtor requests it during normal business hours.

(f) Does not take physical possession of any debtor monies except for fees and charges for services rendered as agreed to in writing. Nothing in this subdivision shall be construed to prevent a service provider from obtaining check signing authority on an account if the account remains solely in the debtor's name, the debtor maintains control over the monies deposited in the account and the check signing authority is limited to the payment of obligations that are approved and authorized by the debtor.

6-703. License required

No person shall engage in the business for compensation of receiving money as agent of a debtor for the purpose of distributing the same to his creditors in payment or partial payment of his obligations without first obtaining a license from the superintendent.

6-704. Application for license; bonds; contract

A. An application for a license shall be in writing, under oath and in a form prescribed by the superintendent, and shall contain the name and address, both of the residence and place of business, of the applicant and if the applicant is an association or society, of every member thereof, and if a corporation or partnership, of every officer and director thereof and a copy of the articles of incorporation, and the specific address or addresses at which the business is to be conducted. The superintendent may require as part of the application a credit report and such other information as he deems necessary.

B. At the time of filing the application the applicant shall furnish a cash or surety bond payable to the people of the state in the sum of not less than five thousand dollars for licensees disbursing less than one hundred thousand dollars each year and for the following amounts based on the amounts disbursed by the licensee in the previous license year:

C. Each bond prescribed in subsection B shall be conditioned upon the faithful accounting of all monies collected upon accounts entrusted to such person engaged in debt management, and their employees and agents, and upon the faithful observance of the provisions of this article and the contract between the licensee and the debtor. The bond shall be approved by the superintendent and filed in the office of the superintendent. The bond shall remain in force and effect until the surety is released from liability by the superintendent, or until the surety bond is canceled by the surety. The surety may cancel the surety bond and be relieved of further liability by delivering thirty days' written notice to the superintendent. The cancellation does not affect any liability incurred or accrued prior to the termination of the thirty-day period. Any person who suffers any loss or damage by reason of the neglect or default of a licensee or his employees or agents or by the licensee's violation of any of the provisions of this article or of the contract between him and the debtor shall have a right of action against the licensee and the sureties on his bond. No action may be brought on the bond by any person after the expiration of two years from the time when the act or default occurred. When an action is commenced on the bond of a licensee, the superintendent may require the filing of a new bond, and immediately upon the recovery of any action on the bond the licensee shall file a new bond. Failure to file a new bond within ten days of the recovery on a bond, or within ten days after notification that a bond is required, constitutes sufficient grounds for the suspension or revocation of a license.

D. In addition to the bond provided in subsection B, the superintendent may require an applicant to obtain an adequate fidelity bond for each officer, employee, or agent having access to funds collected by or for the licensee or having authority to draw against such funds. The fidelity bond required to be filed in accordance with this section shall remain in force and effect until the surety is released from liability by the superintendent, or until the bond is canceled by the surety. The surety may cancel the bond and be relieved of further liability by delivering thirty days' written notice to the superintendent. The cancellation shall not affect any liability incurred or accrued prior to the termination of the thirty-day period.

E. Each applicant for a license shall file with his application a blank copy of the contract intended to be used between the licensee and the debtor and shall file with the superintendent a copy of all changes and amendments thereto.

6-705. Branch offices and agencies

A licensee may establish branch offices or agencies only if it expressly assumes responsibility for the acts of any person accepting money in its name or on its behalf at such places of business. An application for a branch office or agency license shall be in writing, under oath, in a form prescribed by the superintendent, and shall contain the name and address of the principal place of business of the licensee and a statement that it is a branch office.

6-706. Fees

A. An applicant at the time of filing an application for a license under the terms of this article shall pay to the superintendent the fee prescribed in section 6-126. The fee for an agency license is the same as that prescribed for a branch.

B. Prior to June 15, each licensee may obtain a renewal of each license without investigation by payment of the fee prescribed in section 6-126. The fee for renewal of an agency license is the same as that prescribed for a branch.

6-707. Issuance of license; display; cancellation on termination

A. Upon the filing of the application and the payment of the fees and the approval of the bond, or bonds, the superintendent shall investigate the facts, and if he finds that the financial responsibility, experience, character and general fitness of the applicant are such as to command the confidence of the community to warrant belief that the business will be operated fairly and honestly and within the purposes of this article, the superintendent shall issue the applicant a license to do business as a debt management company.

B. The license shall be kept conspicuously posted in the business office of the licensee. The license shall not be transferable or assignable.

C. Licenses shall expire on June 30 following the date of the issuance unless sooner surrendered, revoked or suspended, but may be renewed by filing an application with the superintendent on or before June 15 each year. The application for renewal shall be in the form prescribed by the superintendent and shall be accompanied by the fee prescribed in section 6-126. A separate application shall be made for each initial license of a principal place of business, agency or branch office.

6-708. Denial; revocation or suspension of license

A. If the superintendent finds that the applicant fails to meet any of the conditions set forth in this article, he shall deny the application for a license. If an application is denied or withdrawn, the superintendent shall retain the investigation fee to cover the costs of investigating the applicant and return the license fee to the applicant.

B. The superintendent may revoke or suspend any license issued under this article for the following causes:

1. Conviction in any state of a felony or any crime involving breach of trust or dishonesty.

2. Violating any of the provisions of this article or rules of the department.

3. Fraud or deceit in procuring the issuance of the license.

4. Insolvency, filing in bankruptcy, receivership, or assigning for the benefit of creditors by any licensee or applicant for a license.

5. Failure to pay the annual license fee.

6. Entry of an order against the licensee by an administrative agency of this state, the federal government or any other state or territory of the United States that involves fraud, deceit or misrepresentation by the licensee and the facts relating to the order indicate that it would be contrary to the interests of the public to permit that person to be licensed or to control or manage a licensee.

6-709. Requirements

A. A licensee at all times shall maintain minimum liquid assets of at least two thousand five hundred dollars in excess of his business liabilities and of his liabilities on account of monies received in the business of a debt management company. The superintendent may determine by general rule what assets are liquid assets within the meaning of this section and may determine by specific ruling or demand that a particular asset is or is not a liquid asset within the meaning of this section.

B. A licensee shall make a written contract between himself and a debtor and immediately furnish the debtor with a copy of the completed contract. The licensee shall concurrently furnish the debtor with a list of the creditors, as of the time of the signing of the contract, with whom he agrees to manage the debtor's obligations. All contracts shall contain a provision allowing the termination of the contract by either party at any time. Such termination shall be without penalty, except that the licensee shall retain the retainer fee if the termination is by the debtor. Termination shall only be upon a five-day notice to the other party.

C. The basis of fees charged to a debtor by a licensee for assuming the responsibility of debt management shall be agreed upon in advance and clearly stated in the contract. The fees charged to a debtor shall not exceed:

1. A retainer fee of thirty-nine dollars.

2. Three-quarters of one per cent of the total indebtedness or fifty dollars, whichever is less, may be charged monthly and shall be due and payable at the time such deposited funds are remitted to the creditors. Unusual and necessary "out of pocket" expense items by the licensee may be charged to the debtor's account if the incurrence of the expense has advance written approval of the debtor and superintendent.

D. The total debt shall be calculated not less often than annually and the charges adjusted based on the new total debt. Any fees charged by the licensee shall not be based on a total debt which includes a mortgage on the residence or a rent payment as a liability or a debt.

E. A licensee shall not be entitled to any fee until he has given notice of the debt management contract to all creditors listed in the application form.

F. A licensee shall make remittances to creditors within seven days after receipt of any funds, unless the reasonable payment of one or more of the debtor's obligations requires that such funds be held for a longer period so as to accumulate a certain sum.

G. A licensee shall upon request furnish the debtor with a written statement of his account each month or a verbal accounting at any time the debtor may request it during normal business hours.

H. A licensee shall, if a compromise of a debt is arranged by the licensee with any one or more creditors, allow the debtor the full benefit of that compromise.

I. A licensee shall maintain a trustee checking account in a bank in this state for the benefit of debtors in which all payments received from the debtors shall be deposited and in which all payments shall remain until disbursed by the licensee in accordance with the terms of the contract.

J. A licensee shall keep and use in his business books, accounts and records which will enable the superintendent to determine whether such licensee is complying with the provisions of this article and with the rules of the department. Each licensee shall preserve such books, accounts and records for at least three years after making the final entry on any transaction recorded in the books, accounts or records.

K. If a licensee desires to change his place of business or the name of the company under which the license is issued, he shall give written notice of the change within fifteen days to the superintendent and shall submit the license to the superintendent who shall enter an order permitting the change and who shall amend the license accordingly.

L. A licensee shall, within fifteen days after termination of a debt management company, a branch office or an agency, inform the superintendent of the name and address of such company, branch office or agency and shall surrender the license to the superintendent.

M. A licensee shall annually on or before August 15 file a report with the superintendent giving such relevant information as the superintendent may require concerning the business and operations of each place of business during the preceding year beginning July 1 and ending June 30. The superintendent may assess a penalty of five dollars for each day the licensee fails to file such report.

6-710. Prohibitions

It is unlawful for a licensee to:

1. Accept an account unless it appears on the basis of a reasonable budget analysis, reduced to writing, that the debtor can reasonably meet the payments agreed upon by the licensee and the debtor and that the agreed upon payment is sufficient to pay the service charges to the licensee and the full amount of the proposed payments to creditors as agreed upon by the licensee and debtor. The licensee shall retain the written budget analysis for at least three years after the termination of the contract in the files of the licensee. The licensee shall make the analysis available for inspection by the superintendent, except that such a budget analysis is not deemed unreasonable if facts which would prove it to be such were not furnished to the licensee by the debtor upon request.

2. Unless agreed upon by the debtor, attempt to alter any scheduled payment listed on the original application from the debtor to any figure other than the amount agreed upon by the debtor and creditors in those cases when a contractual installment exists. Acceptance of the proposed payment by the creditor shall not alter any rights the creditor has under his original contract with the debtor.

3. Purchase from a creditor any obligation of a debtor.

4. Operate as a collection agent and as a licensee as to the same debtor's account.

5. Execute any contract or agreement to be signed by the debtor unless the contract or agreement is fully and completely filled in.

6. Receive or charge any fee in the form of a promissory note or other promise to pay or receive or accept any mortgage or other security for any fee either as to real or personal property.

7. Pay any bonus or other consideration to any person for the referral of a debtor to his business, nor accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason.

8. Advertise his services, display, distribute, broadcast or televise or permit to be displayed, advertised, distributed, broadcasted or televised his services in any manner whatsoever in which any false, misleading or deceptive statement or representation with regard to the services to be performed by the licensee or the charges to be made for those services.

6-714. Advertising

The rules and regulations of the superintendent shall include standards and criteria for proper advertising and may include specific prohibitions as to improper advertising by a licensee.

6-715. Prohibitions

No person may engage in the business of a debt management company without the license required by this article.

6-716. Fees collected

All fees collected under the provisions of this article shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.

AZ Arizona Official State Statutes

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