10VAC5-110 Credit Counseling

REGULATIONS

Vol. 32 Iss. 5 - November 02, 2015

TITLE 10. FINANCE AND FINANCIALINSTITUTIONS

STATE CORPORATION COMMISSION

Chapter 110

Final Regulation

REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 10VAC5-110. Credit Counseling (amending 10VAC5-110-10, 10VAC5-110-20, 10VAC5-110-30; adding 10VAC5-110-40 through 10VAC5-110-70).

Statutory Authority: §§ 6.2-2013 and 12.1-13 of the Code of Virginia.

Effective Date: December 1, 2015.

Agency Contact: Susan Hancock, Deputy Commissioner, Bureau of Financial Institutions, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone [phone], FAX [phone], or email [e-mail].

Summary:

The amendments (i) define various terms including "advertisement," "business day," and "total amount disbursed"; (ii) clarify that the Bureau of Financial Institutions will retain licensees' surety bonds notwithstanding the occurrence of certain events; (iii) prescribe the amount of coverage required by subdivision A 7 of § 6.2-2005 of the Code of Virginia and specify additional events that require licensees to file a written report with the Commissioner of Financial Institutions; (iv) prohibit a licensee from providing debt management plan services in connection with a debt management plan that has been set up by a person other than a credit counselor employed by the licensee; (v) clarify that money received by a licensee for distribution to consumers' creditors is held in trust for the benefit of consumers and cannot be commingled with the licensee's operating funds or the funds of any other person; (vi) prohibit a licensee from selling or assigning a debt management plan to another person unless the purchaser or assignee also is a licensee and require licensees to provide consumers with a written notice containing the bureau's contact information; (vii) prohibit licensees from providing information to the bureau or to consumers that is false, misleading, or deceptive; (viii) prescribe the application fee for any person submitting an application under § 6.2-2007 of the Code of Virginia to acquire 25% or more of the ownership of a licensee and clarify the requirements applicable to the disclosures specified in subdivision A 9 of § 6.2-2005 of the Code of Virginia; (ix) condition the authority of licensees to delegate any of their debt pooling and distribution responsibilities to third parties and require licensees to disclose certain information in their advertisements; and (x) include various technical and clarifying changes.

AT RICHMOND,

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2015-00039

Ex Parte: In re: amendments to credit
counseling regulations

ORDER ADOPTING REGULATIONS

On July 17, 2015, the State Corporation Commission ("Commission") entered an Order to Take Notice of a proposal by the Bureau of Financial Institutions ("Bureau") to amend the Commission's regulations governing licensed credit counseling agencies ("licensees"), which are set forth in Chapter 110 of Title 10 of the Virginia Administrative Code, 10 VAC 5-110-10 et seq. The Order to Take Notice and proposed regulations were published in the Virginia Register of Regulations on August 10, 2015, posted on the Commission's website, and sent to all licensees and other interested parties. Licensees and other interested parties were afforded the opportunity to file written comments or request a hearing on or before September 4, 2015.

Comments on the proposed regulations were filed by Jean L. Law on behalf of Money Management International, Inc. The Commission did not receive any requests for a hearing. Ms. Law suggested that the proposed definition of "advertisement" be modified to exclude social media unless the social media interaction is primarily about debt management plans as opposed to general education and information. Ms. Law expressed concern that without this exclusion, two of the proposed disclosure requirements applicable to advertisements could become unmanageable and burdensome.

The Bureau considered Ms. Law's comments and responded to them in its Statements of Position, which the Bureau filed with the Clerk of the Commission on September 29, 2015. In its response, the Bureau maintained that social media would constitute a form of advertisement when it directly or indirectly promotes the offering of a debt management plan to any consumer. The Bureau contended that the exception suggested by Ms. Law is overly broad, but indicated that it does not object to clarifying the proposed definition of "advertisement" as it pertains to social media. Accordingly, the Bureau stated that it is amenable to adding the following sentence at the end of the proposed definition: "The term also excludes social media interactions that are solely educational and informational in purpose and do not promote debt management plans."

NOW THE COMMISSION, having considered the proposed regulations, the comments filed, the Bureau's Statements of Position, the record herein, and applicable law, concludes that the proposed regulations should be modified to incorporate the Bureau's suggested addition to the definition of "advertisement." The Commission further concludes that the proposed regulations, as modified, should be adopted with an effective date of December 1, 2015.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations, as modified herein and attached hereto, are adopted effective December 1, 2015.

(2) This Order and the attached regulations shall be posted on the Commission's website at: http://www.scc.virginia.gov/case.

(3) The Commission's Division of Information Resources shall provide a copy of this Order, including a copy of the attached regulations, to the Virginia Registrar of Regulations for publication in the Virginia Register of Regulations.

(4) This case is dismissed, and the papers herein shall be placed in the Commission's file for ended causes.

AN ATTESTED COPY hereof, together with a copy of the attached regulations, shall be sent by the Clerk of the Commission to the Commission's Office of General Counsel and the Commissioner of Financial Institutions, who shall forthwith send by e-mail or U.S. mail a copy of this Order, together with a copy of the attached regulations, to all licensed credit counseling agencies and such other interested parties as he may designate.

10VAC5-110-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Bureau" means the Bureau of Financial Institutions.

"Commissioner" means the Commissioner of Financial Institutions.

"Advertisement" for purposes of Chapter 20 and this chapter means a commercial message in any medium that promotes, directly or indirectly, the offering of a debt management plan to any consumer. The term includes a communication sent to a consumer as part of a solicitation of business, but excludes messages on promotional items such as pens, pencils, notepads, hats, calendars, etc., as well as other information distributed or made available solely to other businesses. [ The term also excludes social media interactions that are solely educational and informational in purpose and do not promote debt management plans. ]

"Bureau," "commission," and "commissioner" shall have the meanings ascribed to them in § 6.2-100 of the Code of Virginia.

"Business day" for purposes of Chapter 20 means a day on which the licensee's office is open for business.

"Chapter 20" means Chapter 20 (§ 6.2-2000 et seq.) of Title 6.2 of the Code of Virginia.

"Debt Consumer," "credit counselor," "debt management plan," "debt pooling and distribution service," and "licensee" shall have the meanings ascribed to them in § 6.2-2000 of the Code of Virginia.

"Reporting period" means the first six months of a calendar year or the last six months of a calendar year, as the case may be.

"Total amount disbursed" for purposes of § 6.2-2015 of the Code of Virginia means funds sent to creditors on a monthly basis on behalf of a consumer.

10VAC5-110-20. Surety bond standards; reporting requirements.

A. Every licensee shall be bonded in a principal amount determined by the commissioner. The bond amount shall be equal to the licensee's average monthly volume of funds received from Virginia consumers under debt management plans during the preceding reporting period, rounded to the next highest multiple of $10,000, but not exceeding $350,000.

B. The amount of bond required of a new licensee shall be based upon the applicant's financial condition, capitalization, projected Virginia monthly volume of funds received under debt management plans, experience, and other factors deemed pertinent by the commissioner.

C. The minimum bond required shall be $25,000.

D. The form of the bond will be prescribed and provided by the commissioner. The required bond shall be filed with the bureau prior to issuance of a license and shall be maintained continuously thereafter.

E. When a licensee files a bond with the bureau, as required by § 6.2-2003 of the Code of Virginia, such bond shall be retained by the bureau notwithstanding the occurrence of any of the following events:

1. The person's license is surrendered, suspended, or revoked;

2. The licensee ceases offering debt management plans or providing debt pooling and distribution services; or

3. The licensee has distributed all consumers' funds to their creditors in accordance with their debt management plans.

F. A licensee shall maintain the coverage required by subdivision A 7 of § 6.2-2005 of the Code of Virginia in the amount of at least $250,000.

E. G. Licensees shall file a written report with the bureau within 45 days after the end of each reporting period. The report shall contain information regarding the volume of funds received from Virginia consumers under debt management plans and such other information as the commissioner may require concerning the licensee's business and operations. The commissioner may require additional reports as he deems necessary.

F. H. If the legal name of a licensee is changed, the licensee shall file with the bureau within 15 days a written notice of such change and a document effecting a change of name on its bond.

I. Within 15 days following the occurrence of any of the following events, a licensee shall file a written report with the commissioner describing the event and its expected impact upon the business of the licensee:

1. Bankruptcy, reorganization, or receivership proceedings are filed by or against the licensee.

2. Any local, state, or federal governmental authority institutes revocation, suspension, or other formal administrative, regulatory, or enforcement proceedings against the licensee.

3. Any local, state, or federal governmental authority (i) revokes or suspends the licensee's credit counseling license, license to provide debt management plans, or other license for a similar business; (ii) takes formal administrative, regulatory, or enforcement action against the licensee relating to its credit counseling, debt management plan, or similar business; or (iii) takes any other action against the licensee relating to its credit counseling, debt management plan, or similar business where the total amount of restitution or other payment from the licensee exceeds $20,000. A licensee shall not be required to provide the commissioner with information about such event to the extent that such disclosure is prohibited by the laws of another state.

4. Based on allegations by any local, state, or federal governmental authority that the licensee violated any law or regulation applicable to the conduct of its licensed credit counseling, debt management plan, or similar business, the licensee enters into, or otherwise agrees to the entry of, a settlement or consent order, decree, or agreement with or by such governmental authority.

5. The licensee surrenders its credit counseling license, debt management plan license, or other license for a similar business in another state in lieu of threatened or pending license revocation; license suspension; or other administrative, regulatory, or enforcement action.

6. The licensee is denied a credit counseling license, debt management plan license, or other license for a similar business in another state.

7. The licensee or any of its members, partners, directors, officers, principals, or employees is indicted or convicted of a felony.

8. The licensee's accreditation has expired or been suspended, revoked, or otherwise terminated.

9. Any funds held by the licensee are (i) seized by or on behalf of any court or governmental instrumentality or (ii) forfeited to or on behalf of any court or governmental instrumentality.

J. At least 15 days prior to selling or assigning any debt management plans to another person licensed under Chapter 20, a licensee shall file a written report with the commissioner that contains the following information:

1. A list of the licensee's debt management plans that are to be sold or assigned.

2. The name, address, telephone number, and email address of (i) a designated contact person for the licensee that will be selling or assigning the debt management plans and (ii) a designated contact person for the licensee that will be acquiring the debt management plans.

3. The date that the sale or assignment is scheduled to occur.

4. A copy of the agreement between the licensees.

5. A copy of the notification letter to be sent to consumers whose debt management plans are included in the sale or assignment.

K. The reports required by this section shall contain such additional information as the commissioner may reasonably require. The commissioner may also require any additional reports that he deems necessary.

10VAC5-110-30. Schedule of annual fees for the examination, supervision, and regulation of agencies providing debt management plans.

Pursuant to § 6.2-2012 of the Code of Virginia, the commission sets the following schedule of annual fees to be paid by persons licensed under Chapter 20 (§ 6.2-2000 et seq.) of Title 6.2 of the Code of Virginia. The fees are to defray the costs of examination, supervision, and regulation of licensees by the Bureau of Financial Institutions bureau.

SCHEDULE

If a licensee maintained less than 250 debt management plans for Virginia residents as of December 31 of the calendar year preceding the year of assessment, the licensee shall pay an annual fee of $0 plus $4.33 per debt management plan.

If a licensee maintained 250 or more debt management plans for Virginia residents as of December 31 of the calendar year preceding the year of assessment, the licensee shall pay an annual fee of $500 plus $4.33 per debt management plan.

The fee assessed using the above schedule shall be rounded down to the nearest whole dollar.

Fees shall be assessed on or before June 1 for the current calendar year. The fee shall be paid on or before July 1.

The annual report, due March 25 each year, of each licensee provides the basis for its assessment. In cases where a license has been granted between January 1 and March 25, the licensee's initial annual fee shall be $250.

Fees prescribed and assessed by this schedule are apart from, and do not include, the reimbursement for expenses permitted by subsection B of § 6.2-2012 of the Code of Virginia.

10VAC5-110-40. Operating requirements.

A. A licensee shall continuously maintain the requirements and standards for licensure prescribed in § 6.2-2005 of the Code of Virginia.

B. A licensee shall not provide debt management plan services in connection with a debt management plan that has been set up or established by any other person except a credit counselor that is employed by the licensee.

C. All money received by a licensee for distribution to consumers' creditors shall be deposited by the licensee into a separate trust account with an FDIC-insured depository institution.

1. All money in the trust account shall be deemed to be held in trust for the benefit of consumers who have given their money to the licensee for distribution. Money held in trust is not the property of the licensee or any person acting on the licensee's behalf and shall not be available to creditors of the licensee or any person acting on the licensee's behalf. However, this provision shall not be construed to prevent the recovery of funds by consumers who have given their money to the licensee for distribution provided that the money has not been disbursed to the consumers' creditors,

2. A licensee shall not commingle consumers' funds in a trust account with any of the licensee's operating funds or the funds of any other persons.

3. The provisions of this subsection shall be applicable regardless of whether consumers' funds are received or handled by (i) a licensee or (ii) a third party acting on behalf of a licensee.

D. A licensee shall comply with all federal laws and regulations applicable to the conduct of its business, including but not limited to the Standards for Safeguarding Customer Information (16 CFR Part 314).

E. A licensee shall not sell or otherwise assign a debt management plan to another person unless the purchaser or assignee is also licensed under Chapter 20.

F. On or before entering into a debt management plan, a licensee shall provide a consumer with a written notice in at least 10-point boldface type. The notice shall state the following: "Complaints and Contacting the Bureau of Financial Institutions: For assistance with any complaints you may have against this agency regarding your debt management plan, please contact the Bureau of Financial Institutions at [phone] or on the Internet at http://www.scc.virginia.gov/bfi. Complaints must be filed in writing with the Bureau of Financial Institutions. Complaints should be mailed to the Bureau of Financial Institutions, Attn: Complaints, P.O. Box 640, Richmond, Virginia 23218-0640, or faxed to the Bureau of Financial Institutions, Attn: Complaints at [phone]."

The written notice shall be furnished either as a separate document or included in the debt management plan agreement that is required by subdivision 1 of § 6.2-2014 of the Code of Virginia.

G. A licensee shall not provide any information to the bureau that is false, misleading, or deceptive.

H. A licensee shall not provide any information to a consumer that is false, misleading, or deceptive.

I. A licensee shall not engage in any activity that directly or indirectly results in an evasion of the provisions of Chapter 20 or this chapter.

J. Any person submitting an application to acquire, directly or indirectly, 25% or more of the voting shares of a corporation or 25% or more of the ownership of any other person licensed to conduct business under Chapter 20 shall pay a nonrefundable application fee of $500.

K. Prior to the execution of a debt management plan, a licensee shall provide each consumer with a form that contains the disclosures specified in subdivision A 9 of § 6.2-2005 of the Code of Virginia. The form shall appear in at least 12-point type and be separated from all other papers, documents, or notices obtained or furnished by the licensee. The form shall contain an acknowledgment that is signed and dated by each consumer. The acknowledgment shall appear in at least 14-point boldface type immediately above the consumer's signature line and state the following: "I acknowledge that I have received and signed this form prior to entering into a debt management plan."

L. A licensee shall not (i) allow a third party to provide any debt pooling and distribution services on its behalf or (ii) delegate to a third party any of its responsibilities under a debt management plan whereby the third party obtains control over any money provided by consumers for subsequent distribution to the consumers' creditors, unless:

1. The licensee enters into and maintains a written agreement with the third party whereby the licensee designates or appoints the third party as its agent; and

2. The licensee notifies the bureau in writing and agrees to such conditions relating to its use of such agent as may be prescribed by the bureau.

A licensee that designates or appoints a third party as its agent shall be liable and subject to enforcement action under Chapter 20 for any acts and omissions of the third party that would violate Chapter 20 or this chapter if done directly by the licensee.

M. A person shall remain subject to the provisions of Chapter 20 and this chapter applicable to licensees in connection with all debt management plan agreements that the person executed while licensed under Chapter 20 notwithstanding the occurrence of any of the following events:

1. The person's license is surrendered, suspended, or revoked; or

2. The person ceases offering debt management plans or providing debt pooling and distribution services.

10VAC5-110-50. Advertising.

A. A licensee shall disclose the following information in its advertisements:

1. The name of the licensee as set forth in the license issued by the commission.

2. A statement that the licensee is "licensed by the Virginia State Corporation Commission."

3. The license number assigned by the commission to the licensee (i.e., DC-XXX).

B. A licensee shall not deliver or cause to be delivered to a consumer any envelope or other written material that gives the false impression that the mailing or written material is an official communication from a governmental entity, unless required by the United States Postal Service.

C. A licensee shall retain for at least three years after it is last published, delivered, transmitted, or made available, an example of every advertisement used, including but not limited to solicitation letters, commercial scripts, and recordings of all radio and television broadcasts, but excluding copies of Internet web pages.

10VAC5-110-60. Enforcement.

A. Failure to comply with any provision of Chapter 20 or this chapter may result in civil penalties, license revocation, the entry of a cease and desist order, or other appropriate enforcement action.

B. Pursuant to § 6.2-2021 of the Code of Virginia, a person shall be subject to a civil penalty of up to $1,000 for every violation of Chapter 20, which includes any violation of this chapter. Furthermore, if a person violates any provision of Chapter 20 or this chapter in connection with multiple debt management plans, the person shall be subject to a separate civil penalty for each debt management plan. For example, if a person provides five debt management plans and the person violates two provisions of this chapter in connection with each of the five debt management plans, there would be a total of 10 violations and the person would be subject to a maximum civil penalty of $10,000.

10VAC5-110-70. Commission authority.

The commission may, at its discretion, waive or grant exceptions to any provision of this chapter for good cause shown.

VA.R. Doc. No. R15-4449; Filed October 9, 2015, 4:33 p.m.