2014 Kentucky Revised Statutes CHAPTER 380 - DEBT ADJUSTING 380.040 Persons engaged in debt adjusting -- Powers and prohibitions -- Requirements for registration, audits, insurance, and bond or letter of credit -- Increase in amount of bond or insurance when debt is primarily for personal use.
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380.040 Persons engaged in debt adjusting -- Powers and prohibitions -Requirements for registration, audits, insurance, and bond or letter of
credit -- Increase in amount of bond or insurance when debt is primarily
for personal use.
(1)
(2)
(3)
Subject to subsection (3) of this section, a person, whether or not located in
this state, who is engaged in debt adjusting and actually or constructively
receives any money or other thing of value, other than the fees permitted by
this chapter, for the purpose of disbursing the money or thing of value to the
debtor's creditors, shall do both of the following:
(a) Unless specifically instructed otherwise by a debtor, disburse to the
appropriate creditors all funds received from the debtor, less any
contributions or fees not prohibited by subsection (2) of this section, within
thirty (30) days of receipt of the funds from the debtor; and
(b) Maintain a separate trust account for the receipt of any funds from
debtors and the disbursement of the funds to creditors on behalf of the
debtors.
If a fee, contribution, or other consideration for engaging in debt adjusting is
accepted, directly or indirectly, a person engaged in debt adjusting shall not do
any of the following:
(a) Accept a fee, contribution, or other consideration exceeding seventy-five
dollars ($75) from a debtor residing in this state for an initial set up;
(b) Accept a fee, contribution, or other consideration exceeding fifty dollars
($50) per calendar year from a debtor residing in this state for
consultation;
(c) If money or anything else of value is received and held by the person
engaged in debt adjusting for the purpose of disbursing the money or
thing of value to the debtor's unsecured creditors, accept a periodic fee,
contribution, or other consideration from a debtor who resides in this state
that exceeds the greater of eight and one-half percent (8.5%) of the
amount paid by the debtor each month for distribution to the debtor's
creditors or thirty dollars ($30); or
(d) Accept any other fee, contribution, or other consideration in advance of
the complete performance of all promised services in relation to secured
debt. Acceptance of a fee, contribution, or other consideration in advance
of the complete performance of all promised services in relation to
secured debt, including the placement of the fee, contribution, or other
consideration into an escrow account to be paid upon completion of the
services, is specifically prohibited. For purposes of this paragraph,
"secured debt" means any debt primarily for personal, family, or
household use that is secured by a mortgage, deed of trust, other
equivalent consensual security interest on residential real property, or
collateral that has a mortgage lien interest in residential real property.
Subsections (1) and (2) of this section shall not prohibit a person engaged in
debt adjusting for a debtor who resides in this state from charging the debtor a
bad check charge of twenty dollars ($20) or the amount passed on from the
debt adjuster's bank, whichever is greater, in addition to fees, contributions, or
(4)
(5)
(6)
(7)
other consideration not prohibited by subsection (2) of this section.
Fees, contributions, or other consideration permitted in subsections (1), (2),
and (3) of this section may be adjusted on an annual basis by the amount
equivalent to any increase in the consumer price index, published by the
United States Department of Labor, Bureau of Labor Statistics.
Any person that engages in debt adjusting shall file an initial registration form,
accompanied by an initial registration fee of two hundred fifty dollars ($250),
and the registration shall be renewed each year thereafter for a fee of two
hundred fifty dollars ($250) to cover the actual cost of filing the registration, in
accordance with administrative regulations promulgated by the Attorney
General.
Any person that engages in debt adjusting shall arrange for and undergo an
annual audit of the person's business, including any trust funds deposited and
distributed to creditors on behalf of debtors, which shall be conducted by an
independent, third-party certified public accountant. Both of the following shall
apply to an audit performed under this subsection:
(a) The person shall file the results of the audit and the auditor's opinion with
the Consumer Protection Division of the Office of the Attorney General
within thirty (30) days of the anniversary date of filing the initial
registration; and
(b) The Attorney General shall make available a summary of the results of
the audit and the auditor's opinion upon written request of any person and
payment of a fee not to exceed the cost of copying the summary and
opinion.
(a) A person engaged in debt adjusting shall obtain and at all times maintain
insurance coverage for errors and omissions, employee dishonesty,
depositor's forgery, computer fraud, and violations of this chapter in the
amount of ten percent (10%) of the monthly average for the immediately
preceding six (6) months of the aggregate amount of all deposits made
with the person by all debtors. The insurance coverage shall comply with
all of the following:
1.
The minimum limit of the insurance coverage shall not be less than
one hundred thousand dollars ($100,000), and the maximum limit of
the insurance coverage shall not be more than two hundred fifty
thousand dollars ($250,000);
2.
The insurance coverage shall not include a deductible in excess of
ten percent (10%) of the face amount of the policy coverage;
3.
The insurance coverage shall be issued by an insurer and rated at
least A-, or its equivalent, by a nationally recognized rating
organization; and
4.
The insurance coverage shall provide that the Consumer Protection
Division of the Office of the Attorney General shall be named as an
additional interested party.
(b) If the debt adjuster engages in debt adjusting in relation to any debt that
is primarily for personal, family, or household use that is secured by a
mortgage, deed of trust, other equivalent consensual security interest on
(8)
(9)
residential real property, or collateral that has a mortgage lien interest in
residential real property, the amount of insurance coverage required in
paragraph (a) of this subsection shall be increased by two hundred fifty
thousand dollars ($250,000).
(a) A debt adjuster shall maintain a bond issued by a surety company
admitted to do business in this Commonwealth. The bond shall be in the
amount of twenty-five thousand dollars ($25,000) in favor of the Attorney
General for the benefit of the Commonwealth for any violation of this
chapter or any person suffering injury or loss by reason of any violation of
this chapter. A copy of the bond shall be filed with the Attorney General.
(b) The bond required by paragraph (a) of this subsection shall be in effect
during the period of the debt adjuster's registration as well as for two (2)
years after the debt adjuster ceases to provide debt-adjusting services to
debtors.
(c) A change in ownership of a debt adjuster shall not release, cancel, or
terminate liability under any bond previously filed unless the Attorney
General agrees in writing to the release, cancellation, or termination
because the debt adjuster has filed a new bond meeting the requirements
of paragraph (a) of this subsection.
(d) The proceeds of the bond required by paragraph (a) of this subsection
shall be paid to any person suffering injury or loss by reason of any
violation of this chapter or to the Attorney General for any violation of this
chapter or shall be paid pursuant to the terms of any order of a court of
competent jurisdiction. Any person who is damaged by any violation of
this chapter may bring an action against the bond to recover damages
pursuant to this paragraph, provided the aggregate liability of the surety
shall not exceed the amount of the bond.
(e) In lieu of the bond required by paragraph (a) of this subsection, a debt
adjuster may, with the written approval of the Attorney General, deliver to
the Attorney General an irrevocable letter of credit issued or confirmed by
a financial institution authorized by law to transact business in the
Commonwealth. The irrevocable letter of credit shall be in the amount of
twenty-five thousand dollars ($25,000) in favor of the Attorney General for
the benefit of the Commonwealth or any person suffering injury or loss by
reason of any violation of this chapter.
(f) If the debt adjuster engages in debt adjusting in relation to any debt that
is primarily for personal, family, or household use that is secured by a
mortgage, deed of trust, other equivalent consensual security interest on
residential real property, or collateral that has a mortgage lien interest in
residential real property, the amount of the bond required in paragraph (a)
of this subsection or the irrevocable letter of credit approved pursuant to
paragraph (e) of this subsection shall be increased by fifty thousand
dollars ($50,000).
A debt adjuster may not, directly or indirectly:
(a) Misappropriate or misapply money held in trust;
(b) Settle a debtor's debt if the amount the debtor will owe after settlement is
equal to or more than fifty percent (50%) of the amount of the debt prior to
(c)
(d)
(e)
(f)
(g)
(h)
settlement unless, after the creditor has assented, the debtor assents to a
settlement for which the amount the debtor will owe after settlement is
equal to or more than fifty percent (50%) of the amount of the debt prior to
settlement;
Take a power of attorney that authorizes the debt adjuster to settle a
debt, unless the power of attorney is expressly limited to the debtor's
debts and grants authority to settle debts only if the amount the debtor will
owe after settlement is less than fifty percent (50%) of the amount of the
debt prior to settlement. However, in no event shall an agreement confer
on a debt adjuster a power of attorney to negotiate or settle any of the
debtor's debt that is primarily for personal, family, or household use that is
secured by a mortgage, deed of trust, other equivalent consensual
security interest on residential real property, or collateral that has a
mortgage lien interest in residential real property;
Exercise or attempt to exercise a power of attorney after a debtor has
terminated an agreement;
Initiate a transfer from a debtor's account at a bank or with another
person unless the transfer is:
1.
A return of money to the debtor; or
2.
Before termination of an agreement, properly authorized by the
agreement and this chapter, and for payment to one (1) or more
creditors pursuant to a plan or payment of a fee;
Structure a plan in a manner that would result in a negative amortization
of any of a debtor's debts, unless a creditor that is owed a negatively
amortizing debt agrees to refund or waive the finance charge upon
payment of the principal amount of the debt;
Settle a debt or lead a debtor to believe that a payment to a creditor is in
settlement of a debt to the creditor unless, at the time of settlement, the
debtor receives a certification by the creditor that the payment is in full
settlement of the debt or is part of a payment plan, the terms of which are
included in the certification, that upon completion will lead to full
settlement of the debt;
Make a representation that:
1.
The debt adjuster will furnish money to pay bills or prevent
attachments;
2.
Payment of a certain amount will permit satisfaction of a certain
amount or range of indebtedness;
3.
Participation in a plan will or may prevent litigation, garnishment,
attachment, repossession, foreclosure, eviction, or loss of
employment, and will or may stop efforts to collect a debt from the
debtor;
4.
Failure to make required minimum payments to creditors will not or
may not break the terms of agreements with creditors, will not or
may not lead creditors to increase finance charges and pursue
litigation, will not or may not be reported to consumer reporting
agencies, or will not or may not have an adverse effect on the
debtor's credit report and credit score; or
5.
Fees paid to a debt adjuster will be used to pay creditors;
(i) Misrepresent that it is authorized or competent to furnish legal advice or
perform legal services;
(j) Take a confession of judgment or power of attorney to confess judgment
against a debtor;
(k) Purchase a debt or obligation of the debtor;
(l) Receive from or on behalf of the debtor:
1.
A promissory note or other negotiable instrument other than a check
or a demand draft; or
2.
A postdated check or demand draft;
(m) Lend money or provide credit to the debtor, except as a deferral of a
settlement fee at no additional expense to the debtor;
(n) Obtain a mortgage or other security interest from any person in
connection with the services provided to the debtor;
(o) Provide the debtor less than the full benefit of a compromise of a debt
arranged by the debt adjuster; or
(p) 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 debt adjusting services
or educational services concerning personal finance.
(10) Any unfair, false, misleading, or deceptive act or practice in the conduct of debt
adjusting is prohibited. For purposes of this subsection, "unfair" shall be
construed to mean unconscionable.
Effective:July 15, 2010
History: Amended 2010 Ky. Acts ch. 86, sec. 3, effective July 15, 2010. -- Created
2005 Ky. Acts ch. 38, sec. 2, effective June 20, 2005.
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