Knowing and Understanding the Law in

TexasChapter 394, Finance Code

AADMO PresentationMay 16, 2006

Leslie PettijohnConsumer Credit Commissioner

www.occc.state.tx.us

Texas Debt Management Services Act

● How did we get here?

Source: Source: Fellowes, Matt; Credit Scores, Reports, and Getting Ahead in America; Metropolitan Policy Program The Brookings Institution; May 2006

Texas Debt Management Services Act

● How did we get here?

Source: Source: Fellowes, Matt; Credit Scores, Reports, and Getting Ahead in America; Metropolitan Policy Program The Brookings Institution; May 2006

Texas Debt Management Services Act

● Complaints and Enforcement Cases● 2004 Interim Legislative Study• SB 1112 passed in 2005 Legislative

Session• Chapter 394, Subchapter C

www.capitol.state.tx.us Texas Statutes: Finance Code

Texas Debt Management Services Act

• Effective Dates

Section 394.204 effective 1/1/06Registration requirement

All other sections effective 9/1/05

Texas Debt Management Services Act

• Who must be registered?

Section 394.204(a): A person, regardless of whether located in this state, may not provide a debt management service to a consumer in this state unless the person is registered with the commissioner.

Texas Debt Management Services Act

• What is a debt management service?

Section 394.202: "Debt management service" means: (A) the receiving of money from a consumer for

the purpose of distributing that money to or among one or more of the creditors of the consumer in full or partial payment of the consumer's obligations;

(B) arranging or assisting a consumer to arrange for the distribution of one or more payments to or among one or more creditors of the consumer in full or partial payment of the consumer's obligations; or

(C) exercising control, directly or indirectly, or arranging for the exercise of control over funds of a consumer for the purpose of distributing payments to or among one or more creditors of the consumer in full or partial payment of the consumer's obligations.

Texas Debt Management Services Act

• What is a debt management service?

Section 394.202: "Debt management service" means: (A) the receiving of money from a consumer for

the purpose of distributing that money to or among one or more of the creditors of the consumer in full or partial payment of the consumer's obligations;

(B) arranging or assisting a consumer to arrange for the distribution of one or more payments to or among one or more creditors of the consumer in full or partial payment of the consumer's obligations; or

(C) exercising control, directly or indirectly, or arranging for the exercise of control over funds of a consumer for the purpose of distributing payments to or among one or more creditors of the consumer in full or partial payment of the consumer's obligations.

Texas Debt Management Services Act

• Rulemaking – Chapter 88www.sos.state.tx.us/tac/index.shtml TAC viewer

Title 7: Part 5 7 TAC § 88.109(a) The rules contained in this chapter of this title are applicable to a debt management services provider who is engaged in the business of receiving funds from or controlling the funds of consumers for the purpose of distributing those funds to the creditors of consumers. If a person or entity that is engaged in the business receives and takes into its control the funds of consumers, or has authority over consumer accounts, for the purpose of distribution to the consumers' creditors, the person will be considered a debt management services provider.

(b) The rules contained in this chapter of this title do not apply to:    (1) the exceptions as provided by Texas Finance Code, §394.203;   (2) transactions subject to the Money Services Act, Texas Finance Code,

Chapter 151; or    (3) business relationships or agreements that purport to assist consumers with their debts to the extent that consumers' funds are not deposited into an account under the control of the person or business entity who is assisting the consumers with their debts.

Texas Debt Management Services Act

• Exceptions to Compliance with the Act:

Section 394.203:AttorneysTitle CompaniesJudgesRepresentative PayeesFinancial Institutions

A person who pays bills or other debts owed by a consumer and on behalf of a consumer, if the money used to make the payments belongs exclusively to the consumer and the person does not initiate any contact with individual creditors of the consumer to compromise a debt, arrange a new payment schedule, or otherwise change the terms of the debt

Texas Debt Management Services Act

Registration Application• Application with prescribed information, including

information about accreditation and nonprofit status• Detailed description of ownership interest of officers,

directors, in any for-profit affiliate or other for-profit entity that provides services to the DMO

• Surety bond or insurance requirement• Required records• Annual report with financial and transaction volume info

Texas Debt Management Services Act

Other Compliance Requirements

● Maintenance of required records• Annual report with financial and

transaction volume info

Texas Debt Management Services Act

To enroll a consumer in Debt Management Plan, a Debt Management Organization must:• Be a nonprofit• Be accredited• Use a trained counselor• Provide counseling and education• Prepare individual financial analysis• Determine ability to pay• Reasonably expect creditors to accept payment plan• Prepare list of participating creditors• Have written agreement with several prescribed

disclosures, including fees

Texas Debt Management Services Act

Other requirements of a debt management agreement:

• Provide a written accounting to consumer at least quarterly

• Fees: must be fair and reasonable given the value of products and services provided

• Trust Account: must use for management of consumer funds

Texas Debt Management Services Act

• Agency enforcement powers: investigation and examination

• Privacy question

Texas Debt Management Services Act

Where are we?• 41 approved; 10 pending• Certificate of Authority or Good

Standing are most overlooked item• About ½ of applications come in

relatively complete• Some problems with bonds and

insurance

Texas Debt Management Services Act

Anticipated Future Legislation

● Nonprofit status requirement?● Debt negotiation regulation

Financial Literacy

Austin

• Home to largest urban colony of Mexican free tail bats

• More than 1.5 million bats live under the Congress Avenue Bridge

• They eat about 20,000 pounds of insects a night• So enjoy a bug-free night outside tonight, but

maybe you should take a hat.