Clarifies certain provisions relating to the prohibition on budget planning; allows the attorney general to apply for an order enjoining or restraining commission or continuance of violations.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A7892
SPONSOR: Dinowitz TITLE OF BILL:
An act to amend the general business law, in relation to budget planning
PURPOSE:
To protect consumers from unfair and deceptive practices by clarifying
that companies offering debt settlement and debt relief services qualify
as engaged in the business of budget planning and must obtain a license
under article twelve-C of the banking law.
SUMMARY OF PROVISIONS:
Section one of the bill amends § 455 of the general business law to
amend the definition of "budget planning" to make it clear that debt
settlement and debt relief companies qualify as budget planners. This
bill would also provide an exception to licensing for attorneys, unless
budget planning is a principal purpose of their business.
Section two of the bill amends § 457 of the general business law to
provide for enforcement by the attorney general and civil penalties for
unlicensed entities who unlawfully engage in budget planning of up to
ten thousand dollars per debtor enrolled or three times the amount of
debt enrolled, as well as consumer restitution.
Section three of the bill provides the effective date.
JUSTIFICATION:
Advertisements for entities offering debt settlement services have
become ubiquitous. Many debt-laden consumers are confused as to which
entities offering help are legitimate. Calls for strict regulation of
the debt settlement services industry have increased significantly in
recent years. A May 2012 White Paper by the New York City Bar, titled
"Profiteering From Financial Distress: An Examination of the Debt
Settlement Industry" highlights many of the problems and the need for
greater regulation.
This legislation is aimed at reining in the excesses of the debt settle-
ment services industry. The legislation provides for, among other
things, licensure requirements and penalties for non-compliance. This
proposal would apply all requirements for budget planners, including
non-profit status, to debt settlement and debt negotiation companies.
Many debt settlement companies use law firms as a front to attempt to
evade regulations. This act would exempt from licensing attorneys who
engage in debt settlement occasionally but would require licensure for
attorneys and law firms engaged in debt settlement as a principal
purpose of their business.
PRIOR LEGISLATIVE HISTORY:
This is a new bill.
FISCAL IMPLICATIONS:
No direct fiscal impact.
EFFECTIVE DATE:
Ninety days after the act becomes law.
STATE OF NEW YORK
________________________________________________________________________
7892
2023-2024 Regular Sessions
IN ASSEMBLY
July 19, 2023
___________
Introduced by M. of A. DINOWITZ -- read once and referred to the Commit-
tee on Consumer Affairs and Protection
AN ACT to amend the general business law, in relation to budget planning
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Section 455 of the general business law, as amended by
2 chapter 629 of the laws of 2002, subdivision 1 as amended by chapter 456
3 of the laws of 2006 and subdivision 4 as amended by chapter 549 of the
4 laws of 2013, is amended to read as follows:
5 § 455. Definitions. 1. (a) Budget planning, as used in this article,
6 means the making of a contract between a person or entity engaged in the
7 business of budget planning with a particular debtor whereby (i) the
8 debtor agrees to pay a sum or sums of money in any manner or form and
9 the person or entity engaged in the business of budget planning distrib-
10 utes, or supervises, coordinates or controls the distribution of, or has
11 a contractual relationship with another person or entity that distrib-
12 utes, or supervises, coordinates or controls such distribution of, the
13 same among certain specified creditors in accordance with a plan agreed
14 upon and (ii) the debtor agrees to pay to such person or entity, or such
15 other person or entity that distributes, or supervises, coordinates or
16 controls such distribution of, a sum or sums of money, any valuable
17 consideration for such services or for any other services rendered in
18 connection therewith. A person or entity may be engaged in budget plan-
19 ning regardless of whether they directly handle or supervise debtor
20 funds for disbursement. Use of a third-party to hold and disburse
21 debtor funds shall not exempt a person or entity from qualifying as a
22 budget planner. Debt relief and debt settlement shall qualify as budget
23 planning.
24 (b) For the purposes of this article, a person or entity shall be
25 considered as engaged in the business of budget planning in New York,
26 and subject to this article and the licensing and other requirements of
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11886-01-3
A. 7892 2
1 article twelve-C of the banking law, if such person or entity [solicits
2 budget planning business within this state and, in connection with such
3 solicitation,] is located in New York or enters into a contract for
4 budget planning with an individual then resident in this state.
5 2. Person, as used in this article, shall not include a person admit-
6 ted to practice law in this state, unless a principal purpose of such
7 person's business is budget planning.
8 3. Entity, as used in this article, shall not include a firm, partner-
9 ship, professional corporation, or other organization, all of the
10 members or principals of which are admitted to practice law in this
11 state, unless a principal purpose of such entity's business is budget
12 planning.
13 4. Person or entity as used in this article shall not include a chari-
14 table corporation as defined in paragraph (a) of section one hundred two
15 (Definitions) of the not-for-profit corporation law of this state, or an
16 entity incorporated in another state and having a similar not-for-profit
17 status, licensed by the superintendent, to engage in the business of
18 budget planning as defined in this section.
19 5. Any attorney licensed to practice law in this state who is engaged
20 in budget planning as a principal purpose of their practice shall (a)
21 negotiate directly with creditors on behalf of the client; (b) ensure
22 that all moneys received from the client are deposited in the attorney's
23 account maintained for client funds; (c) pay creditors from such
24 account; and (d) offer budget planning services through the same legal
25 entity that the attorney uses to practice law.
26 6. Budget planning shall not include the provision of legal advice by
27 a licensed attorney in connection with a case under the United States
28 Bankruptcy Code.
29 § 2. Section 457 of the general business law, as amended by chapter
30 629 of the laws of 2002, is amended to read as follows:
31 § 457. Penalty. 1. Whoever either individually or as officer, director
32 or employee of any person, firm, association or corporation, violates
33 any of the provisions of the preceding section shall be guilty of a
34 misdemeanor for each such violation.
35 2. Where a violation of this section is alleged to have occurred, the
36 attorney general may apply in the name of the people of the state of New
37 York to a court of competent jurisdiction by action or special proceed-
38 ing for an order enjoining or restraining commission or continuance of
39 the alleged unlawful acts. In any such proceeding against a person or
40 entity who has engaged in budget planning without a license under arti-
41 cle twelve-C of the banking law or in violation of the requirements of
42 that article, the court shall impose a civil penalty in an amount not to
43 exceed ten thousand dollars per each debtor enrolled or three times the
44 amount of debt enrolled for budget planning, whichever is greater and,
45 where appropriate, order restitution to aggrieved parties, including a
46 refund of all fees paid by a debtor to an unlicensed budget planner.
47 § 3. This act shall take effect on the ninetieth day after it shall
48 have become a law.
