Earlier this year, the New York Assembly introduced Bill No. A01730, which, if enacted, would require a “debt settlement company” to obtain a license from the New York Department of Financial Services before conducting business in New York. While some states have already enacted laws requiring debt settlement companies to be licensed, New York currently does not require these entities to have a license. New York only requires non-profits to have a license to engage in “budget planning.” If approved, Bill No. A01730 would amend certain sections of New York’s General Business Law and Banking Law to impose a licensing obligation on debt settlement companies.
The proposed legislation would apply to a "debt settlement company," which is a company engaging in or soliciting the business of providing “debt settlement services” in exchange for, or in expectation of, any compensation or gain. Under the proposed legislation, "debt settlement services" means (1) offering to provide or providing advice or services, or offering to act or acting as an intermediary, where the primary purpose is to obtain a settlement, adjustment, or satisfaction of the debtor's unsecured debt in an amount less than the principal amount of the debt or the current outstanding balance of the debt; or (2) offering to provide services or providing services advising, encouraging, assisting, or counseling a debtor to accumulate funds for the primary purpose of proposing, obtaining, or seeking to obtain a settlement, adjustment, or satisfaction of the debtor's unsecured debt in an amount less than the principal amount of the debt or the current outstanding balance of the debt. These definitions would capture the typical activities of debt settlement companies operating in the market.
If the law is enacted, applicants for a debt settlement company license would have to meet several requirements, including filing a surety bond for $250,000 and paying an investigation fee. In addition to requiring a license, the legislation would also impose substantive compliance obligations on licensed debt settlement companies. A licensed debt settlement company would be required to include disclosures that use specific statutory language in all advertising and marketing communications, prepare an individualized financial analysis for each debtor, and provide a “Debtor Notice and Rights Form” that contains certain pre-agreement disclosures and warnings related to debt settlement services. Every contract between a licensed debt settlement company and a consumer would be required to include, among other items, a clear and conspicuous list of all fees that will be collected by the debt settlement company, a statement of the proposed savings goals for the debtor, and written notice of a consumer's right to cancel.
The Committee on Consumer Affairs and Protection is reviewing Bill No. A01730. Companies offering debt settlement services in New York should continue to monitor the bill’s status.