Legislative Amendments to Expand Debt Settlement Regulation
Steven Capasso • 06 Mar, 2025
California Proposes
Legislative Amendments To Expand Debt Settlement Regulation To Certain Business
Debt Settlement Providers
Shipkevich PLLC 2/24/2025
On February 24, 2025, California Assembly member Avelino
Valencia (D-Anaheim) introduced Assembly Bill (AB) 1166, which seeks to amend
and expand the state’s existing Fair Debt Settlement Practices Act (the “Act”)
to include certain business debt settlement services. The proposed Bill would
expand the definition of “debt settlement services” to include those that
provide debt relief services between a “commercial financing recipient” and one
or more of the commercial financing recipient’s creditors. A “commercial
financing recipient” is defined as “a person who receives commercial financing
in an amount equal to or less than five hundred thousand dollars ($500,000) and
who is responsible for repaying that debt.”
Currently, the Act regulates debt settlement services
providers in the state by prohibiting providers from engaging in false,
deceptive, or misleading acts or practices. Under the Act, debt settlement
services providers must also provide a consumer with certain disclosures and
meet other specific requirements and prohibitions. If passed, those that
provide debt settlement services to “commercial financing recipients” would
also be required to adhere to these regulations. Attorneys who charge fees for
debt settlement services would not be exempt from regulation under the Act, as
before.
This Bill represents a legislative frontier for expanding state regulatory oversight over those entities that provide business debt settlement services. Surprisingly, this proposal makes a minor tweak to existing law rather than creating a new statutory framework for regulating business debt settlement. If adopted in its current form, it will be interesting to see if this legislation will trigger any registration requirements for business debt settlement providers, as is currently required for debt settlement providers under the rules of the California Consumer Financial Protection Law (“CCFPL”).We will continue to monitor the status of the California Bill and update you on its trajectory through the state’s legislature. If you would like to read the entire text of the proposed pieces of legislation, please click on the following link: https://legiscan.com/CA/text/AB1166/2025.
New York And Washington Propose Legislative Amendments To
Regulate Debt Settlement Companies
Shipkevich PLLC 1/28/25
Washington
On
January 24, 2025, Washington Representatives Reeves (D), Corry (R), and Walen
(D) introduced House Bill (HB) 1599, which seeks to amend the state’s existing
debt adjusting act. Currently, the Washington law does not require debt
adjusters, which include debt settlement providers, to be licensed, although
there is a fee cap of fifteen percent (15%) of a consumer’s total enrolled
debt. If passed, the amended Act would distinguish “debt adjusting services”
from “debt resolution services” and would create a licensing requirement for
providers of both services, as well as additional requirements and
prohibitions. Debt settlement would be removed from the definition of “debt
adjusting” and included within the definition of “debt resolution services,”
which is defined as “any program or service represented, directly or by
implication, to renegotiate, settle, or in any way alter the terms
of payment or other terms of the debt between a consumer and one or more
unsecured creditors” (emphasis added). Debt resolution services would not be
subject to the fifteen percent (15%) fee cap, with separate fee requirements.
Attorneys
licensed to practice law in the state who provide debt resolution services
within an attorney-client relationship would be exempt from the requirements of
the proposed bill. Notably, the bill also carves out an explicit exemption for
“persons who market on behalf of licensees and do not otherwise provide debt
adjusting or debt resolution services.”
New
York
On
January 24, 2025, New York Senator Kavanagh (D) introduced Senate Bill (SB)
3224, which seeks to clarify certain provisions relating to the prohibition on
budget planning and allow the New York Attorney General to enjoin or restrain
commission or continuance of violations. If passed, the bill would amend the
current budget planning law to qualify “debt relief and debt settlement…as
budget planning,” meaning debt settlement providers would be subject to the
licensing requirements for budget planners in the state, as well as additional
requirements and prohibitions. Attorneys admitted to practice law in the state
would continue to be exempt; however, the bill would amend the exemption so
that it does not apply to those attorneys whose “principal purpose of…business
is budget planning.” Per the proposed bill, as well as being subject to the
licensing and other requirements of budget planners, “[a]ny attorney licensed
to practice law in this state who is engaged in budget planning as a principal
purpose of their practice shall (a) negotiate directly with creditors on behalf
of the client; (b) ensure that all moneys received from the client are
deposited in the attorney’s account maintained for client funds; (c) pay
creditors from such account; and (d) offer budget planning services through the
same legal entity that the attorney uses to practice law.”
We will continue to monitor the status of the Washington
and New York bills and provide updates on their trajectory through each state’s
legislature. If you would like to read the entire text of the proposed pieces
of legislation, please click on the following links, respectively: https://app.leg.wa.gov/billsummary?BillNumber=1599&Year=2025 (WA)
and https://legiscan.com/NY/text/S03224/2025 (NY).
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