June 4, 2008
On June 1, 2008, amendments to the Maryland Debt Management Services Act
("DMSA") go into effect. These amendments are contained in Senate Bill
646,1 which was passed by the General Assembly in its 2008 Legislative Session. SB 646 eliminates the requirement that an entity must be a nonprofit organization exempt from taxation under § 501(c) of the Internal Revenue Code to obtain a license under the
DMSA. As of June 1, 2008, both "for-profit" and nonprofit entities are eligible to become licensed as debt management services providers. SB 646 also contains new requirements relating to consumer education programs, counselor training, consumer disclosures, licensee reporting and record retention.
The purpose of this Advisory is to highlight the significant amendments to the DMSA for licensees, applicants for licenses, and consumers.
II. Amendment Highlights
One of the most significant changes to the DMSA is that licensing under the law is no longer restricted to those nonprofit organizations that are exempt from taxation under § 501(c) of the Internal Revenue Code. FI § 12-901; FI § 12-907.
B. Consumer Education Programs.
The content of the "consumer education program" that must be provided to a consumer by a debt management services provider prior to its performing debt management services for a consumer has been amended to add new components, including:
1. That the program seek to improve financial literacy of consumers regarding personal finance, budgeting, and credit and debt management; and
2. That the program provide counseling tailored to the needs and circumstances of the consumer with regard to options and strategies for addressing the consumer's debt problems, including creating and maintaining a budget, establishing debt management payment plans with creditors, negotiating directly with creditors on payment or interest rate relief, and filing for bankruptcy. FI § 12-901(e); FI § 12-916(a)(1).
C. Counselor Training.
A new qualification for licensure has been added. Now, before providing counseling to a consumer, each debt management counselor employed by a debt management services provider must receive comprehensive training in counseling skills, personal finance, budgeting, and credit and debt management. FI § 12-907(4).
D. Disclosures, Notices and Analyses.
The amendments to the DMSA include new disclosure, notice and analysis requirements. A debt management services provider must provide the following disclosures and notices, and perform the required analysis, before it performs debt management services for a consumer:
1. A debt management services provider must provide the consumer with a written summary of the counseling options and strategies for addressing the consumer's debt problems - the consumer must sign an acknowledgement stating that the consumer has reviewed the written summary and has decided to proceed. FI § 12-916(a)(1)(i)(2) and (3).
2. A debt management services provider must make a determination, based on the entity's analysis of the information provided by the consumer that: (i) the debt management services are suitable for the consumer; and (ii) the consumer will be able to meet the payment obligations set forth in the Agreement. FI § 12-916(a)(v).
3. The debt management services provider must provide a written notice to the consumer stating:
(i) If the consumer elects to file for bankruptcy the consumer will be required under Federal Bankruptcy Law to receive pre-bankruptcy credit counseling services from a nonprofit credit counseling agency that is approved by the U.S. Trustee Program. FI §
(ii) Whether the debt management services provider is approved by the U.S. Trustee Program. FI §
(iii) That the consumer should contact a Federal Bankruptcy Court to obtain a list of credit counseling agencies approved by the U.S. Trustee Program. FI § 12-916(a)(3)(iii).
The annual report required to be filed by debt management services providers on or before April 30 of each year must now contain the following additional information:
1. The percentage of all consumers who received a consumer education program and subsequently executed a debt management services agreement the preceding calendar year.
2. The number of consumers who successfully completed a debt management plan during the preceding calendar year.
3. A representative sample of the written summary of the counseling options and strategies for addressing the consumer's debt problems. FI § 12-921(a)(3)(vii), (viii), (ix) and (x).
G. Record Retention.
To enable the Commissioner to determine compliance with the DMSA, each debt management services provider must now make and preserve the following additional records for a period of at least 7 years:
1. A copy of each written summary of the counseling options and strategies for addressing the consumer's debt problems. FI §
2. A copy of each signed acknowledgement stating that the consumer has reviewed the written summary and has decided to proceed. FI § 12-922(a)(5)(ii).
This Office strongly encourages all debt management services providers doing business in Maryland to review the new requirements imposed by SB 646 with their counsel to assure compliance. As part of the regular compliance examination process, after the effective date of the new law, each debt management services provider examination will include a review of the entity's compliance with the provisions of the new law.