Title of Regulation: 10VAC5-230. Debt Settlement Services Providers (adding 10VAC5-230-10 through 10VAC5-230-80).

Statutory Authority: §§ 6.2-2039 and 12.1-13 of the Code of Virginia.

Effective Date: December 15, 2021.

Agency Contact: Susan Hancock, Deputy Commissioner, Bureau of Financial Institutions, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone (804) 371-9703, FAX (804) 371-9416, or email susan.hancock@scc.virginia.gov.

Summary:

Pursuant to Chapter 20.1 (§ 6.2-2026 et seq.) of Title 6.2 of the Code of Virginia, the new regulation establishes a licensing and regulatory framework for debt settlement services providers, including providing definitions for terms used in the regulation, specifying the required surety bond amount and minimum fidelity bond coverage, setting annual and other reporting requirements, setting the annual fee schedule, prescribing additional business requirements and restrictions, and establishing advertising rules. Changes to the proposed regulation (i) establish the ownership percentage necessary to be considered an "affiliate" as 1.0%; (ii) lower the minimum continuous fidelity bond coverage requirement to $50,000; and (iii) allow a licensee to refer or direct an individual to an affiliate for services upon providing proof of compliance with subdivision 7 of § 6.2-2040 of the Code of Virginia.

AT RICHMOND, NOVEMBER 18, 2021

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2021-00010

Ex Parte: In the matter of Adopting

Regulations Governing Debt Settlement

Services Providers under Chapter 20.1

of Title 6.2 of the Code of Virginia

ORDER ADOPTING REGULATIONS

On July 26, 2021, the State Corporation Commission ("Commission") entered an Order to Take Notice of a proposal by the Bureau of Financial Institutions ("Bureau") to adopt regulations pursuant to Chapter 20.1 of Title 6.2 (§ 6.2-2026 et seq.) of the Code of Virginia ("Chapter 20.1"). Chapter 20.1 establishes a licensing and regulatory framework for debt settlement services providers. Chapter 20.1 became effective on July 1, 2021.

The proposed regulations implement the provisions of Chapter 20.1 by, among other things, defining certain terms, specifying the required surety bond amount and minimum fidelity bond coverage, establishing annual and other reporting requirements, setting forth the annual fee schedule, and prescribing additional business requirements and restrictions as well as various advertising rules.

The Order to Take Notice and proposed regulations were published in the Virginia Register of Regulations on August 16, 2021, posted on the Commission's website, and sent to all debt settlement services providers licensed under Chapter 20.1 and other interested persons. The Order to Take Notice invited all interested persons to participate and required that any comments or requests for a hearing on the proposed regulations be submitted in writing on or before September 3, 2021.

Comments on the proposed regulations were timely filed by the American Fair Credit Council, the Consumer Debt Relief Initiative, the Virginia Poverty Law Center, and Virginia Organizing. The Commission did not receive any requests for a hearing.

The Bureau considered the comments that were filed and responded to them in its Response to Comments ("Response"), which the Bureau filed with the Clerk of the Commission on October 1, 2021. In its Response, the Bureau recommended that the Commission amend various sections of the proposed regulations.

NOW THE COMMISSION, having considered this matter, finds that the proposed regulations should be modified consistent with the modifications the Bureau recommended in its Response, with one exception. The Commission finds that proposed 10 VAC 5-230-50 D should be modified to permit licensees to establish that they are complying with § 6.2-2040 (7) of the Code of Virginia. The Commission also finds that the modified proposed regulations should be adopted effective December 15, 2021. The Commission expresses appreciation to those who submitted written comments.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations, as modified herein and attached hereto, are adopted effective December 15, 2021.

(2) This Order and the attached regulations shall be made available on the Commission's website: scc.virginia.gov/pages/Case-Information.

(3) The Commission's Division of Information Resources shall provide a copy of this Order and the regulations to the Virginia Registrar of Regulations for appropriate publication in the Virginia Register of Regulations.

(4) This case is dismissed, and the papers filed herein shall be placed in the Commission's file for ended causes.

A COPY of this Order and the attached regulations shall be sent by the Clerk of the Commission to the Commission's Office of General Counsel and to the Commissioner of Financial Institutions, who shall send by e-mail or U.S. mail a copy of this Order and the attached regulations to every debt settlement services provider licensed under Chapter 20.1, those persons who submitted comments in this proceeding, and such other interested persons as he may designate.

Chapter 230

Debt Settlement Services Providers

10VAC5-230-10. Definitions.

A. The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Advertisement" for purposes of Chapter 20.1 and this chapter means a commercial message in any medium that promotes, directly or indirectly, the offering of debt settlement services to any consumer. The term includes a communication sent to a consumer as part of a solicitation of business but excludes messages on promotional items, such as pens, pencils, notepads, hats, and calendars, as well as other information distributed or made available solely to other businesses. [ The term also excludes materials that are solely educational and informational in purpose. ]

"Affiliate" means an entity of which [ any 1.0% or more ] of the voting shares or ownership interest is held, directly or indirectly, by a person that also owns, directly or indirectly, [ any 1.0% or more ] of the voting shares or ownership interest of a licensee.

"Chapter 20.1" means Chapter 20.1 (§ 6.2-2026 et seq.) of Title 6.2 of the Code of Virginia.

"Owner" means a person who holds, directly or indirectly, [ any 1.0% or more ] of the voting shares or ownership interest of a licensee.

"Subsidiary" means an entity of which any of the voting shares or ownership interest is held, directly or indirectly, by a licensee.

B. Other terms used in this chapter shall have the meanings set forth in § 6.2-100 or 6.2-2026 of the Code of Virginia.

10VAC5-230-20. Bond coverage.

A. Pursuant to § 6.2-2029 of the Code of Virginia, a surety bond shall be filed with the commissioner and continuously maintained thereafter in full force by each licensee. The form of the bond shall be prescribed and provided by the commissioner. The bond amount required for initial licensure shall be at least $25,000. After initial licensure, the bond amount required may be adjusted annually based on the volume of debt settlement services agreements maintained by a licensee during the preceding calendar year and any other factors deemed pertinent by the commissioner.

B. If a person has filed a surety bond with the commissioner, the bond shall be retained by the commissioner notwithstanding the occurrence of any of the following events:

1. The person's application for a license is withdrawn or denied;

2. The person's license is surrendered, suspended, or revoked; or

3. The person ceases engaging in the business of providing or offering to provide debt settlement services.

C. A licensee shall continuously maintain at least [ $250,000 $50,000 ] in fidelity bond coverage.

10VAC5-230-30. Reporting requirements.

A. Within 15 days following the occurrence of any of the following events, a licensee shall file a written report with the commissioner describing the event and its expected impact upon the business of the licensee:

1. Bankruptcy, reorganization, or receivership proceedings are filed by or against the licensee.

2. Any local, state, or federal governmental authority institutes revocation, suspension, or other formal administrative, regulatory, or enforcement proceedings against the licensee [ relating to its debt settlement services business or similar business ].

3. Any local, state, or federal governmental authority (i) revokes or suspends the licensee's debt settlement services license or other license for a similar business; (ii) takes formal administrative, regulatory, or enforcement action against the licensee relating to its debt settlement services business or similar business; or (iii) takes any other action against the licensee relating to its debt settlement services business or similar business where the total amount of restitution or other payment from the licensee exceeds $5,000. A licensee shall not be required to provide the commissioner with information about such event to the extent that such disclosure is prohibited by the laws of another state.

4. Based on allegations by any local, state, or federal governmental authority that the licensee violated any law or regulation applicable to the conduct of its licensed debt settlement services business or similar business, the licensee enters into, or otherwise agrees to the entry of, a settlement or consent order, decree, or agreement with or by such governmental authority.

5. In lieu of threatened or pending license revocation, license suspension, or other administrative, regulatory, or enforcement action, the licensee surrenders its license to engage in (i) the business of providing or offering to provide debt settlement services in another state or (ii) any similar business in another state.

6. The licensee is denied a license to engage in (i) the business of providing or offering to provide debt settlement services in another state or (ii) any similar business in another state.

7. The licensee or any of its members, partners, directors, officers, principals, or employees is indicted for or convicted of a felony [ , if known ].

8. The Attorney General or any other Virginia governmental authority institutes an action against the licensee under the Virginia Consumer Protection Act (§ 59.1-196 et seq. of the Code of Virginia).

9. Such other events as may be prescribed by the commissioner.

B. Pursuant to § 6.2-2035 of the Code of Virginia, each licensee shall file an annual report with the commissioner on or before March 25. The annual report shall contain the following data regarding a licensee's business under Chapter 20.1 during the preceding calendar year:

1. The total number of agreements to provide debt settlement services maintained;

2. The total number of agreements to provide debt settlement services entered into;

3. The total principal amount of debt enrolled by consumers into the licensee's debt settlement services;

4. The total number of settled debts;

5. The total principal amount to be paid by consumers to satisfy settled debts;

6. The total amount of fees charged pursuant to § 6.2-2041 of the Code of Virginia;

7. The total amount of fees received pursuant to § 6.2-2041 of the Code of Virginia;

8. The total number of debt settlement services agreements terminated by consumers; and

9. Any additional information required by the commissioner.

10VAC5-230-40. Schedule of annual fees for the examination, supervision, and regulation of debt settlement services providers.

Pursuant to § 6.2-2038 of the Code of Virginia, the commission sets the following schedule of annual fees to be paid by persons licensed under Chapter 20.1. The fees are to defray the costs of examination, supervision, and regulation of licensees by the bureau.

[ The annual fee Each licensee ] shall [ be pay an annual fee equal to the sum of the following: (i) ] $1,000 [ per licensee plus, and (ii) ] $3.44 per debt settlement services agreement maintained by the licensee during the calendar year preceding the year of [ the ] assessment. In cases where a licensee was not licensed under Chapter 20.1 as of December 31 of the calendar year preceding the year of the assessment, the annual fee shall be $0.

The fee assessed using the schedule set forth in this section shall be rounded down to the nearest whole dollar.

Fees shall be assessed on or before June 1 for the current calendar year. The fee shall be paid on or before July 1.

The information supplied in the annual report due March 25 each year of each licensee provides the basis for its assessment.

Fees prescribed and assessed by this schedule are apart from and do not include the reimbursement for expenses permitted by subsection B of § 6.2-2038 of the Code of Virginia.

10VAC5-230-50. Additional business requirements and restrictions; acquisitions.

A. A licensee shall continuously maintain the requirements and standards for licensure prescribed in § 6.2-2031 of the Code of Virginia.

B. [ A If a ] licensee [ shall not provide or offer to provide provides ] debt settlement services in connection with a debt settlement services agreement that has been set up or established by any [ other ] person [ except for other than ] a credit counselor of the licensee [ , then the licensee shall ensure that (i) the total fees charged to the consumer in connection with the debt settlement services, including any fees for enrolling the consumer or setting up or establishing the agreement, do not exceed the limitations in § 6.2-2041 of the Code of Virginia; and (ii) the agreement complies with Chapter 20.1 and this chapter ].

C. A licensee shall not sell or otherwise assign a debt settlement services agreement to another person unless the purchaser or assignee is licensed or exempt from licensure under Chapter 20.1.

D. A licensee shall not refer or direct [ a consumer an individual ] for whom the licensee is providing debt settlement services to any creditor that is an affiliate, owner, or subsidiary of the licensee [ , unless the licensee can establish that in accordance with subdivision 7 of § 6.2-2040 of the Code of Virginia the licensee did not and will not receive a gift or bonus, premium, reward, or other compensation, directly or indirectly, for advising, arranging, or assisting the individual in connection with obtaining an extension of credit or other service from the creditor, except for educational or counseling services required in connection with a government-sponsored program ].

E. A licensee shall comply with all state and federal laws and regulations applicable to the conduct of its business, including the Standards for Safeguarding Customer Information (16 CFR Part 314).

F. A licensee or person required to be licensed under Chapter 20.1 shall not provide any information to the bureau that is false, misleading, or deceptive.

G. A licensee or person required to be licensed under Chapter 20.1 shall not provide any information to a consumer that is false, misleading, or deceptive.

H. A licensee or person required to be licensed under Chapter 20.1 shall not engage in any activity that directly or indirectly results in an evasion of the provisions of Chapter 20.1 or this chapter.

I. A person shall remain subject to the provisions of Chapter 20.1 and this chapter applicable to licensees in connection with all debt settlement services provided or offered to be provided while licensed under Chapter 20.1 notwithstanding the occurrence of any of the following events:

1. The person's license is surrendered, suspended, or revoked; or

2. The person ceases providing debt settlement services.

J. Any person submitting an application to acquire, directly or indirectly, 25% or more of the voting shares of a corporation or 25% or more of the ownership of any other person licensed to conduct business under Chapter 20.1 shall pay a nonrefundable application fee of $500.

10VAC5-230-60. Advertising.

A. A licensee shall disclose the following information in its advertisements:

1. The name of the licensee as set forth in the license issued by the commission.

2. A statement that the licensee is "licensed by the Virginia State Corporation Commission."

3. The license number assigned by the commission to the licensee (i.e., DSP-XXX).

B. A licensee shall not deliver or cause to be delivered to a consumer any envelope or other written material that gives the false impression that the mailing or written material is an official communication from a governmental entity.

C. Every licensee shall retain for at least three years after it is last published, delivered, transmitted, or made available, [ a copy an example ] of every advertisement used, including solicitation letters, print media proofs, commercial scripts, recordings of all radio and television broadcasts, and Internet web pages. A licensee may retain copies of its advertisements in electronic form.

10VAC5-230-70. Enforcement; civil penalties.

A. Failure to comply with any provision of Chapter 20.1 or this chapter may result in civil penalties, license suspension, license revocation, the entry of a cease and desist order, or other appropriate enforcement action.

B. Pursuant to § 6.2-2046 of the Code of Virginia, a person shall be subject to a civil penalty of up to $1,000 for every violation of Chapter 20.1 or this chapter. Furthermore, if a person violates any provision of Chapter 20.1 or this chapter in connection with multiple debt settlement services agreements, the person shall be subject to a separate civil penalty for each debt settlement services agreement. For example, if a licensee enters into five debt settlement services agreements and the licensee violates two provisions of this chapter in connection with each of the five debt settlement services agreements, there would be a total of 10 violations and the licensee would be subject to a maximum civil penalty of $10,000.

10VAC5-230-80. Commission authority.

The commission may at its discretion waive or grant exceptions to any provision of this chapter for good cause shown.