New York State Senators Introduce Assembly Bill A3525

On January 20, 2023, New York State Assembly Members Jeffrey Dinowitz and Michael Benedetto introduced Assembly Bill (AB) A1730, which seeks to establish the Uniform Debt-management Services Act. AB A1730 was referred to the Committee on Assembly Consumer Affairs and Protection, where it will be evaluated by Committee members, who will then decide whether or not to “report” it (send it) to the NY Assembly and Senate floors for a final decision by the full membership. Assembly Members Dinowitz and Benedetto have attempted to introduce similar legislation to establish a Uniform Debt-management Services Act in 2013, 2015, 2017, and 2019, and 2021; however, their proposed legislation has never passed the Committee stage. 

A1730 prohibits all debt settlement companies (DSCs) from doing business within the state of New York without first obtaining a license. The bill defines debt settlement companies broadly to include both backend and frontend debt settlement companies. A debt settlement company is considered to be doing business in New York if any of its employees or its agents are located in the state or if the debt settlement company advertises, solicits, offers, or contracts to provide debt settlement services to debtors that reside in the state.

As a condition for the issuance and retention of a license, A1730 will require DSCs to file a surety bond with the state in the amount of $250,000.00. However, it is stated that in lieu of a surety bond, a DSC may pledge to maintain a “pledge account” with a bank in the state of New York in the same amount for the same purpose. The State can increase or decrease the amount required for the surety bond or pledge account at its discretion. 

Furthermore, A1730 sets out specific guidelines for how DSCs are to conduct their business. All advertising and marketing communications concerning debt settlement services must disclose the following information clearly and conspicuously: “Debt settlement services are not appropriate for everyone. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce the amount you owe, and they may pursue collection, including lawsuits.” Before entering into an agreement with a debtor, DSCs must provide the debtor with certain disclosures (which should be labeled as “Debtor Notice and Rights Form”), and a template of the required Form, with disclosures, is provided in the legislation. The DSC must also prepare and provide the debtor with a written statement that includes a financial analysis of the debtor’s income, expenses, debt, a description of services, an estimate of how long the program will take, etc. DSCs with power of attorney will not be allowed to settle debts for more than 50% of the principal amount without the debtor’s consent. 

Regarding fees, A1730 states that DSCs will be allowed to charge only enrollment and settlement fees. Enrollment fees are not to exceed $50.00. Settlement fees are to be reasonable and commensurate and are not to exceed 20% of the difference between the debtor’s principal debt and the amount that the debt is settled for. Settlement fees are not to be collected until the debt has been fully settled with the creditor. A provision regarding the debtor’s right to a refund is also included within the text. If the debtor cancels the agreement within ninety days, a full refund must be provided within five business days of the DSC receiving notice of the cancellation, with the exception of any earned settlement fees. If the debtor cancels after ninety days have passed, the DSC may also retain any enrollment fees. Additionally, A1730 will require DSCs to maintain business records for a minimum of six years and to annually file a report with the State of its audited financial statements and any other information deemed necessary. 

According to the proposed legislation, any violation of this Act will result in a Class A misdemeanor, punishable as provided in articles seventy and eighty of New York’s penal law. In addition, the State may impose additional monetary penalties where applicable. 

As it stands, A1730 would greatly impact the debt settlement services industry and require not only backends to be licensed but also frontends. Furthermore, both backends and frontends would be required to follow all the terms of this legislation. However, as previously mentioned, various prior versions of this bill have been introduced and have never been signed into law. We will continue to update you on the trajectory of this bill through the New York Legislature. 

If you would like to read the entire text of the proposed legislation, please click on the following link: