Defines certain terms related to budget planners and regulates the activities of budget planners

Summary of provisions

Section one of the bill amends the general business law to make a clarification with regard to payments made by debtors and repeals the statutory language that allows only not-for-profit corporations to provide budget planning services.

Section two of the bill amends the general business law to make violations of the article punishable by a class A misdemeanor as provided in the penal law and gives the attorney general the authority to make an application to a court or justice to issue an injunction to enjoin and restrain any violations of the article. The section also allows the court or justice to impose a civil penalty of not more than $500 per contract for a violation of the section.

Section three of the bill amends the banking law to repeal the statutory language that allows only not-for-profit corporations to provide budget planning services.

Section four and five of the bill amend the banking law to require that fees or charges imposed must be fair, reasonable and easily understood by the consumer and that no budget planner shall charge any consumer for any other service not directly related to budget planning unless pre-approved by the superintendent.

Section six of the bill clarifies the superintendent's role when determining fees or charges so to ensure they are not unfair or unclear.

Section seven of the bill provides for an effective date.

Justification

Budget planning offers programs and services to help consumers regain their financial footing. Across the country budget planners consist of nonprofit and for-profit providers that offer financial counseling, education, budgeting and debt management products designed to assist consumer in repaying unsecured debt through methods other than bankruptcy. Each year this industry serves an estimated ten million consumers and moves approximately $20 billion between debtors and their creditors on structured repayment plans.

The industry is regulated primarily on the state level. Forty nine states and the District of Columbia have laws that range from a full licensing and regulatory structure, such as New York, to misdemeanor penalties for violating statutory requirements. Most states have updated their laws in the past five years to reflect the changing industry and the Federal Trade Commission has utilized its authority to police unfair and deceptive trade practices by unscrupulous providers.

New York's budget planning statute was enacted nearly sixty years ago. The current law provides for significant consumer protections and establishes a high bar for licensure. The law however does not reflect recent changes in the industry. For instance, the law does not allow licensure of taxable entities that provide budget planning services. A common misconception about budget planners is that only nonprofit entities can provide appropriate budget planning services. Forty states make no distinction between providers based on their tax status. Instead, they regulate and oversee the products and services of all providers. Regulating based on the products and services, rather than the service provider, is consistent with other financial services regulation. This legislation moves New York toward a more modern approach to regulating budget planners by regulating based on the services they provide and not based on the tax status of the provider.

The bill also provides clarity in the statute by requiring regulators to ensure that fees are fair, reasonable and clearly understood. The bill also enhances the oversight of the budget planning industry by giving the attorney general greater authority to police bad actors as well as imposes enhanced penalties to deter bad behavior.

Legislative history

This is a new bill.

Fiscal implications

Additional revenue to the Department of Financial Services from licensing fees.

Effective date

This act shall take effect in 180 days from enactment.