AN ACT CONCERNING SURETY BONDS FOR DEBT ADJUSTERS.

This bill changes the method for calculating the required surety bond that debt adjustors must file. It also sets the bond for a debt adjustor applicant who acquires a predecessor's debt adjuster business. The bill (1) allows the banking commissioner to change the bond amount based on certain conditions and (2) requires applicants who cannot meet the bond requirements to deposit a certain amount in a bank, instead of obtaining an insurance policy as is the option under current law. It also makes conforming changes.

Current law sets the bond amount for debt adjustor license applicants at the greater of (1) $ 40,000 or (2) twice the amount of the highest total payments received from Connecticut debtors in connection with the applicant's debt adjustment activity in any month during the preceding 12 months ending on July 31 of each year. The bill requires the average daily balance over the preceding 12 months to be used instead of the highest total in any month. It limits the bond for applicants that have acquired the business of a predecessor debt adjuster to the lesser of the predecessor's debt adjustment activity during such 12-month period or $ 1 million.

The bill allows the banking commissioner to require a larger bond if he determines that (1) a licensee has engaged in a pattern of conduct resulting in bona fide consumer complaints of misconduct and (2) the increased bond is necessary for consumer protection. The bill also allows the commissioner to change the bond amount based on the applicant's or licensee's financial condition, business plan, or the amount of payments and fees Connecticut debtors paid to the applicant.

Current law requires licensees to submit evidence that the bond complies with the statutory requirements by September 1 of each year. Instead, the bill requires licensees to submit, by September 1, annually, a report specifically containing information on the average daily balance of payments received from Connecticut debtors during the preceding 12 months ending on July 31. The licensee must subscribe and affirm it as true in a form the commissioner prescribes.

Under current law, when a licensee or renewal applicant cannot comply with the bond requirements, the person can submit a request for an alternative to the commissioner by July 1. If the commissioner determines it is warranted, he can allow the applicant or licensee to supplement the maximum bond, as long as it is at least $ 40,000, with other bonds and insurance policies, with the details approved by the commissioner. The bill instead requires a licensee or applicant in this situation to file the highest bond it can get, as long as it is at least $ 40,000. In lieu of the balance, the licensee or applicant must deposit an amount equal to what it was required to pay, minus the $ 40,000 or more in cash or cash equivalents with a commissioner-approved Connecticut bank, out-of-state bank with a Connecticut branch, or Connecticut or federal credit union. The commissioner may impose other conditions he deems necessary for consumer protection and the public interest.

The bill prohibits such deposits from being made until the institution and licensee execute a depository agreement that the commissioner finds satisfactory. The agreement must pledge the deposited funds to the commissioner and prohibit the institution from releasing any of the pledged funds without the commissioner's authorization. The bill specifies that the deposited amount secures the same obligations as would the surety bond and that it is to be held at the institution to cover claims during the license period and for two years after the license is surrendered, revoked, suspended, or expired. The applicant or licensee may, however, collect interest on the deposit in accordance with the agreement.

The bill deems the deposits, by operation of law, to be held in trust for the benefit of a debtor damaged by (1) the applicant's or licensee's failure to perform a written agreement or (2) the wrongful conversion of funds paid to a licensee in the event of the licensee's bankruptcy. The funds are immune from attachment by creditors or judgment creditors.

Yea

Nay

(03/10/2009)