Banks Committee
AN ACT CONCERNING SURETY BONDS FOR DEBT ADJUSTERS
SUMMARY: This act changes the method for calculating the required surety bond that debt adjustors must file with the banking commissioner. It also sets the bond for a debt adjustor applicant who acquires a predecessor's business. The act (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.
EFFECTIVE DATE: July 1, 2009
CALCULATING THE REQUIRED BOND
Prior law set 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 act requires the average daily balance over the preceding 12 months to be used instead of the highest monthly total. 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 act 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 act 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.
Prior law required licensees to submit evidence that the bond complies with the statutory requirements by September 1 of each year. Instead, the act requires licensees to submit annually, by September 1, 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.
LICENSEES AND APPLICANTS UNABLE TO MEET THE BOND REQUIREMENTS
Under prior law, when a licensee or renewal applicant could not comply with the bond requirements, the person could ask the commissioner for an alternative by July 1. If the commissioner determined it was warranted, he could allow the licensee or applicant to supplement the maximum bond, as long as it was at least $40,000, with other bonds and insurance policies, and the details approved by the commissioner. The act 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 bond amount 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 act 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 his authorization. The act 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 act 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.
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