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F I S C A L I M P A C T R E P O R T

SPONSOR Leavell

ORIGINAL DATE

LAST UPDATED

1/19/08

HB

SHORT TITLE Uniform Debt-Management Service Act

SB 152

ANALYST Wilson

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

$0.1 Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

SUMMARY

Synopsis of Bill

Senate Bill 152

enacts the Uniform Debt-Management Services Act which generally regulates

credit counseling services which assist debtors in paying off their debts by developing plans for

debt payment; and debt settlement and/or consolidation and management services which

negotiate with creditors on behalf of debtors to pay a percentage of the debt. Many of those

services act as intermediaries between the debtor and the creditor for debt negotiation purposes.

The general objective of those services is the payment of debt without resort to bankruptcy. Most

of the services collect a percentage of payments to creditors as payment for their services.

This bill is modeled after the “Uniform Debt-Management Services Act" adopted by the

National Conference of Commissioners on Uniform State Laws in July, 2005. The bill appears

to have adopted the uniform act verbatim.

The bill regulates providers who enter into agreements with individuals to create debt

management plans. The act applies if the debtor is a natural person whether or not the debts

involved are for business or consumer purposes. A number of businesses, including banks and

their regulated affiliates are exempt.

To provide debt management services to a New Mexico resident, the provider must be registered

Senate Bill 152 – Page

2

or licensed within the state. To register, the applicant must provide the Financial Institutions

Division of the Regulation and Licensing Department with comprehensive background

information, maintain insurance, post a surety bond, and meet levels of competency.

The bill specifies certain disclosures and terms of the agreement between the debt-management

service and debtor. Maximum fees for various services are specified. The bill requires services to

act in good faith; to maintain toll-free communications that permit clients to speak with a

counselor during business hours; and to determine that the debt management plan is suitable for

the consumer. Consumer funds must be held in a trust account.

The bill provides for both private and state enforcement including recovery of minimum, actual

and punitive damages.

FISCAL IMPLICATIONS

There will be a minimal administrative cost for statewide update, distribution and documentation

of statutory changes. New laws, amendments to existing laws and new hearings have the

potential to increase caseloads in the courts, thus requiring additional resources to handle the

increase.

SIGNIFICANT ISSUES

The AGO notes that the

bill does not repeal or amend NMSA Sections 56-2-1 to 56-2-4 (1978)

which regulate debt adjusters, and impose misdemeanor penalties on persons who act as debt

adjusters and who perform services authorized and regulated by this act. If existing state law is

not repealed or modified, they will be in conflict with the provisions of this act.

Recent amendments to the Federal Bankruptcy Code effective in 2005 require a debtor who

wishes to file under Chapter 7 to provide certification that he or she has received assistance from

an approved nonprofit credit-counseling agency in preparing a budget analysis and information

about credit counseling. The amendments also require the completion of an instructional course

concerning personal financial management as a prerequisite to obtaining a discharge. Because

the new bankruptcy rules are federal and apply in every state, regulating the consumer credit

counseling and debt settlement services in every state must be uniform in character for the new

bankruptcy rules to be effective and for consumers to be protected.

DW/nt