Senate Study Bill 1066 - IntroducedA Bill ForAn Act 1relating to the provision of debt management services
2in connection with educational loans, and making penalties
3applicable.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1   Section 1.  Section 533A.1, subsection 2, Code 2019, is
2amended by adding the following new paragraph:
3   NEW PARAGRAPH.  e.  Serving as an intermediary between a
4debtor and one or more creditors or loan servicers of the
5debtor for the purpose of seeking modification of the terms of
6an educational loan.
7   Sec. 2.  Section 533A.1, Code 2019, is amended by adding the
8following new subsections:
9   NEW SUBSECTION.  5A.  “Educational loan” means the same as
10defined in section 261F.1.
11   NEW SUBSECTION.  8A.  “Loan servicer” means a person who is
12engaged in the direct collection of payments on a loan from
13the debtor or holds the right to undertake direct collection
14of payments on a loan from the debtor, including but not
15limited to receiving scheduled periodic payments from the
16debtor pursuant to the terms of the loan or holding the right
17to service the loan, such as by contracting with or otherwise
18arranging for another person to service the loan.
19   Sec. 3.  NEW SECTION.  533A.8A  Educational loan debt
20management services — contract requirements — prohibitions —
21remedies.
   221.  In addition to any other requirements applicable to a
23licensee pursuant to this chapter, a licensee engaging in the
24business of debt management in connection with educational
25loans, as described in section 533A.1, subsection 2, paragraph
26“e”, shall do so in accordance with this section. The
27provisions of this section are not exclusive and do not relieve
28persons or a contract from compliance with other applicable
29law.
   302.  A licensee shall not receive any compensation for
31providing educational loan debt management services until after
32the licensee has fully performed all services that the licensee
33contracted to perform or represented the licensee would
34perform, and shall not request any payment from the debtor or
35require the debtor to provide payment to any third party prior
-1-1to fully performing all services.
   23.  a.  A debtor has an unconditional right to cancel a
3contract with a licensee for educational loan debt management
4services at any time prior to midnight of the third business
5day following the date a contract which complies with this
6section is signed and executed.
   7b.  Cancellation of a contract occurs when the debtor
8delivers, by any means, written notice of cancellation to the
9address specified in the contract. Notice of cancellation,
10if delivered by mail, is effective when deposited in the
11mail properly addressed with postage prepaid. Notice of
12cancellation delivered by electronic mail is effective upon
13transmission. Notice of cancellation delivered personally is
14effective upon delivery. Notice of cancellation given by the
15debtor need not take the particular form as provided in the
16contract and, however expressed, is effective if the notice of
17cancellation indicates the intention of the debtor not to be
18bound by the contract.
   194.  A contract to provide debt management services in
20connection with an educational loan shall be written in clear,
21understandable language, shall clearly and conspicuously set
22forth any and all terms, restrictions, and conditions governing
23the contract, and shall describe fully and in detail all
24services that the licensee contracts to perform for the debtor.
25The contract shall be dated and signed by the debtor. The
26contract shall set forth information required in this section
27in at least ten point type. The following shall be included in
28the contract:
   29a.  The licensee’s name, the licensee’s electronic mail
30address, and the physical address of the licensee’s place of
31business to which the notice of cancellation is to be mailed
32or otherwise delivered. A post office box does not constitute
33a physical address. A post office box may be designated for
34delivery by mail only if it is accompanied by a physical
35address at which the notice could be delivered by a method
-2-1other than mail.
   2b.  A disclosure statement in substantially the following
3form shall appear in at least fourteen point boldface type
4immediately above the place where the debtor is to sign:
5You, the debtor, may cancel this contract at any time prior
6to midnight of the third business day after the contract is
7signed and executed. See the attached notice of cancellation
8form for an explanation of this right.
   9c.  A completed, easily detachable form in duplicate,
10captioned “notice of cancellation”, as an attachment, in at
11least fourteen point boldface type, containing the following
12statement in substantially the following form and language:
13NOTICE OF CANCELLATION
14........
15(date contract is signed and executed)
16You, the debtor, may cancel this contract without any
17penalty or obligation, within three business days from the
18above date.
19To cancel this contract, you may use any of the following
20methods: (1) send by postal mail or otherwise deliver a
21signed and dated copy of this cancellation notice, or any
22other written notice of cancellation, to (physical address of
23licensee’s place of business); or (2) send by electronic mail a
24notice of cancellation to (licensee’s electronic mail address).
25No later than midnight of (date).
26I hereby cancel this contract.
27......
28(date)
29............
30(debtor’s signature)
   31d.  A disclosure statement in substantially the following
32form shall appear in at least fourteen point boldface type
33immediately above the “Notice of Cancellation” form described
34in paragraph “c”:
35NOTICE REQUIRED BY IOWA LAW
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1(Insert name of licensee) or anyone working for (insert name
2of licensee) CANNOT take payment directly from you or require
3you to pay for or finance its services through a third party
4until (insert name of licensee) has fully performed each and
5every service that (insert name of licensee) contracted to
6perform or represented that (insert name of licensee) would
7perform.
   85.  A licensee engaging in the business of debt management
9in connection with educational loans shall not do any of the
10following:
   11a.  Claim, demand, charge, collect, or receive compensation
12until after the licensee has fully performed each and every
13service the licensee contracted to perform or represented the
14licensee would perform.
   15b.  Execute a contract with a debtor for educational loan
16debt management services in violation of this section.
   17c.  Receive consideration from any third party in connection
18with services rendered to a debtor unless the consideration is
19first fully disclosed to the debtor.
   20d.  Prohibit or impede a debtor from contacting any creditor,
21lender, loan servicer, government entity, attorney, counselor,
22individual, or company that may seek to help the debtor. Any
23such provision is void and unenforceable.
   24e.  Access or obtain a debtor’s federal student aid
25information in violation of federal law.
   26f.  Compensate employees, including independent contractors,
27based on the number of debtors recruited by the employees or
28enrolled in particular programs, or provide compensation to
29employees on any other commission-based system.
   30g.  Pay or offer to pay any compensation, bonus, gift,
31commission, or other consideration to any person for the
32referral of a debtor to the licensee’s business.
   33h.  Accept or receive any compensation, bonus, gift,
34commission, or other consideration for service to the
35debtor from any person other than the debtor, the debtor’s
-4-1representative, or any third party providing financing that is
2otherwise in compliance with the requirements of this section.
   3i.  Disclose any information regarding a debtor to anyone
4other than law enforcement, government entities, loan
5servicers, creditors of the debtor, or as required by law.
   6j.  Disclose any information regarding the creditor of
7a debtor to anyone other than the debtor, the debtor’s
8representative, or as required by law.
   96.  a.  A violation of this section is an unlawful practice
10pursuant to section 714.16, and all remedies of section
11714.16 are available for such an action. A private cause of
12action brought under this section by a debtor is in the public
13interest. A debtor may bring an action against a licensee
14for a violation of this section. If the court finds that the
15licensee violated this section, the court shall award the
16debtor actual damages, appropriate equitable relief, and the
17costs of the action, and shall award reasonable fees to the
18debtor’s attorney.
   19b.  The rights and remedies provided in paragraph “a” are
20cumulative to, and not a limitation of, any other rights and
21remedies provided by law. Any action brought by a person other
22than the attorney general or the superintendent pursuant to
23this section must be commenced within four years from the date
24of the alleged violation.
   25c.  Notwithstanding any other provision of this section,
26an action shall not be brought on the basis of a violation of
27this section, except by a debtor against whom the violation was
28committed or by the attorney general or superintendent. This
29limitation does not apply to administrative action by either
30the attorney general or the superintendent.
31EXPLANATION
32The inclusion of this explanation does not constitute agreement with
33the explanation’s substance by the members of the general assembly.
   34This bill relates to debt management services in connection
35with educational loans.
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   1Current law requires persons engaged in the business of debt
2management in Iowa, as defined, to be licensed and regulated by
3the superintendent of the banking division of the department of
4commerce under Code chapter 533A.
   5The bill expands the definition of “debt management”
6by including in the definition the act of serving as an
7intermediary between a debtor and one or more creditors or loan
8servicers of the debtor for the purpose of modifying the terms
9of an educational loan. The bill defines “educational loan”
10as any loan that is made, insured, or guaranteed under Tit.
11IV of the federal Higher Education Act solely for educational
12purposes, or any private educational loan.
   13The bill provides that in addition to any other requirements
14applicable to a licensed debt management services provider
15pursuant to Code chapter 533A, a licensee engaging in the
16business of debt management services in connection with
17educational loans shall do so pursuant to the bill. The bill
18specifies that the provisions of the bill are not exclusive and
19do not relieve persons or contracts from compliance with other
20applicable laws.
   21The bill provides that a licensee shall not receive
22any compensation in connection with educational loan debt
23management services until after the licensee has fully
24performed all services that the licensee contracted to perform
25or represented the licensee would perform, and shall not
26request any payment or require payment to any third party prior
27to fully performing all services.
   28The bill provides that a debtor has an unconditional right
29to cancel a contract with a licensee for educational loan debt
30management services at any time prior to midnight of the third
31business day following the date a contract which complies with
32the bill is signed and executed. Cancellation of a contract
33occurs when the debtor delivers, by any means, written notice
34of cancellation to the specified address. A written notice
35delivered by mail is effective when deposited in the mail
-6-1properly addressed with postage prepaid. A written notice
2delivered by electronic mail is effective upon transmission. A
3written notice delivered personally is effective upon delivery.
4A written notice of cancellation may take any form and is
5effective if it indicates the debtor’s intent to cancel the
6contract.
   7The bill provides that a contract to provide educational
8loan debt management services shall be written in clear and
9understandable language, clearly set forth all terms and
10conditions, and fully describe all services that the licensee
11contracts to perform for the debtor. The contract shall be in
12at least 10 point type and shall include the following: the
13licensee’s name, electronic mail address, and physical address
14of the licensee’s place of business; a disclosure statement
15located in the contract regarding the debtor’s cancellation
16rights, as specified in the bill; an attached “notice of
17cancellation” form regarding the debtor’s cancellation rights,
18as specified in the bill; and a disclosure statement located
19on the attached “notice of cancellation” form regarding the
20requirement that a licensee fully perform all services prior
21to receiving any payment from the debtor, as specified in the
22bill.
   23The bill prohibits a licensee engaging in educational loan
24debt management from doing any of the following: requesting or
25receiving compensation prior to fully performing all contracted
26or represented services; executing a contract in violation of
27the bill; receiving consideration from any third party unless
28the consideration is first fully disclosed to the debtor;
29prohibiting or impeding a debtor from contacting any creditor,
30lender, loan servicer, as defined in the bill, government
31entity, attorney, or other individual that may seek to help the
32debtor; accessing or obtaining a debtor’s federal student aid
33information in violation of federal law; compensating employees
34and independent contractors on a commission-based system;
35paying or offering to pay any consideration to any person for
-7-1referring debtors to the licensee’s business; accepting or
2receiving any consideration for service to the debtor from any
3person other than the debtor, the debtor’s representative, or
4certain third parties; disclosing any information regarding
5a debtor to anyone other than certain specified entities, or
6as required by law; or disclosing any information regarding
7the creditor of a debtor to anyone other than the debtor, the
8debtor’s representative, or as required by law.
   9A violation of the bill’s provisions constitutes an
10unlawful practice under Code section 714.16, which relates
11to consumer frauds. Pursuant to that Code section, the
12attorney general may investigate, issue subpoenas, and commence
13civil proceedings seeking restraining orders or injunctions
14prohibiting persons from engaging in unlawful practices
15or seeking termination of the business affairs of a person
16engaging in unlawful practices. A court may further impose a
17civil penalty of up to $40,000 per violation against a person
18found guilty of committing an unlawful practice. The bill also
19provides that a debtor may bring an action against a licensee
20for a violation of the bill’s provisions. The debtor must
21bring the action within four years from the date of the alleged
22violation. If the court finds that a violation has occurred,
23the court shall award actual damages, appropriate equitable
24relief, court costs, and reasonable attorney fees.
   25In addition to the remedies provided in the bill, Code
26section 533A.16 allows the superintendent to apply for an
27injunction in district court upon the belief that a person
28has engaged in or is about to engage in an act or practice
29in violation of Code chapter 533A. The superintendent may
30also investigate or initiate a complaint against a person
31not licensed under Code chapter 533A to determine whether a
32violation has occurred, issue an order requiring compliance
33with Code chapter 533A after providing written notice and the
34opportunity for a hearing, impose a penalty of up to $5,000 for
35each violation, and order the person to pay restitution.
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