Section II. Prohibition of Credit Counselling and Financial Management without a License. It shall be unlawful for any person to engage in the business of credit counselling or financial management without a license, except those exempted in Section I-B.

Section III. Application for license; Contents. An application for a license to engage in credit counselling and financial management shall be in writing, under oath, and in a form described by the Administrator.

The application shall contain:

A. The name of the applicant;

B. The date of incorporation, if incorporated;

C. The address of the applicant's principal place of business within the State and that of any branch office or offices within the State of the applicant ;

D. The name and resident address of the owner or partners, or if a corporation or association, of the directors, trustees, and principal officers (and such other information as the Administrator may require).

E. Each applicant shall submit, as part of his application for a license, for approval by the Administrator, a copy of the contract form that is proposed for use in the business. Any change to any such contract form shall be submitted for approval to the Administrator by the applicant or licensee. F. A copy of the certificate of any assumed name or articles of partnership, if the applicant is a partnership, or of the articles of incorporation, if the applicant is a corporation, shall be filed with, and comprise a part of, the application.

G. Each application for a license shall be accompanied by a licensee fee of $100.00 and an investigation fee of $100.00.

H. A separate license fee of $50.00 shall be paid for each branch office maintained by the applicant.

Section IV. Nonassignability and nontransferability of license; posting of license. All licenses issued under this act shall be nonassignable and nontransferable, and shall be posted in a conspicuous place in the credit counselling or financial management office.

Section V. Expiration Date of License. A license shall expire on December 31, unless sooner surrendered, revoked, or suspended, but may be renewed as provided in Section VI of this act. If an initial application for a license is filed after June 30 in any year, the payment shall be one-half of the stated license fee in addition to the fee for investigation.

Section VI. License Renewals. Each licensee on or before December 15 may make application to the Administrator for renewal of his license. The application shall be on a form prescribed by the Administrator and shall be accompanied by a fee of $100.00 (together with) and a bond as in the case of an original application. Except that the original application shall be accompanied by an additional $100.00 fee.

Section VII. Bond. Each application for a license, including any renewal thereof, shall be accomplished by a bond, to be approved by the Administrator, in the sum of $10,000.00, in which an insurance company, which is duly authorized by the State of__ to transact the business of fidelity and surety insurance, shall be surety. The Administrator may accept in lieu of the surety bond, a deposit in cash or a certified check payable to the Administrator, or United States Government Bonds. The obligee shall be the State of------

-----for the use of the State and of any person or persons who may have a cause of action against the obligor on the bond by virtue of the provisions of this act. Such bond shall provide that said obligor will faithfully conform to and abide by the provisions of this act and of all rules and regulations issued thereunder, and will pay to the obligee any and all money that may become due or owing to any person by virtue of the provisions of this act. No person shall engage in the business of credit counselling and financial management until a good and sufficient bond is filed in accordance with the provisions of this act. Section VIII. Investigation; Issuance of License.

A. Upon the filing of the application, the payment of the fees, and the approval of the bond, the Administrator shall investigate the facts, and he finds that:

1. The financial responsibility, experience, character and general fitness of the applicant and of the members thereof if the applicant is a partnership or an association, and of the officers and directors thereof, if the applicant is a corporation, are such as to command the confidence

of the community to warrant belief that the business will be operated fairly and honestly and beneficially to the debtor; and

2. A licensee in the conduct of its business at all times shall maintain assets of at least ten thousand dollars ($10,000.00) in excess of its liabilities, of which assets at least five thousands dollars ($5,000) shall be liquid assets. The Administrator may determine by general rule what assets are liquid assets within the meaning of this section and may determine by specific ruling that a particular asset is or is not a liquid asset within the meaning of this section.

3. The applicant (or the applicant and the members thereof if a partnership or association, or the applicant and the officers and directors thereof if the applicant is a corporation) has not been convicted of any crime involving moral turpitude; or

4. That the applicant does not have a history of having defaulted in the payment of money or other things of value collected for others. including the discharge of debts through bankruptcy proceedings, the Administrator shall issue to the applicant a license to engage in credit counselling and financial management in accordance with the provisions of this act. No collection agency loan company, finance company, firm or agency representing creditors directly or indirectly shall be entitled to a license under this act.

B. If the Administrator does not so find, he shall deny such application, and forthwith notify the applicant of such denial and the reasons therefor. (Within 15 days after the entry of such order, he shall prepare written findings and shall forthwith deliver a copy thereof to the applicant.) The applicant shall be given an opportunity to be heard on reconsideration of his application within 15 days of the notice of denial. In the event of denial, the license fee shall be returned after the opportunity for reconsideration prescribed in this section, but the investigation fee shall be retained to cover the cost of investigation.

Section IX. Requirements of Contract between Debtor and Licensee.

A. List every debt to be paid with the creditor's name and disclose the total of all listed debts;

B. Provide payments reasonably within the ability of the debtor to pay in precise terms;

C. Disclose in precise terms the rate and amount of the licensee's charge: D. Disclose the approximate number and amount of installments required to pay the debts in full;

E. Disclose the name and address of the Licensee and of the debtor;

F. Contain such other provision or disclosures as the Administrator shall determine is necessary for the protection of the debtor and the proper conduct of business by a licensee.

1. No licensee shall accept an account unless a written and thorough budget analysis permits a reasonable conclusion that the debtor is able to meet the required payments as set forth in the contract, and a copy of said budget analysis shall be signed by the debtor and retained by the licensee in the debtor's file.

G. Provide that the contract may not be cancelled by the licensee without the debtor's written authorization, unless the debtor fails to make payments as agreed.

H. Licensee shall deliver a copy of any contract or agreement between the licensee and the debtor to the debtor immediately after the debtor executes it. and the debtor's copy shall be executed by the licensee. A contract shall not be effective until a debtor has made a payment to the licensee for distribution to his creditors.

I. All contracts must be completed and signed by both the debtor and licensee or its agent, at the address of licensee.

J. No contract shall be written for a period longer than 24 months. A debtor may cancel said contract upon 30 days written notice to the licensee. in which event the licensee shall be entitled to such charges as are provided for in this act in Section XII.

K. A licensee shall not take:

1. Any contract, promise to pay, or other instrument which has any blank spaces when signed by a debtor :

2. Any negotiable instrument for the licensee's unearned charges: 3. Any note, wage assignment, real estate or chattle mortgage, or other security to secure the licensee's charges;

4. Any confession of judgment or power of attorney to confess judgment against the debtor or to appear for the debtor in a judicial proceeding.

5. Concurrent with the signing of the contract or as part of the contract or as part of the application for the contract a release of any obligation to be performed on the part of the licensee.

Section X. Consent of Creditors. A licensee shall not receive any fee unless he has the consent of at least 51 per cent of the total amount of indebtedness and of the number of creditors listed in the licensee's contract with the debtor, or such like number of creditors have accepted a distribution of payment.

Section XI. Statements to Debtors. Every licensee shall make a semi-annual report to each debtor showing the total amount the creditors have been paid by the licensee on the debt of the debtor and the amount of fees withdrawn by the licensee. Licensee must render accounting as set forth within ten days or written request.

Section XII. Charges and fees. The total charges received by a licensee for his services may not exceed 15% of the monies distributed by the licensee, to the creditors of the debtor, unless the debtor cancels or defaults on the performance of his contract with the licensee, in which event the licensee may collect in addition thereto, 7% of the remaining indebtedness listed by said debtor for payment to the creditors. In relation to obligations included in the contract which are secured by a mortgage or trust deed on real property, fees may be collected only as to payments made by the licensee to the creditor. In the event of cancellation or default on performance of the contract by the debtor, the licensee must distribute or have distributed to the creditors of the debtor at least 85% of the funds of the debtor paid to the licensee.

Section XIII. Separate Accounts. A licensee shall not commingle payments received by him from debtors with the licensee's own property or funds, but shall maintain a separate account in which all payments received from debtors for the benefit of creditors shall be deposited and in which all payments shall remain until disbursements are made on behalf of the debtor or returned to the debtor. The Administrator may verify the amount of money on deposit in any such account in any bank or depository.

Section XIV. Maintenance of Records. Every licensee shall keep, and use in his business, books, accounts and records which will enable the Administrator to determine whether such licensee is complying with the provisions of this act and with the rules and regulations issued thereunder. Every licensee shall preserve such books, accounts, and records for at least 5 years after making the final entry on any transaction recorded therein.

Section XV. Investigation of Business; Examination of Records. The Administrator shall at least annually and such other times as he considers necessary investigate the business and examine the books, accounts, records, and files used therein of any licensee and any person who the Administrator has reason to believe is engaging in the business of credit counselling in violation of the provisions of this act. The actual cost of every examination of a licensee shall be paid by the licensee examined. Failure to pay the examination fee within 45 days of receipt of demand from the Administrator shall automatically suspend the license until the fee is paid.

In the investigation of alleged violations of this act, the Administrator may compel the attendance of any person or the production of any books. accounts, records, and files used, and may examine under oath all persons in attendance. Section XVI. Annual Report. Each licensee shall annually, on or before the day of and at such other times as the Administrator may request file with the Administrator a certified audit report prepared by an independent public accountant containing such relevant information as the Administrator may reasonably require concerning the business and operations during the preceding calendar year of each licensee.

Section XVII. Prohibited Practices. No licensee shall:

A. Purchase from a creditor any obligation of a debtor;

B. Operate as a collection agency, loan company or finance company: C. Pay any bonus, commission, or other consideration to any person for the referral of a debtor to his business, nor shall he accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason;

D. Advertise his services, display, distribute. broadcast, or televise or permit to be displayed, advertised, distributed, broadcast or televised his

services in any manner whatsoever wherein any false, misleading or deceptive statement or representation is made with regard to the services to be performed by the licensee or the charges to be made therefor. All advertising shall be submitted to the Administrator for approval;

E. Require as a part of the contract between the licensee and the debtor, the purchase by the debtor of any stock, insurance, commodity, or other property or any interest therein.

Section XVIII. Suspension or Revocation of License. The Administrator shall have power and authority to refuse the granting of a license for good cause shown. He may, upon notice and reasonable opportunity to be heard, suspend or revoke any license issued pursuant to this act if he finds that:

A. The licensee has failed to pay any fee required by this act.

B. The licensee has violated any provision of this act or any rule or regulation issued thereunder;

C. Any condition or fact exists which, if it had existed at the time of the original application for such license reasonably would have warranted the Administrator in refusing originally to issue such license.

D. Indulging in a continuous course of unfair conduct.

E. For insolvency, bankruptcy, receivership or assignment for the benefit of creditors by a licensee.

F. For a licensee to disclose the list of creditors of a debtor to any individual or firm for the purpose of any individual or firm's soliciting the accounts for collection or loans.

Section XIX. Rules and Regulations. The Administrator may promulgate rules and regulations and make general and specific rulings, demands and findings for the enforcement of this act. He shall also prescribe the contract and such other forms as he may deem necessary or appropriate to be used by licensees and applicants for licenses under this act.

Section XX. Injunction. To engage in the business of credit counseling and financial management as defined in this act, and to accept individuals' funds for this purpose without a valid existing license to do so, is hereby declared to be inimical to the public welfare and to constitute a public nuisance. The administrator shall direct the Attorney General of the State of the State's Attorney of any county in the State of

or

to apply

for an injunction in any court of competent jurisdiction, to enjoin such person from engaging in said business and any such court may, as in cases relating to injunction in the State of issue a temporary or permanent injunction as the circumstances shall require. Such injunction proceeding shall be in addition to, and not in lieu of, penalties and remedies otherwise provided in this act.

Section XXI. Violation; Penalties.

A. Any person other than a licensee who engages in the business of credit counselling and financial management without a license shall be guilty of a misdemeanor and shall be fined not more than $1,000 for each violation or imprisoned for not more than 6 months or both.

B. Any licensee under this act who violates any provision of this act is guilty of a misdemeanor and upon conviction, in addition to other penalties, shall forfeit his license and shall be fined not more than $1,000 for each offense, or imprisonment not to exceed one year, or both. Section XXII. Unlawful Practice of Law by Licensees; Acts of Officers or Employees of Licensee. Nothing in this chapter shall be deemed to authorize the performance, directly or indirectly, of an act or acts constituting the practice of law by a licensee, check seller or casher, or by any person, firm, corporation, or organization.

Without limiting the generality of the foregoing and other applicable laws, the following act or acts, when done by the owner, manager or employee of a licensee, in connection with a credit counselling transaction, shall be deemed to constitute the unlawful practice of law:

A. Preparation, advising or signing of a release of attachment or garnishment, stipulation, affadavit for exemption, compromise agreement or other legal or court document;

B. The furnishing of legal advice or performance of legal services of any kind. No licensee (including an owner, manager or employee of a licensee) shall (1) represent that he is authorized or competent to furnish legal advice or perform legal services; (2) assume authority on behalf of creditors or a debtor or accept a power of attorney authorizing it to employ or terminate the services of an attorney or to arrange the terms of or compensate for such services; (3)

communicate with the debtor or creditor or any other person in the name of an attorney or upon the stationery of an attorney or prepare any form or instrument which only attorneys are authorized to prepare.

Section XXIII. Qualifications of Principal Managing Officer. No license shall be granted to a prorater or continued in effect as such unless the principal managing officer thereof is at least 21 years of age, a citizen of the United States, a bona fide resident of this State for at least two years immediately preceding his application for a license, and shall have had at least two years' experience in consumer credit extension or credit collection activity. The commissioner shall have power and authority to refuse the granting of a license for good cause shown.

Section XXIV. Effective Date. This act shall become effective

Mr. SISK. I have not had an opportunity, I might say, to study that particular document to the extent I should. However, what are the one, two, three, or four areas which you think are in the greatest need of regulation? What are the most vital points to eliminate the type of abuses which have occurred in the District of Columbia and in other areas? And what portions of the California law do you think are the most important in maintaining an equitable operation of this sort? Mr. RABINOWITCH. Our experience indicates, first, not allowing the debt adjuster to take a fee unless he can perform. And the way we can determine if he can perform is by an analysis of a man's income and the amount available toward liquidation of his debts and then obtaining the cooperation of the creditors and allowing only a portion of that fee to be taken. Say my fee is $300. I wouldn't get it the first year. I might take it over a period of three years, $10 or $15 a month. This is a way of making sure there is performance because I can't profit unless I perform.

The second is advertising. We feel any advertising that is deceptive and that creates a motivating factor in appealing to the desperate person should be eliminated.

Another is that no fee be charged until the plan is worked out. I may spend two hours interviewing a man and find he either does not need my service or I cannot perform. But just because I walk in Hechts and look at suits, I don't have to buy a suit. And merely discussing it with him should not require his paying a fee. 75 percent of the people walking in our office do not need our service or we cannot perform, and, frankly, there is a selfish motive because the best advertising we have is when a man stands up and says, "How much do I owe you" and if I cannot serve him I say, "Nothing.

Eliminating those factors and the bond can eliminate the abuses. Mr. WHITENER. You don't mean eliminating the bond, you mean insisting on a bond?

Mr. RABINOWITCH. Insist on a bond and have sufficient protection for the individual. We are handling lots of money. If I get taken for $50 or one of you gentlemen get taken for $50 we will eat, but many of the people we deal with, $50 is the food budget for a week and they have to be protected.

Mr. SISK. Strict auditing you say is an absolute necessity in any regulation?

Mr. RABINOWITCH. Absolutely. In a State audit at the end of a year they said he had overcharged one client and that our license was in jeopardy. A review of the file showed we had overcharged six-tenths of one cent. We were forced to issue a check, change our records, and finally after three years find the individual and get him to cash it. I don't like it, but I am handling lots of money and I don't think you can enforce it too strictly.