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Industry Letters

Examination of Budget Planner Activities and Fee Structure

June 4, 2004  

To The Institution Addressed:


As you are aware, over the last year, there have been many changes in the law and regulations that pertain to organizations engaged in budget planning.  Many such entities, for the first time, are subject to licensing and examination by the New York State Banking Department (“Banking Department”).  Moreover, the scope of examinations has changed significantly. 

In an effort to ensure compliance, this letter addresses some of the matters that are of concern to the Banking Department and which, therefore, will be part of the examination of licensed budget planners. 

In New York State, all budget planners licensed under Article 12-C of the New York State Banking Law must be Type B not-for-profit corporations under the New York Not-For-Profit Corporation Law or a similar not-for-profit corporation under a similar law of another state.  Pursuant to section 201 of the New York law, a Type B not-for-profit corporation “may be formed for any one or more of the following non-business purposes:  charitable, educational, religious, scientific, literacy, cultural or for the prevention of cruelty to children or animals.”  While this is similar to the 501(c)(3) tax status under the Internal Revenue Code, the requirement is independent of that designation. 

It is imperative that the not-for-profit designation not be abused.  Accordingly, the activities and fee structure of the licensed budget planner will be examined closely.  In particular, Banking Department examinations will include, but not be limited to, the following items:

  1. Educational activities will be reviewed to determine: 

  • How many community educational events, seminars, and classes are held?  How many people participate in these events, seminars and classes?

  • Is there a website containing educational material?  Is it interactive?

  • Are there face-to-face educational activities?

  • Is the primary educational activity telephone counseling?

  • How much money is budgeted for educational activities? What percentage of revenues does this constitute?

  1. The fee structure will be reviewed to determine:

  • What is the initial fee or voluntary contribution?

  • What is the monthly fee or voluntary contribution?

  • What percentage of clients pays the initial fee or voluntary contribution?

  • What percentage of clients pays the monthly fee or voluntary contribution?

  • What percent of clients pays no fees or voluntary contributions;

  • What percentage of revenue is derived from debtor fees or voluntary contributions?

  •  What percentage of revenue is derived from sources other than clients such as fair share contributions, grants from corporations, foundations and/or governments, fund raising, and contributions from the public?

  • Are debtors with limited incomes charged lower fees or are the suggested voluntary contributions smaller?

  • Are there any other fees charged to debtors and if so, what is the amount of such fees and for what services are they charged?

  1. Disclosures will be reviewed to determine:
  • In those instances in which the initial fee or voluntary contribution consists of the first month’s payment to creditors or a dollar figure of more than $100.00, how is this disclosed to the debtor?

  • Is it made clear to the debtors that they will be missing a month’s payments to their creditors and that this may have further negative consequences to the debtor?

  1. Payments to creditors will be reviewed to determine:

  • Are they made on time?

  • How often are the payments made?

  • Is a third party used to process the payments?

  1. Compensation will be reviewed to determine:
  • What percentage of revenues goes to salaries?

  • What is the range of salaries paid?

  • Are bonuses paid and if so, on what basis?

  • Are there employee incentive plans?  On what are they based?  Are they based on enrollment in Debt Management Plans?

  1. Third party payments will be reviewed to determine:

  •  What percentage of revenues is paid to third party companies?  For what services?

  • What percentage of revenues is paid to affiliated third party companies?  For what services?

  1. Other items that will be reviewed include, but will not be limited to:
  • Scripts if used;

  •  Bylaws;

  • Training programs for employees;

  • Amount of reserves maintained by the budget planner;

  • Security for computer systems;

  •  How debtor funds are held in bank accounts (i.e., escrow) and the title of the accounts;

  •  Utilization of independent accountants and auditors.

Should you have any questions regarding the above, please do not hesitate to contact Assistant Deputy Russell Damitz at 212-709-1594 or Director of Consumer Affairs and Financial Products Barbara Kent at 212-709-3503.

Very truly yours,

Diana L. Taylor
Superintendent of Banks

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