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Adopted Regulations
Adoption of Amendments to Part 402(Budget Planners)


Part 402

 Budget Planners
(Statutory Authority: Banking Law, § 587)

Sec.

402.1     Definitions
402.2        Application for a license
402.3         Services to be provided by licensee
402.4         Duration of qualifier experience
402.5         Provision for surety bond
402.6         Deposit of assets in lieu of surety bond; assets eligible for deposit
402.7         Deposit agreement; certificate of licensee
402.8       Reports of changes in directors, bylaws and certificate of incorporation of licensee
402.9         Debtor contact with licensee and Banking Department
402.10     Right of debtors to rescind contract
402.11     Term and termination; assignment
402.12     Unfair or deceptive acts or practices
402.13     Reports to be filed with the superintendent
402.14    Changes to licensee’s fee structure
402.15     No commingling of licensee’s funds
402.16     Licensee’s privacy policy
402.17     Office Display
402.18     Change of location
402.19     Reports of arrests, convictions, etc.
402.20     Reports of misconduct
402.21     Books and records
402.22     Licensee’s return of unused debtor funds

§ 40 2.1  Definitions.

For purposes of this Part:

  1. The term “control party” shall mean any individual or entity that possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of a licensee.

  2. The term “director” shall mean any member of the governing board of the licensee whether designated as a director, officer, trustee, manager, governor or by any other title.

  3. The term “capital certificate” shall have the same meaning as is set forth in Article 5 of the New York Not For Profit Corporation Law.

  4. The term “debtor” shall mean an individual who enters into a contract with a licensee while the individual is a New York resident.

  5. The term “licensee” shall mean any entity licensed pursuant to Article 12-C of the New York Banking Law.

§ 402.2  Application for a license.

  1. Application form.  Application for a license shall be made upon a form provided by the New York State Banking Department (“Banking Department”).  Each application shall be signed by every individual or entity that will be a control party if a license is granted.

  2. Application procedure.  Applications should be delivered to the New York State Banking Department, Attn: Licensed Financial Services Division, and must be accompanied by check payable to the order of “Superintendent of Banks of the State of New York”, for an investigation fee in the statutory amount. The application shall include the following information:

  1. The exact name and the address of the applicant and its date of incorporation.

  2. The name and the complete business and residential address and occupation of each director, whether or not a member of the governing board, and any other individual who supervises the daily operations of the applicant.

  3. The complete address where the business of the applicant is to be conducted, showing the street and number, if any, post office and building and room number, if any, the office building and room number, if any, and the municipality, county and state.

  4. If the applicant engages in the business of budget planning, as defined in Section 455(1) of the New York General Business Law, in another state(s), identify such state(s) and provide the name and address of the regulatory agency, if any.

  5. A copy of the applicant’s filing receipt, certified by the Secretary of State of New York, or, for out of state budget planners, a certificate of qualification to do business certified by the Secretary of State of New York.

  6. A copy of the applicant’s bylaws.

  7. Letter of Tax Exemption from the Internal Revenue Service indicating 501(c)(3) tax status, if applicable.

  8. Charities Registration Statement from the State of New York Office of the Attorney General, Charities Bureau.

  9. Schedule providing the following information with respect to each control party: name, prospective corporate title with licensee, employer’s name, occupation and title, business address, and residential address.

  10. The name and residence of each holder of capital certificate whether voting or non-voting and/or subvention certificate.

  11. Documentation demonstrating that a director, whether or not a member of the governing board, of such applicant has at least one year of experience in financial services or related fields applicable to budget planning. The superintendent may require that a director have more than one year experience if it is determined that such enhanced experience is in accordance with the purposes of Article 12-C of the New York Banking Law

  12. A set of completed fingerprint cards must be submitted by each individual who signs the application.  In the case of an applicant which is not a natural person, each control party shall submit completed fingerprint cards.

  13. A background report prepared by an independent licensed private investigation firm for every applicant.  In the case in which an individual is signing an application on behalf of an applicant that is not a natural person, a background report shall be prepared for both such individual and the entity for which he or she is signing the application.

  14. A description of the services that will be provided to the debtor by the applicant citing specifically the topics to be discussed and the related timeframes involved.

  15. A litigation affidavit prepared for each applicant.

  16. A statement of merit describing the proposed operation including but not limited to: 1) a list of all fees to be charged by the applicant 2) the sources of funding and financing available to the applicant and 3) a business plan which describes in detail the budgeting, educational, and counseling services to be offered; the policies and procedures governing each such service including the curriculum to be utilized to provide the educational services; the person(s) responsible for administering each such service and the training to be provided to employees engaged in the rendering of each such service.

  17. The applicant’s financial statements for the past three years or, for new corporations, a pro-forma financial statement.  Financial statements shall include a balance sheet, a statement of revenues and expenses, and a   statement of cash flows. 

  18. A copy of the contract to be used with debtors or potential debtors which shall at a minimum include:

  1. a complete list of the debtor’s obligations to be adjusted, including the name of each creditor;

  2. the total fees agreed to for such services, including any adjustments for estimated available rebates from creditors, provided that nothing in this subdivision shall require a licensee to share rebates with its clients;

  3. the commencement and termination date of the contract;

  4. a pro forma statement of the total fees to be charged, including expected available rebates from creditors, expressed as a percentage of the total obligations, principal and interest to be adjusted under such contract.

§ 402.3  Services to be provided by licensee.

  1. Every licensee shall make an initial assessment of the potential debtor’s financial situation taking into account at a minimum, the potential debtor’s available and projected income and the existence of other liquid assets as well as the potential debtor’s indebtedness to determine if it is in the best economic interest of the potential debtor to enter into a budget planner contract. If not, the licensee shall recommend that the potential debtor seek legal or other appropriate advice as to other alternatives, including bankruptcy.

  2. Every licensee shall provide adequate budgeting, educational and counseling services directly to the debtor, consistent with the purposes of Article 12-C of the New York Banking Law.

  3. Upon receipt of funds from the debtor, the licensee shall promptly transmit such funds, less any contractual fees which are due and owing to it from the debtor, to the creditor(s).  

§ 402.4  Duration of qualifier experience.

If at any time the licensee ceases to be in compliance with the requirement of section 402.2(b)(11) of this Part, it shall notify the superintendent within ten calendar days of such noncompliance.  Within three calendar days of making such notification, the licensee shall submit to the superintendent, the name and qualifications of any other director, whether or not a member of the governing board, who has been engaged by the licensee to satisfy the requirements of section 402.2(b)(11).  

§ 402.5  Provision for surety bond.

  1. Except as provided in section 402.6 below, every licensee shall file with the superintendent a corporate surety bond in the principal amount of $250,000, or such larger or smaller amount as the superintendent may require.  If the licensee is notified that a larger bond is required, such larger bond shall be in full force within 30 days.  A copy of the larger bond shall be submitted to the superintendent.  The corporate surety bond required by the section shall be issued by a bonding company or insurance company authorized to do business in this State.  The form of the bond shall be obtained from the Licensed Financial Services Division of the Banking Department.

  2. Such bond shall be in favor of the superintendent. The bond, or deposit agreement entered into pursuant to section 402.7 below, shall contain substantially the following language:

“The proceeds of this [bond/deposit agreement] shall constitute a trust fund in favor of the superintendent to be used exclusively to reimburse payments by debtors that have not been properly distributed to creditors or to reimburse fees determined by the superintendent to be improperly charged or collected and, in the event of the insolvency, liquidation or bankruptcy of such licensee, to pay outstanding banking department examination costs and assessments.” 

  1. Within 90 days of the effective date of Banking Law Section 580, as amended by Chapter 629 of the laws of 2002, which date is April 7, 2003, each licensee shall comply with the provisions of this section.

§ 402.6  Deposit of assets in lieu of surety bond; assets eligible for deposit.

  1. A licensee, in lieu of obtaining a bond pursuant to this Part, may keep on deposit in a branch of a bank, savings bank, savings and loan association, trust company, private banker, national bank, federal savings bank, or federal savings and loan association, located in this State, regardless of whether the principal office of the foregoing institution is located within or without this State, subject to the approval of the superintendent, interest-bearing bonds, notes, debentures, or other obligations of the United States or any agency or instrumentality thereof, or guaranteed by the United States, or of this State, or of a city, county, town, village, school district, or instrumentality of this State or guaranteed by this State, or dollar deposits.  The amount of the deposit shall be $250,000 (based on the lower of principal amount or market value), or such larger or smaller amount as the superintendent may require. 

  2. In addition to the assets described in paragraph (a) of this section, the following assets are eligible for deposit for purposes of this Part:

  1. commercial paper payable in dollars in the United States provided such paper is accorded the highest rating of a rating service designated by the Banking Board pursuant to section 61.1 of  Part 61 of this Title.  In the event that an issue of commercial paper is rated by more than one designated rating service, it must have the highest rating of each;

  2. negotiable certificates of deposit that are payable in the United States and issued by an unaffiliated domestic banking institution or a domestic office of an unaffiliated foreign banking corporation;

  3. banker’s acceptances that are payable in the United States and issued by an unaffiliated domestic banking institution or a domestic office of an unaffiliated foreign banking corporation;

  4. bonds which have an investment grade rating from either Moody’s Investors Services, Inc., Standard & Poor’s Corporation or Fitch Investors’ Service, Inc.; and

  5. such other assets as approved by the superintendent upon written application.

  1. If the superintendent determines that an asset which otherwise qualifies under subdivisions (1) through (5) of this section is valued for purposes of this Part at less than the amount otherwise required by this Part, the superintendent shall so notify the licensee which shall thereafter value such asset for purposes of this Part as directed by the superintendent.

  2. Within 90 days of the effective date of Banking Law Section 580, as amended by Chapter 629 of the laws of 2002, which date is April 7, 2003, each licensee shall comply with the provisions of this section.

§ 402.7   Deposit agreement; certificate of licensee.

A licensee, which elects to deposit assets of the type listed in section 402.6, shall execute with an approved depository a deposit agreement, which shall be in the form prescribed by the Licensed Financial Services Division of the Banking Department. An executed copy of such deposit agreement shall be filed with the superintendent.  As part of the deposit agreement, the licensee shall agree that prior to the release or substitution of any pledged assets subject to the deposit agreement, the licensee shall file a certificate with the depository which shall specify the following:

  1. the complete title of each pledged asset being withdrawn;

  2. the complete title of each pledged asset being deposited in place thereof;

  3. the interest rate, series, serial number (if any), face value, maturity date, call date, principal amount and market value of each replacement pledged asset;

  4. the aggregate principal amount of all such replacement pledged assets;

  5. the amount, if any, of the funds being withdrawn or deposited; and

  6. a certification that any pledged assets being deposited in exchange for pledged assets being withdrawn comply as to  type with the provisions of section 402.6, and that, after giving effect to the exchange, the aggregate of all pledged assets remaining on deposit by the licensee, based in the case of such pledged assets upon the principal amount or market value, whichever is lower, shall be $250,000, or such larger or smaller amount as the superintendent may require.

§ 402.8  Reports of changes in directors, bylaws and certificate of incorporation of licensee.

  1. The licensee shall notify the superintendent in writing, within 10 days of the following: 1) the name and address of any director or individual who supervises the daily operations of the licensee who terminates or alters his or her status with the licensee; and (2) the name of any individual who becomes associated with the business of the licensee as a director or any new individual who supervises the daily operations of the licensee.  Any new director or individual shall also furnish a resume.  The superintendent may request other information and documentation from the licensee in determining whether to approve any such director or individual.  If the superintendent objects to any new director or individual, the superintendent shall notify the licensee of such objection setting forth the reasons therefore.

  2. If the superintendent finds that a proposed new director, who is not a control party, fails to meet the standards set forth in section 581 of the New York Banking Law, the superintendent may prohibit such person from serving in any capacity on behalf of the licensee or, in the case of an application for a change of control, deny such application.  The superintendent may request other information and documentation from the licensee in determining whether to approve any such director.  If the superintendent objects to any new director, the superintendent shall notify the licensee of such objection setting forth the reasons therefore.

  3. The licensee shall submit to the superintendent changes to its bylaws or certificate of incorporation within 30 days of such change.   

§ 402.9 Debtors contact with licensees and Banking Department.

  1. Every licensee must establish either (i) a toll-free number or (ii) a phone number which may be called “collect” for the purpose of enabling debtors to make inquiries of or complaints to the licensee.  Every debtor must be informed, in writing, of this phone number and the Banking Department’s toll-free phone number at the time he or she executes the contract.

  2. Every licensee shall furnish to the debtor at least quarterly a periodic statement of account on which the Banking Department’s toll-free telephone number, 1-800-522-3330, shall be set forth conspicuously in at least ten point bold type.

§ 402.10  Right of debtors to rescind contract.   

  1. Every contract between a licensee and a debtor must provide that the debtor may rescind the contract until midnight of the third business day after the day on which the debtor signed the contract. The licensee shall expressly inform every debtor of such provision prior to or simultaneously with the execution of the contract.

  2. Notice of rescission is effective when it is given in writing to the licensee by the debtor.

  3. Notice of rescission, if given by mail, shall be deemed given when deposited in a mailbox with the correct address and    proper postage.

  4. If a debtor exercises the right of rescission within the timeframe specified in this section, the licensee shall promptly return to the debtor all fees associated with the     contract that were paid to it by the debtor.  Such fees shall not include reasonable counseling fees imposed on debtors separate and apart from the execution of a budget planner contract. 

§ 402.11  Term and termination; assignment.

  1. Every contract between a licensee and a debtor shall be limited to a payment period not to exceed 60 months.

  2. Every contract between a licensee and a debtor shall contain a provision which states that the debtor may terminate the contract upon 10 days written notice to the licensee without any fee or penalty.  Upon receiving such notice, the licensee shall return to the debtor all monies received from the debtor which are in its possession.  No licensee shall communicate any derogatory information about a debtor to a creditor based solely on the fact that a debtor has terminated his or her contract with the licensee.  Derogatory information does not include notification that the debtor is no longer a client.

  3. Every contract between a licensee and a debtor shall contain a provision which states that the contract may not be assigned without the written consent of the debtor.

§ 402.12  Unfair or deceptive acts or practices.

  No licensee shall seek to avoid compliance with this Part by any device, subterfuge or pretense whatsoever.

§ 402.13  Reports to be filed with the superintendent. 

  1. Each licensee shall annually, on or before the first day of February, furnish a report containing the following information and documentation, which shall be certified as accurate by a control party:

  1. Number of clients nationwide and number of debtors in the preceding calendar year;

  2. Number of new clients nationwide and number of new debtors in the preceding calendar year;

  3. For debtors, a schedule of fees charged, including initial fee, monthly fee and specific details as to how these fees are computed;

  4. The agreement utilized for debtors if it has been modified since the date of application or subsequently and has not been previously submitted.

  1. Each licensee shall, on a quarterly basis, report to the superintendent the highest daily amount of debtor funds held by the licensee for disbursement to creditors.  This information shall be certified as accurate by a control party and shall be provided by no later than 10 business days after the end of the preceding quarter.

  2. Each licensee shall, within 90 days of the close of the licensee’s fiscal year, submit an independently audited financial statement to the superintendent.

§ 402.14  Changes to licensee’s fee structure.

Any modification of the licensee’s fee structure for debtors shall require that the licensee notify the superintendent in writing of the proposed change(s) at least thirty calendar days prior to implementation.  The superintendent shall review the fee structure taking into consideration the expenses of the operation, the financial status of the debtor(s) and such other factors as the superintendent shall deem relevant.  The licensee may implement the modified fee structure unless the superintendent disapproves of the change(s) in writing within thirty days of notification of the proposed change(s) unless such time period is extended in writing by the superintendent.

§ 402.15  No commingling of licensee’s funds.

  1. Accounts established by the licensee to maintain debtor(s) funds must be held in the title of “Budget Planner as Agent for the Benefit of Principal(s) (i.e. Debtor(s)).”  The licensee must maintain, at all times, debtor records in such a manner as to make ascertainable the interests of the debtors, i.e., the records must sufficiently identify the deposit balance of each debtor on any given day.

  2. Accounts must be maintained in a branch of a bank, savings bank, savings and loan association, trust company, private banker, national bank, federal savings bank, or federal savings and loan association, located in this State, regardless of whether the principal office of the foregoing institution is located within or without this State.

§ 402.16  Licensee’s privacy policy.

Each licensee shall comply with the privacy provisions contained in Title V of the "Gramm-Leach-Bliley Act" of 1999, which is found in 15 United States Code Section 6801 et seq., and the regulations promulgated thereunder by the Federal Trade Commission, which are found in Title 16, Code of Federal Regulations, Part 313 et seq.  15 United States Code Section 6801 et seq. and Title 16, Code of Federal Regulations referred to herein, may be viewed at the New York State Banking Department, located at One State Street, New York, NY 10004 and the Department of State located at 41 State Street, Albany, NY 12231.  The United States Code is published by the Office of the Law Revision Council of the House of Representatives.  This publication is for sale by the United States Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328.   The Code of Federal Regulations is published by the Office of the Federal Register; National Archives and Records Administration.  The Code of Federal Regulations is for sale by the U.S. Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-0001.

§ 402 .17  Office Display.

  1. Every licensed budget planner shall display in full public view at both its principal office and any branch office in New York State, a sign(s) which shall be no less than 20 inches wide and 12 inches high with letters one-half inch in size indicating:

  1. the name and principal address of the licensee

  2. that the budget planner is licensed and regulated by the New York State Banking Department; and

  3. that if a debtor has any inquiries or complaints, he or she may call the Banking Department’s toll-free number, 1-800-522-3330, write to the New York State Banking Department, c/o Consumer Services Division, One State Street, New York, New York 10004, or submit a complaint filed electronically via the Banking Department’s website at www.banking.state.ny.us.

  1. The sign required in subdivision (a) of this section must be in the English language and in any other predominant language(s) spoken by the debtors of the licensee.

  2. The above information shall be conspicuously displayed in at least ten point bold type in the appropriate language(s) on the front page of every contract with every debtor.

§ 402.18  Change of location.

A licensee seeking to change the location of one of its offices must give written notice to the superintendent at least 30 days prior to such change. The notice shall:

  1. state the reason(s) for the change;

  2. provide a projection of any increased expenses which may be incurred; and

  3. state the extent, if any, to which the licensee intends to increase fees to its debtors as a result of the change in location.

If the superintendent determines that there is no reasonable objection to such change of location, the superintendent shall attach a rider to the license setting forth the change in location.

§ 402.19  Reports of arrests, convictions, etc.

A written report shall be made to the superintendent of any arrest, indictment or conviction (including any plea bargaining agreement) of any control party, director, or employee of the licensee, for the violation of any law within 10 days after such arrest, indictment or conviction becomes known to the licensee.

§ 402.20  Reports of misconduct.

Every licensee shall submit a report to the superintendent immediately upon the discovery of any of the events listed in Part 300 of the superintendent’s regulations.  Such report shall be submitted as set forth in Part 300.

§ 402.21  Books and records.

  1. Every licensee shall keep its books and records in a manner which will allow the superintendent to determine whether the licensee is complying with article 12-C of the Banking Law.  Every licensee shall preserve its books and records for inspection for a minimum of six years.  Specifically, every licensee shall establish and maintain the following to be kept readily available for review by the superintendent:

  1. All rejected debtor application files which shall contain all documentation relating to the applications.  A list of rejected files shall be maintained.

  2. All cancelled debtor application files which shall contain all documentation relating to the applications.  A list of cancelled files shall be maintained.

  3. A correspondence folder to contain all correspondence to and from the Banking Department, or copies thereof.

  4. A separate file for all written debtor complaints to contain the original complaint, documentation of actions taken and any related correspondence.

  5. A current business plan which describes in detail the budgeting, educational and counseling services offered; the policies and procedures governing each service including the curriculum utilized that provides the educational and counseling services; the person(s) responsible for administering each such service and the training provided to employees engaged in the rendering of each such service.

  1. Ledgers.  Each licensee shall maintain a general ledger and such subsidiary ledgers as is necessary to accurately record all assets, liabilities, net assets, income and expenses, and contingencies.  Such ledgers shall be posted at least monthly.  As of the end of each month a trial balance shall be prepared and kept readily available for inspection by Banking Department personnel.

  2. In the event the licensee conducts business in more than one state, New York debtor files are to be kept separate from the individual client files of other states.  Upon request, the New York client files are to be made readily available to the superintendent or the superintendent’s duly appointed representative.

  3.   In the event that books and records are maintained at a location that is not within the dominion and control of the licensee, the licensee shall provide the superintendent with a written authorization to examine, have access to, and retain copies of all its books and records relating to its budget planning business.

§ 402.22  Licensee’s return of unused debtor funds.

The licensee must demonstrate a 'good faith effort' to locate and refund any monies to the debtor that, for whatever reason, cannot be sent to a creditor.

§ 402.23  Effective date.

The effective date of these amendments to Part 402 shall be April 7, 2003.

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