I DEPARTMENT OF CORPORA TIO NS STUDY OF THE CONSUMER CREDIT COUNSELING INDUSTRY IN CALIFORNIA AND RECOMMENDATIONS TO THE LEGISLATURE REGARDING THE ESTABLISHMENT OF FEES FOR DEBT MANAGEMENT PLANS AND DEBT SETTLEMENT PLANS . Independent Escrows • Consumer and Commercial Finance Lending Securities • Franchises • Off-ExchangeCommodities • Investment and Financial Services Residential Mortgage Lending www .corp.ca.�ov California's Investment and Financing Authority March 1, 2003 STUDY OF THE CONSUMER CREDIT COUNSELING INDUSTRY IN CALIFORNIA AND RECOMMENDATIONS TO THE LEGISLATURE REGARDING THE ESTABLISHMENT OF FEES FOR DEBT MANAGEMENT PLANS AND DEBT SETTLEMENT PLANS BY THE DEPARTMENT OF CORPORATIONS April 8, 2003 Table of Contents EXECUTIVE SUMMARY ...............................................................................................................................................................................1 BACKGROUND ...........................................................................................................................................................................................1 STUDY AND RECOMMENDATIONS...................................................................................................................................................................1 INTRODUCTION ..........................................................................................................................................................................................1 BACKGROUND AND HISTORICAL PERSPECTIVE.......................................................................................................................................2 A. THE LICENSING OF PRORATERS .......................................................................................................................................................2 B. THE EXEMPTION FOR NONPROFIT CONSUMER CREDIT COUNSELING ORGANIZATIONS ................................................................................3 C. INCREASES IN THE FEE CAP ............................................................................................................................................................4 D. CHANGES IN THE INDUSTRY.............................................................................................................................................................5 E. INDUSTRY PROBLEMS, AB 2293, AND INCREASED REGULATORY REQUIREMENTS .....................................................................................7 F. THE STUDY REQUIREMENT IN AB 2293...........................................................................................................................................11 THE STUDY...............................................................................................................................................................................................11 A. INITIAL SOLICITATION ...................................................................................................................................................................11 I. Consumers Union .............................................................................................................................................. 12 II. Congress of California Seniors ......................................................................................................................... 12 III. Department of Consumer Affairs ..................................................................................................................... 13 IV. Coalition for Quality Credit Counseling ........................................................................................................... 14 B. REVIEW OF OTHER STATES...........................................................................................................................................................15 Arizona.................................................................................................................................................................................................17 Georgia.................................................................................................................................................................................................17 Idaho ....................................................................................................................................................................................................17 Illinois ..................................................................................................................................................................................................17 Indiana..................................................................................................................................................................................................17 Iowa......................................................................................................................................................................................................18 Maryland ..............................................................................................................................................................................................18 Michigan ..............................................................................................................................................................................................18 Minnesota.............................................................................................................................................................................................18 Mississippi ...........................................................................................................................................................................................18 Montana ...............................................................................................................................................................................................18 Nebraska...............................................................................................................................................................................................19 Nevada .................................................................................................................................................................................................19 New Hampshire....................................................................................................................................................................................19 New Jersey ...........................................................................................................................................................................................19 North Carolina......................................................................................................................................................................................20 North Dakota........................................................................................................................................................................................20 Oregon..................................................................................................................................................................................................20 Pennsylvania ........................................................................................................................................................................................20 Tennessee.............................................................................................................................................................................................20 Vermont ...............................................................................................................................................................................................20 Virginia ................................................................................................................................................................................................20 Washington ..........................................................................................................................................................................................21 West Virginia .......................................................................................................................................................................................21 Wisconsin.............................................................................................................................................................................................21 C. SURVEY OF CONSUMER CREDIT COUNSELING ORGANIZATIONS ...........................................................................................................21 I. Responses to Survey Regarding Sources of Funding and AB 2293................................................................. 22 i a) Dramatic decline in creditor fair-share contribution in the past few years.................................................................................22 b) Education and counseling generally provided free - supported by debt management plan fees and creditor fair share contributions. ................................................................................................................................................................................................23