STATE OF KENTUCKY

Is a license required? Yes. 380.040-(5) states that “Any person that engages in debt adjusting shall file an initial registration form, accompanied by an initial registration fee”
State specific loan modification law? Yes. KRS 380(Attached as Schedule A) regulates debt adjusting.

 

380.010 includes loan modification under debt adjusting and states that debt adjusting “means doing business in debt adjusting, budget counseling, debt management, or debt pooling service, or holding oneself out, by words of similar import, as providing services to debtors in the management of their debts, to do any of the following: (a) Effect the adjustment, compromise, or discharge of any account, note or other indebtedness of the debtor;”

 

40 KAR 2:350(Attached as Schedule B) also regulates debt adjusing.

 

Advantages of becoming a licensed Mortgage Broker? None.

 

Penalties for operating in the state without a license:

 

380.990 states that “Any person who violates the provisions of KRS 380.040 in the state is guilty of a misdemeanor and, upon conviction, shall be punished by a fine of five hundred dollars ($500) or imprisonment not to exceed sixty (60) days, or both such fine and imprisonment.”

 

Is an advanced fee permitted?

 

Yes, but 380.040-c states that a debt adjuster shall not “Accept a contribution or fee exceeding seventy-five dollars ($75) from a debtor residing in this state for an initial set up;”
Is a written agreement required? No.

 

 

Other noteworthy information? None.
Kentucky Statutes

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KRS 380:

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40 KAR 2:350:

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License application:

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SCHEDULE A

380.010 Definitions.

As used in this chapter, the following terms mean:

(1) “Person” includes, but is not limited to, individuals, partnerships, associations, corporations, limited liability companies, trusts, and other legal entities;

(2) “Debt adjusting” means doing business in debt adjusting, budget counseling, debt management, or debt pooling service, or holding oneself out, by words of similar import, as providing services to debtors in the management of their debts, to do any of the following:

(a) Effect the adjustment, compromise, or discharge of any account, note or other indebtedness of the debtor;

(b) Receive from the debtor and disburse to the debtor’s creditors any money or other thing of value; or

(c) Solicit business and advertise as a debt adjuster; and

(3) “Reside” means to live in a particular place on a temporary or permanent basis.

Effective: June 20, 2005

History: Amended 2005 Ky. Acts ch. 38, sec. 1, effective June 20, 2005. — Created 1970 Ky. Acts ch. 190, sec. 2.

 

 

380.020 Repealed, 2005.

Catchline at repeal: Injunction against debt adjuster — Appointment of receiver.

History: Repealed 2005 Ky. Acts ch. 38, sec. 6, effective June 20, 2005. — Created 1970 Ky. Acts ch. 190, sec. 4.

 

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380.040 Persons engaged in debt adjusting — Powers and prohibitions — Requirements for registration, audits, and insurance.

(1) Subject to subsection (3) of this section, a person, whether or not located in this state, engaged in debt adjusting shall do both of the following:

(a) Unless specifically instructed otherwise by a debtor, disburse to the appropriate creditors all funds received from the debtor, less any contributions or fees not prohibited by subsection (2) of this section, within thirty (30) days of receipt of the funds from the debtor; and

(b) Maintain a separate trust account for the receipt of any funds from debtors and the disbursement of the funds to creditors on behalf of the debtors.

(2) If contributions or fees for engaging in debt adjusting are accepted, directly or indirectly, a person engaged in debt adjusting shall not do any of the following:

(a) Accept a contribution or fee exceeding seventy-five dollars ($75) from a debtor residing in this state for an initial set up;

(b) Accept a consultation contribution or fee exceeding fifty dollars ($50) per calendar year from a debtor residing in this state; or

(c) Accept a periodic contribution or fee from a debtor who resides in this state that exceeds the greater of eight and one-half percent (8.5%) of the amount paid by the debtor each month for distribution to the debtor’s creditors or thirty dollars ($30).

(3) Subsections (1) and (2) of this section shall not prohibit a person engaged in debt adjusting for a debtor who resides in this state from charging the debtor a bad check charge of twenty dollars ($20) or the amount passed on from the debt adjuster’s bank, whichever is greater, in addition to contributions or fees not prohibited by subsection (2) of this section.

(4) Fees or contributions permitted in subsections (1), (2), and (3) of this section may be adjusted on an annual basis by the amount equivalent to any increase in the consumer price index, published by the United States Department of Labor, Bureau of Labor Statistics.

(5) Any person that engages in debt adjusting shall file an initial registration form, accompanied by an initial registration fee of two hundred fifty dollars ($250), and the registration shall be renewed each year thereafter for a fee of two hundred fifty dollars ($250) to cover the actual cost of filing the registration, in accordance with administrative regulations promulgated by the Attorney General.

(6) Any person that engages in debt adjusting shall arrange for and undergo an annual audit of the person’s business, including any trust funds deposited and distributed to creditors on behalf of debtors, which shall be conducted by an independent, third-party certified public accountant. Both of the following shall apply to an audit performed under this subsection:

(a) The person shall file the results of the audit and the auditor’s opinion with the Consumer Protection Division of the Office of the Attorney General within thirty (30) days of the anniversary date of filing the initial registration; and Page 2 of 2

(b) The Attorney General shall make available a summary of the results of the audit and the auditor’s opinion upon written request of any person and payment of a fee not to exceed the cost of copying the summary and opinion.

(7) A person engaged in debt adjusting shall obtain and at all times maintain insurance coverage for errors and omissions, employee dishonesty, depositor’s forgery, and computer fraud in the amount of ten percent (10%) of the monthly average for the immediately preceding six (6) months of the aggregate amount of all deposits made with the person by all debtors. The insurance coverage shall comply with all of the following:

(a) The minimum limit of the insurance coverage shall not be less than one hundred thousand dollars ($100,000), and the maximum limit of the insurance coverage shall not be more than two hundred fifty thousand dollars ($250,000);

(b) The insurance coverage shall not include a deductible in excess of ten percent (10%) of the face amount of the policy coverage;

(c) The insurance coverage shall be issued by an insurer and rated at least A-, or its equivalent, by a nationally recognized rating organization; and

(d) The insurance coverage shall provide that the Consumer Protection Division of the Office of the Attorney General shall be named as an additional interested party.

(8) Any person engaged in debt adjusting shall comply with the provisions of this section.

Effective: June 20, 2005

History: Created 2005 Ky. Acts ch. 38, sec. 2, effective June 20, 2005.

 

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380.050 Administrative regulations governing debt adjusting.

The Attorney General shall promulgate administrative regulations in accordance with KRS Chapter 13A to ensure the proper administration and enforcement of this chapter.

Effective: June 20, 2005

History: Created 2005 Ky. Acts ch. 38, sec. 3, effective June 20, 2005.

 

 

380.990 Penalty.

Any person who violates the provisions of KRS 380.040 in the state is guilty of a misdemeanor and, upon conviction, shall be punished by a fine of five hundred dollars ($500) or imprisonment not to exceed sixty (60) days, or both such fine and imprisonment.

Effective: June 20, 2005

History: Amended 2005 Ky. Acts ch. 38, sec. 5, effective June 20, 2005. — Created 1970 Ky. Acts ch. 190, sec. 3.

 

SCHEDULE B

40 KAR 2:350. Debt adjusters.

 

RELATES TO: KRS 380.010, 380.030, 380.040, 380.050, 380.990

STATUTORY AUTHORITY: KRS 380.040(5), 380.050

NECESSITY, FUNCTION AND CONFORMITY: KRS 380.050 requires the Attorney General to promulgate administrative regulations necessary to carry out the provisions of KRS Chapter 380, relating to debt adjusting. KRS 380.040(5) requires a person to file a registration form developed by the Attorney General. This administrative regulation establishes the registration and renewal process and incorporates by reference the forms to be utilized by persons subject to registration.

 

Section 1. Definitions. (1) “Division” means the Office of the Attorney General, Consumer Protection Division.

(2) “Registrant” means a person filing the registration form required by KRS 380.040(5) and this administrative regulation.

(3) “Registration form” means the “Commonwealth of Kentucky Debt Adjuster Registration Statement”.

 

Section 2. Registration. (1) The initial registration, or a renewal of registration, for a person engaging in debt adjusting pursuant to KRS Chapter 380 shall be made on the “Commonwealth of Kentucky Debt Adjuster Registration Statement”. Each person engaging in debt adjusting shall register by:

(a) Completing the information required by the registration form and submitting:

1. The required information identifying the registrant’s business structure including:

a. Articles of incorporation or organization;

b. Partnership or joint venture agreements; and

c. Evidence of registration or qualification to do business in the Commonwealth of Kentucky;

2. A copy of the insurance policy; and

3. Sample contract of registrant’s services;

(b) Filing the original of the registration form and accompanying documentation with the Office of the Attorney General, Consumer Protection Division, 1024 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601; and

(c) Paying the fee required by KRS 380.040(5).

(2) Registration shall be valid for one (1) year from the date of approval of registration by the division, and may be renewed annually by making the required filing and paying the renewal fee.

(3) Deadline for filing.

(a) The initial registration form and fee shall be filed with the division prior to the date the registrant will engage in debt adjusting pursuant to KRS Chapter 380.

(b) The renewal registration form and fee shall be filed with the division at least four (4) weeks prior to the expiration of the registration.

(c) The registration form shall be considered filed as of the date it is:

1. Delivered to the Division; or

2. Deposited in the mail or with a commercial postal service on or before the due date, as indicated by the postmark applied by the U.S. Postal Service or official mark applied by a commercial postal service. The mark made by a privately-held postage meter shall not be considered in determining the date of filing.

(4) (a) If the Division determines that the registration form or the materials submitted with the registration form do not contain all information required by KRS Chapter 380 or this administrative regulation, the division shall notify the registrant in writing, specifying the information that was not completed in the registration form.

(b) The registration shall not be effective until an amended registration form is filed with the division that contains all information required by KRS Chapter 380 and this administrative regulation.

(c) The division shall provide a written confirmation of registration.

 

Section 3. A person shall not engage in debt adjusting prior to the timely filing of a complete and accurate registration which has been confirmed by the division pursuant to Section 2(4)(c) of this administrative regulation.

 

Section 4. Annual Audit. (1) The annual audit required by KRS 380.040(6) shall include an audit of:

(a) The registrant’s financial statements and records;

(b) The trust accounts required by KRS 380.040(1)(b);

(c) The registrant’s compliance with the requirements of KRS Chapter 380; and

(d) The registrant’s compliance with the requirements of this administrative regulation.

(2) The Commonwealth of Kentucky Debt Adjuster Audit Checklist, Form DA-2, shall be used for purposes of the annual audit and filed with the results of the annual audit.

(3) The results of the audit and the auditor’s opinion filed with the division shall be accompanied by a certification from each individual auditor joining in the opinion. The certification shall include:

(a) The auditor is an independent, third-party certified public accountant;

(b) The states in which the auditor is licensed as a certified public accountant; and

(c) The identification number for each license.

(4) The results of the audit and the auditor’s opinion, and the certification by each auditor, shall be filed with each renewal registration form, and shall be no older than twelve (12) months prior to the date of filing of the renewal registration form.

 

Section 5. The trust accounts required by KRS 380.040(1)(b) shall be maintained in a federally insured financial institution.

 

Section 6. (1) A person engaged in debt adjusting shall notify the division within five (5) business days of any change in, or cancellation of, or receipt of notice of cancellation of, the insurance coverage required by KRS 380.040(7).

(2) Except as required by subsection (1) of this section, within thirty (30) days of any material change in the information provided on or submitted with the registration form, a registrant shall notify the division of each change and submit an updated registration form. The annual renewal date for the registrant shall not be affected by the filing required by this section.

 

Section 7. Incorporation by Reference. (1) The following material is incorporated by reference:

(a) The “Commonwealth of Kentucky Debt Adjuster Registration Statement”, Form DA-1 July 2005; and

(b) The “Commonwealth of Kentucky Debt Adjuster Audit Checklist”, Form DA-2 July 2005.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Office of the Attorney General, Consumer Protection Division, 1024 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. (31 Ky.R. 1916; Am. 32 Ky.R. 227; eff. 8-25-2005.)

 

 


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