NORTH CAROLINA GENERAL ASSEMBLY

1979 SESSION

 

 

CHAPTER 835

SENATE BILL 774

 

 

AN ACT RELATING TO THE REGULATION OF COLLECTION AGENCIES.

 

The General Assembly of North Carolina enacts:

 

Section 1.  Article 9 of Chapter 66 of the General Statutes is rewritten to read as follows:

"ARTICLE 9.

"Collection Agencies.

"Part I.

"Permit Procedures.

"§ 66-41.  Permit from Commissioner of Insurance; misdemeanor to do business without permit; penalty for violation; exception. — No person, firm, corporation, or association shall conduct or operate a collection agency or do a collection agency business, as the same is hereinafter defined in this Article, until he or it shall have secured a permit therefor as provided in this Article. Any person, firm, corporation or association conducting or operating a collection agency or doing a collection agency business without the permit shall be guilty of a misdemeanor. Any officer or agent of any person, firm, corporation or association, who shall personally and knowingly participate in any violation of this Part shall likewise be guilty of a misdemeanor. Provided, however, that nothing in this section shall be construed to require a regular employee of a duly licensed collection agency in this State to procure a collection agency permit.

"§ 66-41.1.  Application to Commissioner for permit. — Any person, firm, corporation or association desiring to secure a permit as provided by G.S. 66-41, shall make application to the Commissioner of Insurance for each location at which such person, firm, corporation or association desires to carry on the collection agency business as hereinafter defined. Such applicant shall be entitled to a permit upon submission to the Commissioner of Insurance of the following:

(a)        The name, trade name if any, street address, and telephone number of the applicant, including any home office address and telephone number, if different;

(b)        If the applicant is a corporation,

(1)        a certified copy of the board of director's resolution authorizing the submission of the application;

(2)        an authenticated copy of the Articles of Incorporation and all amendments thereto;

(3)        an authenticated copy of the bylaws or other governing instruments;

(4)        if the applicant is a foreign corporation, a copy of the certificate of authority to transact business in this State issued by the North Carolina Secretary of State;

(c)        If the applicant is a partnership, an authenticated copy of the then current partnership agreement;

(d)        If the trade name is used, certificates showing that the trade name has been filed as required by G.S. 66-68;

(e)        A surety bond as required by G.S. 66-41.4;

(f)         A completed statement by each stockholder owning ten percent (10%) or more of the applicant's outstanding voting stock and each partner, director, officer, office manager, sales representative or other collector actively engaged in the collection agency business, containing the name of the collection agency, the name and address of the individual completing the form, the positions held by such individual, the name and address of three people not related to the individual who can attest to the individual's reputation for honesty and fair dealings;

(g)        a statement sworn to by an appropriate corporate officer, partner, or individual proprietor giving a description of the collection method to be employed in North Carolina;

(h)        a statement certifying that there are no unsatisfied judgments against the applicant;

(i)         a list of all telephone numbers assigned to, or to be used by the applicant in the operation of the collection agency;

(j)         the appropriate permit fee as required by G.S. 66-41.7;

(k)        a balance sheet as of the last day of the month prior to the date of submission of the application, certified true and correct by a corporate officer, partner, or proprietor, setting forth the current assets, fixed assets, current liabilities and positive net worth of the applicant;

(l)         the address of the location at which the applicant will make those records of its collection agency business described in G.S. 66-41.5 available for inspection by the Commissioner of Insurance.

"§ 66-41.2.  Application to Commissioner for permit renewal. — Any person, firm, corporation or association desiring to renew a permit issued pursuant to G.S. 66-41.1 shall make application to the Commissioner of Insurance not less than 30 days prior to the expiration date of the then current permit. Such renewal applicant shall be entitled to a renewal permit upon submission to the Commissioner of Insurance of all the information as required by G.S. 66-41.1; provided, however, it shall be sufficient, wherever applicable, to reference the prior year's application if there has been no change as to any of the required information and it shall not be necessary to submit with a renewal application a new director's resolution. In addition, the applicant shall submit to the Commissioner a copy of a 'continuation certificate' or paid receipt for renewal premiums for the collection agency bond for the year for which the renewal permit is applied. The application shall include a calculation in accordance with G.S. 66-41.4, and if the bond is increased, an endorsement by the surety. With a renewal application, the applicant shall submit a balance sheet for the last fiscal year ending prior to the application, certified true and correct by a corporate officer, partner, or proprietor, setting forth the current assets, fixed assets, current liabilities and positive net worth of the applicant.

"§ 66-41.3. Definition of collection agency and collection agency business. — 'Collection agency' means and includes all persons, firms, corporations, and associations directly or indirectly engaged in soliciting, from more than one person, firm, corporation or association, delinquent claims of any kind owed or due or asserted to be owed or due the solicited person, firm, corporation or association, and all persons, firms, corporations and associations directly or indirectly engaged in the asserting, enforcing or prosecuting of those claims.

'Collection agency' shall include:

(1)        any person, firm, corporation or association who shall procure a listing of delinquent debtors from any creditor and who shall sell such listing or otherwise receive any fee or benefit from collections made on such listing; and

(2)        any person, firm, corporation or association which attempts to or does transfer or sell to any person, firm, corporation or association not holding the permit prescribed by this Article any system or series of letters or forms for use in the collection of delinquent accounts or claims which by direct assertion or by implication indicate that the claim or account is being asserted or collected by any person, firm, corporation, or association other than the creditor or owner of the claim or demand; provided that no bond shall be required of any such collection agency if it does not collect any money from the debtor nor hold itself out as being authorized to receive payment of all or any part of such debt.

'Collection agency' does not mean or include:

(1)        regular employees of a single creditor;

(2)        banks, trust companies, or bank-owned, controlled or related firms, corporations or associations engaged in accounting, bookkeeping or data processing services where a primary component of such services is the rendering of statements of accounts and bookkeeping services for creditors;

(3)        mortgage banking companies;

(4)        savings and loan associations;

(5)        building and loan associations;

(6)        duly licensed real estate brokers and agents when the claims or accounts being handled by the broker or agent are related to or are in connection with the broker's or agent's regular real estate business;

(7)        express, telephone and telegraph companies subject to public regulation and supervision;

(8)        attorney-at-law handling claims and collections in their own name and not operating a collection agency under the management of a layman;

(9)        any person, firm, corporation or association handling claims, accounts or collections under an order or orders of any court; or

(10)      a person, firm, corporation or association which, for valuable consideration purchases accounts, claims, or demands of another, which such accounts, claims, or demands of another are not delinquent at the time of such purchase, and then, in its own name, proceeds to assert or collect the accounts, claims or demands;

(11)      'collection agency' shall not include any person, firm, corporation or association attempting to collect or collecting claims of a business or businesses owned wholly or substantially by the same person or persons operating such collection agency.

"§ 66-41.4.  Bond requirement. — As a condition precedent to the issuance of any permit under G.S. 66-41, any applicant for such permit shall file with the Commissioner of Insurance and shall thereafter maintain in force while licensed a bond in favor of the State of North Carolina and executed by a surety company duly authorized to transact business in this State. The bond shall be continuous in form and shall remain in full force and effect until all monies collected have been accounted for, and it shall be expressly stated in the bond that it is for the benefit of any person, firm or corporation for whom such collection agency engages in the collection of accounts. Such bond shall be in the amount of five thousand dollars ($5,000) for the initial permit. The amount of such bond for any renewal permit shall be no less than five thousand dollars ($5,000) nor more than fifty thousand dollars ($50,000), and shall be computed as follows: The total collections paid directly to the collection agency less commissions earned by the collection agency on those collections for the calendar year ending immediately prior to the date of application, multiplied by one-sixth.

"§ 66-41.5.  Record of business in State. — (a) Each person, firm, or corporation licensed as a collection agency in North Carolina shall keep within this State a full and correct record of all business done in this State as set forth below. All such records pertaining to collection activity, concerning debtor records and client accounting records, but not general operating records, shall be open to inspection by the Commissioner of Insurance or his duly authorized deputy upon demand. Each licensed collection agency engaged in the collection of debts shall maintain an office in this State.

(b)        Every permit holder shall maintain adequate records which shall contain the items listed below. These records must be kept separate from records of any other business and must be maintained for not less than three years after the final entry has been made:

(1)        a daily collection record or cash receipt journal in which all collections are recorded and allocated as to total collections, setting forth:

a.         the amount credited to principal and to interest, if any;

b.         the amount due creditors or forwarders.

(2)        the amount retained as commission or commission paid to forwardees;

(3)        payments made directly to creditors as reported to the collection agency by those creditors and commissions due the collection agency on those payments;

(4)        a record of each debtor's account shall be maintained consisting of the following:

a.         the name and address of the debtor;

b.         the name of the creditor or forwarder or forwardee if the account has been forwarded;

c.         the principal amount owing and, if available, the date of the last credit or debit;

d.         the amount and date of each payment made by the debtor; and

e.         the date and time of each telephone or personal contact with the debtor.

(5)        A master alphabetical record by name and address of every creditor or forwarder with whom the permit holder engages in the business of collecting accounts.

(6)        A check register or carbon copies of each check issued or numerically numbered check stubs corresponding with all checks issued on the trust account for funds collected on behalf of creditors. Cancelled checks, together with voided or unused checks (adequately explained) drawn on the trust account shall be maintained in numerical order with the monthly bank statements.

(7)        A record by client or client number showing the number of accounts received from the client, the date received and the principal amount of the accounts.

(8)        A duplicate copy of each remittance statement furnished a creditor or forwarder, or other listing of the information contained on the statement.

"§ 66-41.6.  Hearing granted applicant if application denied; appeal. — If, upon application, the Commissioner shall find that a permit should not be issued to the applicant, he shall decline the same, giving notice of his action to the applicant. Following notice the applicant shall have 10 days within which to submit additional information in support of his application and if, upon further hearing upon the application and additional information the Commissioner shall again decline to issue the permit, the applicant shall have the right to appeal to the superior court and his appeal shall stand for hearing in the Superior Court of the County of Wake, and the evidence, data and information submitted to the Commissioner shall constitute the record in the superior court to determine whether or not the Commissioner had evidence sufficient to justify his action. If the Commissioner shall decline an application for renewal, the applicant may continue to do business pending any appeal taken pursuant hereto.

"§ 66-41.7.  Application fee; issuance of permit; contents and duration. — Upon the filing of the application and information hereinbefore required, the Commissioner may require the applicant to pay a fee of two hundred fifty dollars ($250.00), and no permit may be issued until this fee is paid. If the application is denied, the Commissioner shall retain fifty dollars ($50.00) of the application fee and return the remainder to the applicant. The fifty dollars ($50.00) so retained upon applications not granted, and the full fee of two hundred fifty dollars ($250.00) upon the applications granted, shall be used in paying the expenses incurred in connection with the consideration of such applications and the issuance of such permits.

Each permit shall state the name of the applicant, his place of business, and the nature and kind of business in which he is engaged. The Commissioner shall assign to the permit a serial number for each year, and each permit shall be for a period of one year, beginning with July 1 and ending with June 30 of the following year.

"§ 66-41.8.  Revocation of permit. — If the Commissioner shall have issued any permit to any person, firm or corporation as herein provided, and shall have information that the holder of the permit is conducting business in violation of Part I, II, or III of this Article, or has obtained said permit through materially false and misleading statements in its application, he shall notify the holder of the permit of a date for a hearing, which notice shall name a time and place for the hearing, and at which hearing any and all evidence as to the conduct of the business may be heard by the Commissioner. If, upon the hearing of the evidence, the Commissioner shall be of the opinion that the applicant is conducting business in violation of Part I, II, or III of this Article, the Commissioner shall then require the holder to show cause why said permit should not be cancelled. Upon a determination that the permit should be cancelled, the Commissioner shall cancel said permit; provided, however, pending any appeal permitted hereby, the permit holder may continue to do business. If the permit be cancelled upon hearing, either the holder of the permit or the complaining party shall have the right to appeal as hereinbefore provided in the case where an application is denied, and the record of the hearing before the Commissioner shall be the record in the superior court upon which the judge shall determine whether or not the Commissioner had sufficient evidence upon which to base his action.

"§ 66-41.9.  Disposition of permit fees. — All permit fees collected hereunder shall be credited to the account of the Commissioner for the specific purpose of providing the personnel, equipment and supplies necessary to enforce this Article, but the State Budget Officer shall have the right to budget the revenues received in accordance with the requirements of the Commissioner for the purposes herein required, and at the end of the fiscal year, if any sum whatever shall remain to the credit of the Commissioner, derived from the sources herein referred to, the same shall revert to the general treasury of the State to be appropriated as other funds.

"§ 66-41.10.  All collection agencies to identify themselves in correspondence. — All collection agencies licensed under this Part to do the business of a collection agency in this State, shall in all correspondence with debtors use stationery or forms which contain the permit number and the true name and address of such collection agency.

The permit to engage in the business of a collection agency shall at all times be prominently displayed in each office of the person, firm, corporation or association to whom or to which the permit is issued.

"Part II.

"Operating Procedures.

"§ 66-42.  Office hours. — If an office of a duly licensed collection agency does not maintain normally accepted business hours, the hours the office is open shall be posted so as to be prominently displayed to the public at all times. If at any time it is anticipated that the permit holder's office will be closed to the public for a period exceeding seven days, the Department of Insurance shall be notified thereof in writing.

"§ 66-42.1.  Statements to be furnished each collection creditor. — (a) Acknowledgement of accounts. When any account is received for collection, the permit holder shall upon request furnish the collection creditor or forwarder with a written listing or acknowledgement of the accounts received.

(b)        Remittance statements. Each permit holder shall remit all monies due to any collection creditor or forwarder within 30 days after the end of the collection month during which the collection was effected. The remittance shall be accompanied by a statement setting forth:

(1)        the date of remittance;

(2)        the debtor's name;

(3)        the date or month of collection and amount collected from each debtor; and

(4)        a breakdown showing money collected from each debtor and the amount due the creditor or forwarder.

"§ 66-42.2.  Remittance trust account. — Each permit holder shall deposit, no later than two banking days from receipt, in a separate trust fund account in a local or approved bank sufficient funds to pay all monies due or owing all collection creditors or forwarders. Said funds shall not be commingled with any other operating funds. The trust account shall be used only for the purpose of remitting to collection creditors or forwarders the proceeds to which they are entitled and remitting to the collection agency the commission that is due the collection agency.

"§ 66-42.3.  Receipt requirement. — Whenever a payment is received in cash from a debtor, forwardee, or other person, an original receipt or an exact copy thereof shall be furnished the individual from whom payment is received. Evidence of all receipts issued shall be kept in the permit holder's office for three years. All receipts issued must:

(a)        be prenumbered by the printer and used and filed in consecutive numerical order;

(b)        show the name, street address and permit number of the permit holder;

(c)        show the name of the creditor or creditors for whom collected;

(d)        show the amount and date paid; and

(e)        show the last name of the person accepting payment.

"§ 66-42.4.  Creditor may request return of accounts. — The written request of a creditor or forwarder for the return of any account which is not in the actual process of collection shall be complied with by the permit holder in writing within a reasonable length of time, but in any event not to exceed 60 days. All valuable papers furnished by the creditor or forwarder in connection with the account shall be returned.

"§ 66-42.5.  Return of accounts and all valuable papers upon termination of permit. — Whenever the permit of a collection agency is revoked, cancelled, or terminated for any reason, all accounts and valuable papers placed with the agency for collection shall be returned to the person placing the account for collection within five days of the termination of said permit unless, upon written application, an extension of time is granted by the Department of Insurance. All agreements between the collection agency and creditor or forwarder are automatically cancelled as of the date on which said permit is revoked, cancelled or terminated. If any of the accounts placed for collection are in the hands of others at the time of the permit termination, they shall immediately be notified by the collection agency to thereafter correspond, remit and be solely responsible to the creditor placing the accounts with the agency for collection unless the creditor has authorized a successor or other permit holder to continue to collect the accounts. In the case of dissolution of the collection agency, all accounts shall be returned within a reasonable period of time, but in any event not to exceed 60 days. Valuable papers shall include, but not be limited to, notes payable, creditor account cards and any other items placed within the collection agency by the creditor.

"§ 66-42.6.  Application of funds where there is a debtor-creditor relationship. If a creditor has listed accounts with a permit holder for collection and also has had accounts on which he is debtor listed with the permit holder by any other creditors, collections effected in his behalf as a creditor may not be applied on accounts that he owes unless the permit holder has a written authorization on file as to how the monies collected are to be applied.

"Part III.

"Prohibited Practices by Collection Agencies Engaged in the Collection of Debts from Consumers.

"§ 66-43.  Definitions. — As used in this Part, the following terms have the meanings specified:

(1)        'Consumer' means an individual, aggregation of individuals, corporation, company, association, or partnership that has incurred a debt or alleged debt.

(2)        'Debt' means any obligation owed or due or alleged to be owed or due from a consumer.

(3)        'Collection agency' means a collection agency as defined in G.S. 66-41.3 which engages, directly or indirectly, in debt collection from a consumer.

"§ 66-43.1.  Threats and coercion. — No collection agency shall collect or attempt to collect any debt alleged to be due and owing from a consumer by means of any unfair threat, coercion, or attempt to coerce. Such unfair acts include, but are not limited to, the following:

(1)        using or threatening to use violence or any illegal means to cause harm to the person, reputation or property of any person;

(2)        falsely accusing or threatening to accuse any person of fraud or any crime, or of any conduct that would tend to cause disgrace, contempt or ridicule;

(3)        making or threatening to make false accusations to another person, including any credit reporting agency, that a consumer has not paid, or has willfully refused to pay a just debt;

(4)        threatening to sell or assign, or to refer to another for collection, the debt of the consumer with an attending representation that the result of such sale, assignment or reference would be that the consumer would lose any defense to the debt or would be subject to harsh, vindictive, or abusive collection attempts;

(5)        representing that nonpayment of an alleged debt may result in the arrest of any person;

(6)        representing that nonpayment of an alleged debt may result in the seizure, garnishment, attachment, or sale of any property or wages unless such action is in fact contemplated by the debt collector and permitted by law;

(7)        threatening to take any action not in fact taken in the usual course of business, unless it can be shown that such threatened action was actually intended to be taken in the particular case in which the threat was made;

(8)        threatening to take any action not permitted by law.

"§ 66-43.2.  Harassment. — No collection agency shall use any conduct, the natural consequence of which is to oppress, harass, or abuse any person in connection with the attempt to collect any debt. Such conduct includes, but is not limited to, the following:

(1)        using profane or obscene language, or language that would ordinarily abuse the typical hearer or reader;

(2)        placing collect telephone calls or sending collect telegrams unless the caller fully identifies himself and the company he represents;

(3)        causing a telephone to ring or engaging any person in telephone conversation with such frequency as to be unreasonable or to constitute a harassment to the person under the circumstances or at times known to be times other than normal waking hours of the person;

(4)        placing telephone calls or attempting to communicate with any person, contrary to his instructions, at his place of employment, unless the collection agency does not have a telephone number where the consumer can be reached during the consumer's nonworking hours.

"§ 66-43.3.  Unreasonable publication. — No collection agency shall unreasonably publicize information regarding a consumer's debt. Such unreasonable publication includes, but is not limited to, the following:

(1)        Any communication with any person other than the debtor or his attorney, except:

a.         with the permission of the debtor or his attorney;

b.         to persons employed by the collection agency, to a credit reporting agency, to a person or business employed to collect the debt on behalf of the creditor, or to a person who makes a legitimate request for the information;

c.         to the spouse (or one who stands in place of the spouse) of the debtor, or to the parent or guardian of the debtor if the debtor is a minor;

d.         for the sole purpose of locating the debtor, if no indication of indebtedness is made;

e.         through legal process.

(2)        Using any form of communication which ordinarily would be seen or heard by any person other than the consumer that displays or conveys any information about the alleged debt other than the name, address and phone number of the collection agency except as otherwise provided in this Part.

(3)        Disclosing any information relating to a consumer's debt by publishing or posting any list of consumers, except for credit reporting purposes.

"§ 66-43.4.  Deceptive representation. — No collection agency shall collect or attempt to collect a debt or obtain information concerning a consumer by any fradulent, deceptive or misleading representation. Such representations include, but are not limited to, the following:

(1)        communicating with the consumer other than in the name of the person making the communication, the collection agency and the person or business on whose behalf the collection agency is acting or to whom the debt is owed;

(2)        failing to disclose in all communications attempting to collect a debt that the purpose of such communication is to collect a debt;

(3)        falsely representing that the collection agency has in its possession information or something of value for the consumer;

(4)        falsely representing the character, extent, or amount of a debt against a consumer or of its status in any legal proceeding; falsely representing that the collection agency is in any way connected with any agency of the federal, State or local government; or falsely representing the creditor's rights or intentions;

(5)        using or distributing or selling any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by a court, an official, or any other legally constituted or authorized authority, or which creates a false impression about its source;

(6)        falsely representing that an existing obligation of the consumer may be increased by the addition of attorney's fees, investigation fees, service fees, or any other fees or charges;

(7)        falsely representing the status or true nature of the services rendered by the collection agency or its business.

"§ 66-43.5.  Unconscionable means. — No collection agency shall collect or attempt to collect any debt by use of any unconscionable means. Such means include, but are not limited to, the following:

(1)        seeking or obtaining any written statement or acknowledgement in any form containing an affirmation of any debt by a consumer who has been declared bankrupt, an acknowledgement of any debt barred by the statute of limitations, or a waiver of any legal rights of the debtor without disclosing the nature and consequences of such affirmation or waiver and the fact that the consumer is not legally obligated to make such affirmation or waiver;

(2)        collecting or attempting to collect from the consumer all or any part of the collection agency's fee or charge for services rendered, collecting or attempting to collect any interest or other charge, fee or expense incidental to the principal debt unless legally entitled to such fee or charge;

(3)        communicating with a consumer whenever the collection agency has been notified by the consumer's attorney that he represents said consumer.

"§ 66-43.6.  Unauthorized practice of law. — A permit holder as defined in General Statute 66-41.3 shall not engage in the practice of law.

"§ 66-43.7.  Shared office space. — The office of a collection agency shall not be shared or have a common waiting room with a practicing attorney or any type of lending institution. The office may be located in a private residence only if it is solely for business purposes, has an outside entrance and can be isolated from the remainder of the residence.

"Part IV.

"Enforcement.

"§ 66-44.  Civil liability. — (a) Any collection agency which violates Part III of this Article with respect to any debtor shall be liable to that debtor in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.

(b)        Any collection agency which violates Part III of this Article with respect to any debtor shall, in addition to actual damages sustained by the debtor as a result of the violation, also be liable to the debtor only in an individual action, and its additional liability therein to that debtor shall be for a penalty in such amount as the court may allow, which shall not be less than one hundred dollars ($100.00) nor greater than one thousand dollars ($1,000).

(c)        The specific and general provisions of Part III shall constitute unfair or deceptive acts or practices proscribed herein or by G.S. 75-1.1 in the area of commerce regulated thereby. Notwithstanding the provisions of G.S. 75-15.2 and G.S. 75-16, civil penalties in excess of one thousand dollars ($1,000) shall not be imposed, nor shall damages be trebled for any violation under Part III.

(d)        The remedies provided by this section shall be cumulative, and in addition to remedies otherwise available. Provided, that any punitive damages assessed against a collection agency shall be reduced by the amount of the civil penalty assessed against such agency pursuant to subsection (b)."

Sec. 2.  This act is effective upon ratification.

In the General Assembly read three times and ratified, this the 7th day of June, 1979.