A performance audit of the Collection Agency Advisory Committee and the regulation of the collection industry in Arizona

              STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
of
THE COLLECTION AGENCY ADVISORY COMMITTEE
AND
THE REGULATION OF THE
COLLECTION INDUSTRY IN ARIZONA
JUNE 1979
THE COLLECTION AGENCY ADVISORY COMMIT-TEE
IS DUPLICATIVE OF OTHER SOURCES OF IN-PUT
TO THE RULE- MAKING PROCESS AND HAS
NOT MADE A SIGNIFICANT CONTRIBUTION TO
THE REGULATION OF COLLECTION AGENCIES.
AS SUCH, THE COLLECTION AGENCY ADVISORY
COMMITTEE CONSTITUTES AN UNNECESSARY
IMPEDIMENT IN THE RULE- MAKING PROCESS.
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 79- 3
DOUGLAS R. NORTON, CPA
AUDITOR GENERAL
BILLIE J. ALLRED, CPA
DEPUTY AUDITOR GENERAL
SUITE 600
112 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004
255- 4385
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
June 11, 1979
The Honorable Bruce Babbitt, Governor
Members of the Arizona Legislature
Members of the Collection Agency Advisory Committee
Walter C. Madsen, Superintendent of Banks
SUITE 820
33 NORTH STONE AVENUE
TUCSON, ARIZONA 85701
882- 5465
Transmitted herewith is a report of the Auditor General, A Performance Audit of
the Collection Agency Advisory Committee and the Regulation of the Collection
Industry in Arizona. This report is i n response to a September 19, 1978,
resolution of the Joint Legislative Budget Committee and a January 18, 1979,
resolution of the Joint Legislative Oversight Committee.
A sumary of t h i s report is found on the blue pages a t the front o f t h e report.
Responses to t h i s report from members of the Collection Agency Advisory
Committee and the Superintendent of Banks a r e found on the yellow pages
preceding the appendices of t h e r e p o r t .
My s t a f f and I w i l l be happy t o meet with the appropriate l e g i s l a t i v e
committees, individual l e g i s l a t o r s or other state o f f i c i a l s to discuss o r
c l a r i f y any items in t h i s report or t o f a c i l i t a t e the implementation of the
recoumendations.
Respectfully submitted,
~ o u ~ l Rx. s N orton
Auditor General
S t a f f : Gerald A. Silva
Robert T. Back
Mary L. Lynn
OFFICE OF THE AUDITOR GENERAL
A PERFORMANCE AUDIT OF
THE COLLECTION AGENCY ADVISORY COMMITTEE
AND
THE REGULATION OF THE COLLECTION INDUSTRY I N ARIZONA
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 79- 3
TABLE OF CONTENTS
SUMMARY
INTRODUCTION AND BACKGROUND
SUNSET FACTORS
FINDING
The Collection Agency Advisory Committee is duplicative of
other sources of input t o the rule- making process and has
not made a significant contribution to the regulation of
collection agencies. A s such, the Collection Agency Advisory
Committee constitutes an unnecessary impediment i n the rule-making
process.
CONCLUSION
RECOMMENDATION
The Superintendent of Banks needs additional regulatory
authority to adequately police the collection industry.
CONCLUSION
RECOMMENDATION
The State Banking Department needs to expand its regulatory
authority over collection a c t i v i t y .
CONCLUSION
RECOMMENDATION
Financial information submitted by collection agencies is not
a v a l i d indication of financial responsibility
CONCLUSION
RECOMMENDATION
Changes needed t o enhance the Superintendent of Banksf
a b i l i t y t o regulate t h e c o l l e c t i o n industry.
CONCLUSION
RECOMMENDATION
WRITTEN RESPONSE TO THE AUDITOR GENERAL'S REPORT
Page
1
3
4
8
APPENDICES
APPENDIX I - Results of Office of the Auditor General's Survey
APPENDIX I1 - ARS Sections 32- 1001 t o 32- 1057
APPENDIX I11 - Administrative Rules and Regulations
APPENDIX I V - Legislative Council Opinion 0- 79- 6
APPENDIX V - Nebraska Financial Statement Format for Collection
Agencies
SUMMARY
The Collection Agency Advisory Committee ( CAAC) was created i n 1953 by the
Arizona Legislature to a s s i s t the Secretary of State i n making rules and
regulations to enforce the laws dealing with collection agencies. On
September 6, 1978, these r e s p o n s i b i l i t i e s were transferred t o the State
Banking Department, which is administered by the Superintendent of Banks.
There are five members of the CAAC, each appointed by the Superintendent of
Banks t o serve a five- year term. Committee members serve on a voluntary basis,
receiving no travel or per diem reimbursements from the State General Fund.
The Superintendent of Banks has the duty of enforcing the provisions of ARS 32-
1001 t o 32- 1057, and issuing i n i t i a l and renewal licenses to collection
agencies. He may order investigations of complaints and may revoke or suspend
t h e l i c e n s e s of collection agencies that violate the law. A s of March 31,
1979, there were 112 licensed collection agencies i n Arizona.
Our review of the Collection Agency Advisory Committee revealed t h a t the
Committee is duplicative of other sources of input to the rule- making process
and t h a t the Committee has not made a significant contribution to the regula-tion
of collection agencies. A s such, the Collection Agency Advisory Committee
constitutes an unnecessary impediment i n the rule- making process. ( page 8)
Our review also revealed t h a t the Superintendent of Banks needs additional
regulatory authority t o adequately police t h e c o l l e c t i o n industry. ( page 13)
In addition, our review has shown t h a t the State Banking Department needs to
expand its regulatory authority over collection a c t i v i t y . ( page 20)
Further, we have determined that the financial information submitted by
collection agencies to the State Banking Department is not a v a l i d indication
of f i n a n c i a l r e s p o n s i b i l i t y . ( page 26)
Finally, our review has identified several changes which are needed t o enhance
the Superintendent of Banks' a b i l i t y t o regulate t h e c o l l e c t i o n industry.
( page 28)
It is recommended that:
The Collection Agency Advisory Committee be allowed to terminate July 1,
1980. ( page 12)
ARS 32- 1001 through 32- 1057 be amended to give the Superintendent of Banks
adequate regulatory authority over the collection industry. ( page 19)
ARS 32- 1001 through 32- 1057 be amended to provide the Superintendent of
Banks with t h e authority t o l i c e n s e c o l l e c t o r s . ( page 25)
The State Banking Department adopt a financial statement form similar to
the Nebraska Collection Agency Board's financial statement form. ( page
27 1
ARS 32- 1001 through 32- 1057 be amended to incorporate s p e c i f i c provisions
of the Federal Consumer Credit Protection Act. ( page 34)
ARS 32- 1025 be amended to include a $ 5 per day penalty fee for renewal
applications received a f t e r January 1 of each year. ( page 34)
ARS 32- 1052. A should be amended t o authorize the Superintendent of Banks
t o u t i l i z e Bank Examiners for the routine review of licensee financial
records. If t h i s review exposes any p o t e n t i a l v i o l a t i o n s of ARS 32-
1055. D, the Superintendent should appoint a c e r t i f i e d public accountant
or licensed public accountant t o make a detailed examination of the
licensee's records. ARS 32- 1052. D should be amended t o require licensees
to pay for such examinations. ( page 34)
The Superintendent of Banks should contact the Federal Trade Commission
and Better Business Bureau and establish l i a i s o n with these agencies.
( page 34)
The Superintendent of Banks should contact Arizona's media and arrange for
a s e r i e s of public service announcements. ( page 34)
INTRODUCTION AND BACKGROUND
In response to a September 19, 1978, resolution of the Joint Legislative Budget
Committee and a January 18, 1979, resolution of the Joint Legislative Oversight
Committee, we have conducted a performance audit as a part of the sunset review
of the Collection Agency Advisory Committee, and the regulation of collection
agencies as administered by the State Banking Department, i n accordance with
ARS 41- 2351 through 41- 2374.
The Collection Agency Advisory Committee ( CAAC) was created i n 1953 by the
Arizona Legislature to a s s i s t the Secretary of State i n making rules and
regulations to enforce the laws dealing with collection agencies. On September
6, 1978, these r e s p o n s i b i l i t i e s , and the CAAC, were transferred t o the State
Banking Department, which is administered by the Superintendent of Banks.
The Superintendent of Banks s e l e c t s the five members of the CAAC, a l l of whom
are owner/ operators of licensed collection agencies. The CAAC's authority is
limited to advising the Superintendent of Banks on proposed rules and regula-tions.
There is no specific budget appropriation for the CAAC. Committee membership
is voluntary and committee members receive no per diem or t r a v e l allowance.
The State Banking Department received a special budget appropriation of $ 15,000
for f i s c a l year 1978- 79, when t h e regulation of collection agencies was
transferred t o it from the Office of the Secretary of State. The Super-intendent
of Banks has the duty of enforcing the provisions of ARS 32- 1001
through 32- 1057, and issuing i n i t i a l and renewal licenses to collection
agencies. The Superintendent may order investigations of complaints and may
revoke or suspend t h e l i c e n s e s of collection agencies that violate the law. A s
of March 31, 1979, there were 112 licensed collection agencies i n Arizona.
SUNSET FACTORS
SUNSET FACTOR: THE OBJECTIVE AND PURPOSE I N
ESTABLISHING THE COLLECTION AGENCY ADVISORY
C. O- M-. M- IT- T- E- E - A ND THE REGULATION OF COLLECTION
rn The Collection Agency Advisory Committee was established i n 1953 ( ARS 32- 1001
through ARS 32- 1057)* t o advise the Secretary of State i n the preparation or
revision of rules and regulations which may be adopted under the provisions of
t h a t chapter.
There was no e x p l i c i t l e g i s l a t i v e statement of objective or purpose when the
regulation of collection agencies was assigned t o the Secretary of State i n
1953.
The State Banking Department has not been able t o adequately respond to the
needs of the public because the Superintendent of Banks does not have suffi-
I)
cient statutory authority t o regulate collection agencies and the Attorney
General does not have s u f f i c i e n t s t a t u t o r y authority to prosecute collection
agencies. A l l courses of action against collection agencies, other than
license revocation or suspension, must go through the County Attorney. ( pages
16, 18)
The State Banking Department appears to be handling complaints against collec-tion
agencies e f f i c i e n t l y . The Department has s i g n i f i c a n t l y reduced the
elapsed time between the receipt and resolution of a complaint since it assumed
t h a t responsibility from the Secretary of State on September 6, 1978.
According t o records maintained by the Secretary of State it took approximately
eleven working days t o resolve a complaint against a collection agency, whereas
the State Banking Department is resolving these complaints i n approximately s i x
working days.
* See Appendix I1 for a complete t e x t of ARS 32- 1001 through 32- 1057.
SUNSET FACTOR: THE EXTENT TO WHICH THE AGENCY
HAS OPERATED WITHIN THE PUBLIC INTEREST
From September 6, 1978, to March 31, 1979, the Banking Department held one
disciplinary hearing, revoked two licenses and handled 100 complaints. In
reviewing the nature of the complaints involved, it was determined t h a t the
decisions were consistent and d i s c i p l i n a r y actions were reasonable.
The Banking Department held one public hearing regarding collection industry
rules and regulations during the period September 6, 1978, t o March 31, 1979.
The Collection Agency Advisory Committee held one meeting during the period
September 6, 1978, t o March 31, 1979, t o discuss changes i n the rules and
regulations proposed by the Superintendent of Banks. The CAAC submitted
suggested changes i n the proposed rules and regulations. For an analysis of
these recommendations and t h e i r subsequent acceptance or rejection by the
Superintendent of Banks see page 11.
After reviewing the rules and regulations pertaining t o collection agencies
b that have been promulgated by the Superintendent of Banks and the Secretary of
State, it appears that these rules and regulations are consistent with ARS 32-
1001 through 32- 1057.
SUNSET FACTOR: THE EXTENT TO WHICH THE AGENCY
THE PUBLIC
Public meetings are held t o hear a l l proposed rules and regulations pertaining
to collection agencies prior t o t h e i r adoption. Notices of meetings are posted
in the Commerce building and circulated t o licensees through d i r e c t mailings.
A review of the minutes of these public meetings revealed t h a t the opportunity
for public input is adequate. ( page 8)
Our review has shown t h a t the State Banking Department adequately informs the
public as t o its actions, such as revocations and suspensions of licenses, by
placing announcements i n the newspaper.
The Banking Department has investigated a l l complaints received which are
within its jurisdiction. The Department is limited t o issuing warnings and
revoking or suspending licenses. ( page 14)
The Attorney General's authority is limited to advising the Superintendent of
Banks on s t a t u t e violations by collection agencies. Neither the Attorney
General nor any other State Agency has the s t a t u t o r y authority t o prosecute
collection agencies for criminal actions. The County Attorneys are responsible
for prosecuting a l l collection agency s t a t u t e violations. ( pages 16, 18)
The Superintendent of Banks has proposed new l e g i s l a t i o n which would provide
the Banking Department with additional s t a t u t o r y authority t o regulate collec-tion
agencies.
6
1. ARS 32- 1002. B. 1 should be deleted from the s t a t u t e s . This section
requires t h a t the Superintendent s h a l l appoint a Collection Agency
Advisory Committee. ( page 12)
2. ARS 32- 1001 through 32- 1057 should be revised t o give the Superintendent
of Banks adequate regulatory authority over the collection industry.
( page 19) These changes include:
1) Giving the Superintendent of Banks s t a t u t o r y authority to issue
cease and d e s i s t orders to individuals who violate the s t a t u t e s ; and,
2) Authorize the Attorney General to appeal to the Superior Court for
enforcement of those orders.
3. ARS 32- 1001 through 32- 1057 should be revised t o provide the Super-intendent
of Banks with t h e authority t o license collectors. Such
licenses should be subject t o revocation or suspension for unethical or
@ criminal acts. ( page 25)
4. ARS 32- 1001 through 32- 1057 should be amended t o incorporate the following
provisions of the Federal Consumer Credit Protection Act: ( page 34)
1) Collector may not use abusive language or harass the consumer
@ .
( Section 806) ;
2) Collector must provide the consumer with a written notice containing
the. amount of the debt and the name of the creditor t o whom the debt
is owed ( Section 809);
3) Collector may only contact the consumer during " reasonable hoursn ( 8
A. M. t o 9 P. M.) ( Section 805); and,
4) Collector may not inform any t h i r d p a r t i e s of any debt or obligation
of the consumer ( Section 804).
B 5. ARS 32- 1025 should be amended t o provide for a $ 5.00 per day penalty fee
for renewal applications received a f t e r January 1 of each year. ( page 34)
6. ARS 32- 1052. A should be amended t o authorize the Superintendent of Banks
t o u t i l i z e bank examiners for the routine review of t h e l i c e n s e e ' s
financial records. If this review exposes any p o t e n t i a l v i o l a t i o n s of ARS
32- 1055. D, the Superintendent should appoint a c e r t i f i e d public accoun-t
a n t or licensed public accountant to make a detailed examination of the
l i c e n s e e ' s f i n a n c i a l records. ARS 32- 1052. D should be amended to require
licensees to pay for such detailed examinations ( page 34)
FINDING
Since its inception i n 1953, the Collection Agency Advisory Committee ( CAAC)
has held 12 meetings t o f u l f i l l its r e s p o n s i b i l i t i e s t o assist the Secretary of
State and the Superintendent of Banks i n the promulgation of rules and
regulations for collection agencies. Our review of the CAAC revealed t h a t it:
1) is duplicative of other sources of input t o the rule- making process;
and,
2) has not made a significant contribution t o the regulation of collec-tion
agencies.
A s a r e s u l t , the CAAC represents an unnecessary step i n the rule- making
process.
Duplicative of Other Sources of Input
Effective September 6, 1978, the Superintendent of Banks became the rule- making
authority for t h e c o l l e c t i o n industry i n Arizona. The rule and regulation
making process for t h e c o l l e c t i o n industry currently involves four e n t i t i e s ;
the State Banking Department, the Attorney General, the CAAC and the public a t
large. The role each of these e n t i t i e s performs i n the r u l e and regulation
making process for t h e c o l l e c t i o n industry is shown i n Table 1.
b
Table 1 i l l u s t r a t e s t h a t the function of the CAAC i n the r u l e and regulation
making process is duplicative of t h a t performed by the public a t large a t the
public meetings i n that:
D 1) neither e n t i t y has any r u l e or regulation making authority; and,
2) both e n t i t i e s are limited to offering suggestions and recommending
changes t o proposed rules and regulations.
b The Superintendent of Banks may accept or r e j e c t these suggestions and recom-mended
changes as he deems appropriate.
SUPERINTENDENT OF BANKS ATTORNEY GENERAL
t
1. Superintendent of Banks i n i t i a t e s
updating or revising of rules and
- regulations.
2. Assistant Superintendent of Banks
prepares proposed amendments to
rules and regulations. .
3. Attorney General reviews propose'
amendments t o rules and regula-tions
for l e g a l i t y .
6. Superintendent of Banks receives
CAAC suggestions and recommended
changes t o proposed amendments
t o rules and regulations which
the Superintendent may accept or
r e j e c t .
7. Proposed rules and regulations
are drafted.
10. Input from the public meeting
is considered and a f i n a l draft
of the rules and regulations
is proposed.
12. Superintendent of Banks adopts
new rules and regulations.
11. Attorney General reviews f i n a l
draft of the rules and regula-tions
for l e g a l i t y .
CAAC
4. Superintendent of Banks presents
proposed amendments t o rules
and regulations to the CAAC for
review and comment.
-
5. CAAC prepares suggestions and
reccmmends changes to proposed
amerabents to rules and regula-t
i o r e .
- PUBLIC- AT- LARGE -
8. A public hearing is held
on proposed rules and
regulations.
-<
9. Suggestions and recom-mended
changes t o pro-posed
rules and regula-tions
are s o l i c i t e d from
- those i n attendance.
The duplication of function between the CAAC and the public a t large a t the
public meetings, as shown i n Table I, is compounded by the high degree of
participation by CAAC members a t these public meetings. Our review revealed
t h a t a t l e a s t one CAAC member has been present a t , and participated i n , every
public meeting held to discuss proposed rules and regulations for the
collection industry since 1953.
D
Lack of Significant Input from CAAC
Our review of the minutes of CAAC meetings since its inception i n 1953 revealed
t h a t the CAAC has not made any significant suggestions or recommended changes
p to proposed rules and regulations. Our review of the minutes of the 12 CAAC
meetings over the past 26 years revealed t h a t the CAAC made the suggestions or
recommended changes as summarized i n Table 11.
TABLE I1
SUMMARY OF RECOMMENDATIONS MADE BY THE COLLECTION AGENCY
ADVISORY COMMITTEE SINCE ITS INCEPTION I N 1953
CAAC Suggestion or Recommended Change t o Disposition of
Date of CAAC Meetinq Proposed Rules and Regulations Recommendation
Accepted Rejected
October 3, 1953
November 14, 1953
None
Agreed with proposed rules and regulations
with minor corrections
December 5, 1953 Suggested changes i n proposed rules and
regulations. Struck one proposed rule
April 2, 1954 Reversed decision of the previous meeting
and added back the rule previously stricken
June 12, 1954 Suggested adding a clause for reimbursement
of travel expenses for CAAC members.
December 11, 1954 None
July 9, 1955
September 30, 1955
April 5 , 1957
June 28, 1965" s
October 16, 1970
None
None
Suggested increasing required bond amount
None
Suggested adding a section t o proposed rules
and regulations on the use of other than true
names by collectors
Suggested amending a section of the proposed
rules and regulations to clearly s t a t e the
number of years a collection agency must keep
records
February 9, 1979*** Suggested several changes i n wording of
proposed rules and regulations
Suggested changing a regulation t o specify
the provisions whic'r~ shouid be inciuded i n
any contract between collection agency and
c l i e n t creditor
Suggested adopting the provisions of the
Federal Consumer Credit Protection Act as
a part of the rules and regulations****
Suggested procedures to be used by the State
Banking Department i n the complaint review
process*@**
Suggested adding a rule which would require
the Superintendent of Banks to hold three
meetings of the CAAC each year
Suggested adding regulation on the revocation of
assignments by c l i e n t s of collection agencies and
the, withdrawal of claims*****
Suggested that regulation be added to require a
collection agency to report all assumed names used
by t h e i r collectors*****
* The minutes of the April 5, 1957 CAAC meeting do not i n d i c a t e t h e specific bond amount recommended by
the CAAC. Therefore, it cannot be determined if the CAAC recommendation was accepted or rejected by
the Secretary of State.
*@ There is no record of any CAAC meetings between the April 5, 1957 meeting and the June 28, 1965
meeting. *** According t o the senior members of the CAAC there were other CAAC meetings between October 16, 1970,
and February 9, 1979. However, a review of available information indicates that these meetings were
not CAAC meetings per s e but were i n actuality public meetings to discuss proposed rules and
regulations. In addition, the Secretary of State and Superintendent of Banks have no record of any
CAAC meetings during that period. **** This recommendation had previously been discussed a t the public hearing held on August 1, 1978. ***** This recommendation had previously been proposed, accepted and then subsequently stricken from the
rules and regulations by the Secretary o f State.
According t o the Superintendent of Banks the CAAC constitutes an unnecessary
step i n the rule and regulation making process i n t h a t it serves the same
purpose as the public meeting. The Superintendent is of the opinion t h a t it is
not necessary to have both the CAAC and the public meeting.
CONCLUSION
The Collection Agency Advisory Committee is duplicative of the public meeting
i n t h e r u l e and regulation making process for the collection industry.
Further, no significant contributions have been made by the CAAC since its
inception i n 1953. As a r e s u l t , the CAAC constitutes an unnecessary step i n
the promulgation of rules and regulations. Elimination of the CAAC would not
adversely a f f e c t the a b i l i t y of the Superintendent of Banks1 to promulgate
rules and regulations for the collection industry.
RECOMMENDATION
The Collection Agency Advisory Committee should be allowed to terminate July 1,
1980.
The Superintendent of Banks' regulatory powers, with respect to t h e c o l l e c t i o n
industry, are substandard when compared t o his powers to regulate the other
industries under his jurisdiction. A s a r e s u l t , the Superintendent of Banksf
a b i l i t y t o adequately regulate unlicensed collection a c t i v i t i e s is impaired.
Regulatory Authority
The Superintendent of Banks has t h e authority t o revoke or suspend the license
of a collection agency which he deems to be i n violation of the s t a t u t e s . When
compared t o the other financial e n t i t i e s t h a t are within t h e j u r i s d i c t i o n of
the Superintendent of Banks, h i s s t a t u t o r y authority over t h e c o l l e c t i o n
industry is decidedly substandard.
A s of January 1, 1979, the State Banking Department had 11 separate codes for
8 regulating various financial industries i n the State of Arizona. These codes
are:
Bank Code
Collection Agencies Code
Consumer Finance Code
Credit Union Code
Escrow Agents Code
Mortgage Brokers Code
Motor Vehicles Time Sales Code
Safe Deposit & Safe Keeping Code
Savings and Loan Code
State Banking Department Code
Trust Company Code
ARS
ARS
ARS
ARS
ARS
ARS
ARS
ARS
ARS
ARS
ARS
The Superintendent of Banks has the greatest regulatory authority over the
banking industry. In addition t o his responsibility t o license the banks i n
the s t a t e , his powers include the authority to:
Perform routine investigation i n t o financial records and statements
of the licensee;
Issue cease and d e s i s t orders for violations of the code;
Order removal of corporate o f f i c e r s ;
Order temporary restraining orders;
Apply t o superior court for enforcement of h i s actions;
Revoke or suspend licenses;
Issue written warnings;
Order licensees i n t o receivership if he determines that they are not
financially stable; and,
Request the Attorney General to bring a legal action
By way of c o n t r a s t , t h e Superintendent's regulatory authority over the collec-tion
industry is limited t o 1) revoking or suspending the license of a
I) collection agency or 2) issuing written warnings.
Table I11 summarizes the regulatory authority of the Superintendent of Banks
over various financial i n s t i t u t i o n s as provided by the appropriate sections of
I) the Arizona Revised Statutes. The Codes i n Table I11 are l i s t e d i n order from
those codes t h a t provide the Superintendent with the greatest to the l e a s t
regulatory authority.
TABLE I11
SUMMARY OF REGULATORY POWERS OF SUPERINTENDENT
Bank Code
Consumer Finance Code
Trust Company Code
Escrow Agents Code
Credit Union Code
Savings and Loan Code
Safe Deposit Code ( 4)
Mortgage Brokers Code
Motor Vehicles Time Sales Code
State Banking Department Code
Collection Agency Code
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X X X X X X X X X
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X X X X X
X X X X X
X X X X
X X X
X X X
X X X
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( 5) X X
( 1) Source - ARS 6- 101 through 6- 929; 32- 1001 through 32- 1057; and, 44- 281
through 44- 295.
( 2) This action may be taken only when the Superintendent of Banks determines
t h a t the financial i n s t i t u t i o n is i n an unsafe or unsound financial
condition.
( 3) The Superintendent of Banks must apply t o the superior court to assume
active control of a t r u s t company ( ARS 6- 865).
( 4) ARS 6- 291 through 6- 929 s t a t e t h e r e l a t i o n s h i p between a renter of a safe
deposit box and the i n s t i t u t i o n which provides that service is t h a t of
tenant- landlord. ARS 6- 921 s t a t e s t h a t the i n s t i t u t i o n offering safe
deposit r e n t a l s be licensed under the Bank, Trust Company, Credit Union or
Savings and Loan codes. The Superintendent's authority is dependent upon
the i n s t i t u t i o n which provides the service.
( 5) ARS 32- 1052 s t a t e s that the Superintendent of Banks s h a l l appoint CPA's or
PAf s for those investigations. The section also s t a t e s t h a t the
Superintendent of Banks s h a l l provide funding for the investigation.
( page 30)
Our review has shown t h a t the Superintendent's a b i l i t y t o control unlicensed
collection a c t i v i t y is impaired because the Superintendent lacks the authority
t o issue cease and d e s i s t orders, apply t o the Superior Court for enforcement
of his actions or use the Attorney General to bring legal actions. Further,
such impairment has resulted i n members of the public incurring financial
losses.
The current practice of licensing collection agencies provides a certain
element of protection t o the public. For example, i n order t o be licensed as a
collection agency an applicant is i n i t i a l l y reviewed by the State Banking
Department and, once licensed, is subject t o having its license revoked or
suspended. In addition, licensed collection agencies are required t o post a
$ 3,000 surety bond. Thus, t h e l i c e n s i n g of collection agencies affords some
s t a t e control over collection industry a c t i v i t i e s and a means of financial
indemnification t o creditors i n the event a collection agency defaults on its
fiduciary r e s p o n s i b i l i t i e s . The following cases i l l u s t r a t e the Superin-tendent's
current i n a b i l i t y t o control unlicensed collection a c t i v i t y and the
r e s u l t a n t f i n a n c i a l l o s s e s t h a t such a c t i v i t y can generate. These cases were
drawn from State Banking Department files.
Case I
On December 4, 1978, the State Banking Department received a complaint t h a t an
unlicensed individual was operating a collection agency and using " unethical
collection practices, lf such as c a l l i n g consumers before 8 A. M. and contacting
the consumersf employers. The Superintendent of Banks sent an investigator out
t o contact the individual who t o l d t h e investigator t h a t he was collecting a
few accounts for a local jewelry s t o r e t o see if running a collection agency
" might be a business that he might l i k e t o get into." The investigator warned
the individual t h a t it is i l l e g a l t o operate a collection agency without a
license.
The investigator did a follow- up on the complaint two weeks later and deter-mined
t h a t the individual was still collecting accounts. The investigator
again warned the individual t h a t it was i l l e g a l t o operate a collection agency
without a license and that he could be prosecuted ( as a Class 1 misdemeanor).
The Banking Department sent a warning l e t t e r t o the individual and turned the
f i l e over t o the County Attorney for possible prosecution.
On December 22, 1978, the Banking Department received another complaint t h a t
the same individual was again collecting accounts and using " unethical collec-t
i o n practices." A State Banking Department investigator verified the com-plaint
and again warned the individual t h a t it is i l l e g a l t o operate a
collection agency without a license. The individual subsequently applied t o
the State Banking Department for licensure as a collection agency. A s of March
31, 1979, the Department has not approved the i n d i v i d u a l f s application and the
County Attorney has not i n i t i a t e d any action against the individual.
Case I1
In December 1978 the Superintendent of Banks was informed t h a t an individual
was operating a collection agency without a license. The Superintendent was
informed that a Phoenix businessman had hired the individual to run " skip
tracesw on several c l i e n t s and t o c o l l e c t on t h e i r accounts. The individual
allegedly collected on the accounts but did not forward payment t o the
businessman. When the businessman attempted to c o l l e c t on some of the l a t e
accounts, several of his debtors told him that they had already paid and had
receipts of payment as proof. The businessman subsequently contacted another
collection agency and was told t h a t licensed collection agencies must be bonded
and t h a t the businessman should file a claim against the individualt s bond.
When the businessman contacted the Superintendent of Banks to f i l e a claim
against the individual's bond he was informed t h a t the individual was not
licensed and therefore there was no bond.
The Superintendent turned the case over t o the County Attorney for possible
prosecution. However, as of April 10, 1979, no action had been taken by the
County Attorney.
Currently, the Superintendent's only recourse, when he is made aware of
unlicensed collection a c t i v i t y , is t o r e f e r the matter t o the County Attorney.
D
The authority t o issue cease and d e s i s t orders, apply t o the Superior Court for
enforcement of his actions and use the Attorney General t o bring legal actions
would enhance the Superintendent's a b i l i t y t o control unlicensed collection
a c t i v i t y .
CONCLUSION
The Superintendent of Bankst regulatory powers, with respect t o the collection
industry, are substandard when compared t o his powers t o regulate the other
f i n a n c i a l i n d u s t r i e s under the j u r i s d i c t i o n of the State Banking Department.
A s a r e s u l t , the Superintendent of Bankst a b i l i t y t o regulate unlicensed
collection a c t i v i t y is seriously impaired and members of the public have
B incurred f i n a n c i a l l o s s e s .
RECOMMENDATION
ARS 32- 1001 through 32- 1057 should be amended to give the Superintendent of
Banks adequate regulatory authority over t h e c o l l e c t i o n industry.
These changes should include:
1) Giving the Superintendent of Banks s t a t u t o r y authority t o issue
cease and d e s i s t orders to individuals who v i o l a t e the s t a t u t e s ; and,
2) Authorizing the Office of the Attorney General to appeal to the
Superior Court for enforcement of these orders.
FINDING
THE STATE BANKING DEPARTMENT NEEDS TO
EXPAND ITS REGULATORY AUTHORITY OVER
COLLECTION ACTIVITY
Currently, the S t a t e Banking Department licenses a l l collection agencies
operating within Arizona. Such licensing does not, however, extend t o indi-vidual
collectors. A s a r e s u l t , the Banking Department lacks regulatory
authority over a s i g n i f i c a n t , and potentially abusive, segment of the collec-tion
industry.
Licensing of Agencies
It is unlawful t o operate a collection agency i n Arizona without f i r s t
obtaining a license from the State Banking Department. A person desiring t o
operate a collection agency must apply for a license t o the Banking Department.
Such application must be accompanied by a financial statement, a $ 3,000 surety
bond and a fee of $ 150. The applicant is fingerprinted and the Banking
Department reviews the applicant's c r e d i t and criminal history, i f any.
The licensing requirements imposed on collection agencies are significant i n
t h a t the Superintendent of Banks has t h e a u t h o r i t y t o revoke or suspend
collection agency licenses. This authority provides the Superintendent of
Banks with the a b i l i t y t o control entry i n t o and participation i n the collec-tion
industry by collection agencies.
The Superintendent of Banks cannot, however, similarly control participation
i n the collection industry by collectors because employees of collection
agencies are not required t o be licensed. Collectors are particularly
important because they make actual verbal and physical contact with debtors i n
the course of making collection. These collectors are controlled only by the
owners of the individual collection agencies. These circumstances can poten-t
i a l l y allow for the incongruous s i t u a t i o n where a collection agency loses its
license because of the c o l l e c t i o n p r a c t i c e s used by its employees and those
same employees subsequently obtain employment with another licensed c o l l e c t i o n
agency.
Need for Licensing Collectors
Our review of the complaints against collection agencies t h a t a r e on f i l e with
the Superintendent of Banks, revealed t h a t 76 percent of these complaints deal
with unethical or i l l e g a l c o l l e c t i o n p r a c t i c e s used by employees of collection
agencies. These practices include:
1. Misrepresentation as to c o l l e c t o r l s i d e n t i t y ;
2. Unauthorized c a l l s t o employees or contacting the consumer a t work;
3. Contacts made a t unreasonable hours;
4. Use of abusive language;
5. Threats of legal action without i n t e n t to pursue; and,
6. Mistaken debt or i d e n t i t y of person being contacted.
Many of the complaints on f i l e with the Superintendent of Banks involve
multiple i l l e g a l debt c o l l e c t i o n p r a c t i c e s .
I) The following cases i l l u s t r a t e the types of collection practices to which a
debtor may be subjected and demonstrate the need t o regulate individual
collectors. These cases were drawn from the f i l e s of the State Banking
Department .
Case I
On January 26, 1978, a complaint was f i l e d with the Secretary of State. The
complaint alleged t h a t on March 17, 1977, a t approximately 6: 30 A. M. three
collectors gained entrance t o the property of the complainant despite " no
trespassingN signs t h a t were posted and a locked chain across the driveway.
According t o the complainant, one collector " shoved some s o r t of badge i n my
face when I opened the door and said he was a detective, implying he was some
s o r t of law officer." The complainant stated t h a t one of the other collectors
said he was an o f f i c e r of the court and t h a t he had papers from the court f o r
the complainant. The complainant claimed t h a t the collectors never told him
t h a t they represented a collection agency. The complainant related t h a t he
I) f e l t t h i s was lloutrageous conduct, causing severe emotional d i s t r e s s and mental
anguish, not t o mention the f a c t t h a t it was frightening and terrorizing. I1
According t o the complainant, it was not u n t i l he i n s i s t e d upon seeing the
I1legalw papers that he discovered the papers were mere collection agency forms.
The complainant subsequently learned t h a t the collectors had come t o his home
t o repossess some automobiles. The complainant claimed t h a t he had never
received any collection notices. The collection agency, when contacted by the
complainant, stated t h a t '' they are not responsible for the actions of its
representatives. tt ( emphasis added)
On May 23, 1977, the complainant returned home t o find one of t h e t h r e e
collectors again on his property. According t o the f i l e d complaint, the
collector s t a r t e d verbally abusing the complainant and, i n the words of the
complainant, " The next thing I know he pulled something from under his jacket
and next thing I knew I ' m looking down the barrel of a gun ... With the a t t i t u d e
he displayed towards me and pulling the gun and acting vendictive towards me, I
am still a l i t t l e nervous when I come home a t night t h a t t h i s character may t r y
t o take a shot a t me."
On April 6, 1978, the complainant wrote t o the Secretary of State inquiring as
t o why no action had been taken on his case. A s of March 31, 1979, t h i s case
had not been acted upon.
Case I1
On December 26, 1978, a couple f i l e d a complaint which s t a t e d t h a t the husband,
who had a contractor's license, was telephoned a t work by a woman he believed
I) t o be from the Office of the Registrar of Contractors. The woman told him t h a t
his C- 37 ( plumbing) license had been revoked and t h a t a company t o which he and
his wife owed money had f i l e d a law s u i t against them. The next day the
complainants discovered t h a t the telephone c a l l was actually from a collector.
I) The couple telephoned t h e c o l l e c t i o n agency and a d i f f e r e n t c o l l e c t o r told them
t h a t the husband's C- 37 license had been revoked because t h e c o l l e c t i o n agency
had f i l e d a claim against the husband's contractor bond on f i l e with the State
Registrar of Contractors. The agent went on t o say that: ( 1 ) t h e i r account was
0 now being handled by t h e c o l l e c t i o n agency; ( 2) they would be served a summons
within a few hours; and ( 3) they now owed an additional $ 900 i n " attorney's
fees." The couple subsequently contacted the creditor company and learned t h a t
t h e i r account had been turned over t o t h e c o l l e c t i o n agency by mistake. In
0 addition, the collector had l i e d i n t h a t the husband's contractor's license had
not been revoked and no summons was forthcoming. When the couple contacted the
collector again and explained the s i t u a t i o n , the collector Ifgot violently
angrytf and " threatened t o get his ' feef of $ 900, no matter what happened!"
When contacted by an investigator from the Banking Department the collection
agency denied any knowledge of the above incidences. The Banking Department
issued a verbal warning t o the agency and the case was closed. In t h e i r l e t t e r
of complaint t o the Banking Department the couple concluded; " 1 suspect there
are many others, i n Arizona, who might be unable to keep up with t h e i r
financial obligations. I can't r e a l l y believe t h a t Arizona would knowingly
allow a collection agency t o harass, threaten and frighten these people."
While other complaints on f i l e with the Superintendent of Banks may not be as
dramatic as those shown above, many debtors are subjected to unethical and
criminal c o l l e c t i o n p r a c t i c e s which are perpetrated by collectors.
A survey of other s t a t e s conducted by the Office of the Auditor General
revealed there are 31 s t a t e s t h a t license collection agencies of which 12 also
license collectors. Table I V summarizes the 31 s t a t e s t h a t regulate the
collection industry indicating those which license collectors.
TABLE I V
SUMMARY OF THE 31 STATES WHICH REGULATE THE COLLECTION INDUSTRY
State
Alabama
Alaska
ARIZONA
Arkansas
California
Colorado
Connecticut
Florida
Hawaii
Idaho
I l l i n o i s
Indiana
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Nebraska
Nevada
New Mexico
North Carolina
North Dakota
Oregon
South Carolina
Tennessee
Virginia
Washington
West Virginia
Wisconsin
Wyoming
License Collectors
Yes
No
No
No
No
No
No
No
No
Yes
Yes
Yes
No
Yes
Yes
No
Yes
No
No
No
Yes
No
* Requires collection agency operators to r e p o r t t h e names of its
employees. ** Requires employees of collection agencies to be registered and pay a fee.
*** Collectors are issued a c e r t i f i c a t e verifying employment by the employer
which is f i l e d with the State. **** Collectors are issued a l * s o l i c i t o r t s cardn which is f i l e d with the State.
According t o the Superintendent of Banks, collectors should be licensed i n
order t o better regulate t h e c o l l e c t i o n industry. The Superintendent stated
t h a t one additional Full- Time Equivalent ( FTE) would be needed t o issue
licenses to the approximately 500 collectors i n Arizona.
CONCLUSION
The licensing of collectors w i l l provide the Superintendent of Banks with
needed additional authority over collectors.
RECOMMENDATION
ARS 32- 1001 through 32- 1057 should be amended t o provide the Superintendent of
Banks with t h e authority t o license collectors. Such licenses should be
subject to revocation or suspension for unethical or criminal acts.
FINDING
FINANCIAL INFORMATION SUBMITTED BY COLLECTION AGENCIES
IS NOT A VALID INDICATION OF FINANCIAL RESPONSIBILITY
ARS 32- 1021 and 32- 1025 s t a t e t h a t a collection agency desiring to obtain or
annually renew a collection agency license s h a l l f i l e a financial statement
with the State Banking Department, upon forms as prescribed by the Superin-tendent
of Banks. Such financial statements s h a l l show the applicant's a s s e t s
and l i a b i l i t i e s and t r u l y r e f l e c t the applicant's net worth. The purpose of
these financial statements is to provide the State Banking Department with a
means to determine the financial responsibility of the applicant agency. Our
review of the r e q u i s i t e financial statements currently being used by the State
Banking Department and t h e i r associated f i l i n g instructions revealed t h a t they
are vague and subject t o such diverse i n t e r p r e t a t i o n s as to render them useless
f o r evaluation purposes.*
A review of t h e f i n a n c i a l statement f i l e d by collection agencies with the State
Banking Department revealed t h a t many questionable items are included on these
financial statements. For example:
- A collection agency l i s t e d a t o t a l net worth of $ 352,300, of which
$ 350,000 was a t t r i b u t a b l e t o waccounts receivable from clients." - A collection agency, which did not use the prescribed form for
financial statements, l i s t e d under l i a b i l i t i e s " Payoffsn of $ 1,250. - A collection agency did not f i l e the prescribed financial statement
form. Instead, the agency f i l e d a l e t t e r from the managing director
of the applicant agency which c e r t i f i e d t h a t the agency had a cash
deposit available a t a l l times " in excess of two times $ 2,000." The
location of the deposit was not disclosed nor was any other financial
information provided. - A collection agency l i s t e d its net worth to be $ 75,522 of which
$ 87,210 was a t t r i b u t a b l e t o " Goodwill ( amortized)". - Several collection agencies included the personal assets of the
agency proprietors on t h e i r financial statements. One such
financial statement l i s t e d a net worth of $ 21,386 of which $ 9,786 was
- a t t r i b u t a b l e t o t h e a p p l i c a n t ' s " Husband's Salary." A collection agency showed a net worth of $ 5,500 of which $ 2,500 was
a t t r i b u t a b l e t o cash and the remainder t o personal assets. The
applicant collection agency subsequently went bankrupt owing its
c l i e n t s an estimated $ 30,000.
* The State Banking Department adopted a new financial statement form on
December 6, 1978, for use by collection agencies. This form is an
improvement over the financial statement form previously used by the
Secretary of State. However, the associated f i l i n g instructions are still
vague and subject t o diverse i n t e r p r e t a t i o n .
It should be noted t h a t the above examples are typical of the financial
statements f i l e d with the State Banking Department. It should also be noted
t h a t the State Banking Department has never denied a license because the
applicant f a i l e d t o show financial responsibility on its application for
licensure.
According t o the Superintendent of Banks, the financial c r i t e r i a as currently
prescribed i n ARS 32- 1021 and 32- 1022 is too vague t o allow the Department t o
deny a license because of an applicant's f a i l u r e t o demonstrate financial
responsibility on its application. The Superintendent f u r t h e r stated t h a t the
financial statement form should be improved t o provide a more v a l i d i n d i c a t o r
of an applicant's financial responsibility.
The Office of the Auditor General contacted t h e other s t a t e s that regulate t h e
collection industry to determine the methods used by these s t a t e s to evaluate
the f i n a n c i a l r e s p o n s i b i l i t y of applicant agencies. The Nebraska Collection
Agency Board has developed an outstanding financial statement form.* The
associated instructions for t h i s form are clear and specific. A s a r e s u l t , the
f i l e d financial statements are comparable and provide a b e t t e r means of
evaluating t h e f i n a n c i a l responsibility of an applicant agency.
CONCLUSION
The financial statements currently being f i l e d by applicant collection
agencies with the State Banking Department and t h e i r associated instructions
are vague and subject t o such diverse i n t e r p r e t a t i o n s a s t o render them useless
for evaluating the f i n a n c i a l r e s p o n s i b i l i t y of the applicant agency. The use
of a financial statement such as used by the State of Nebraska would enhance
the State Banking Department's a b i l i t y to evaluate t h e f i n a n c i a l responsi-b
i l i t y of applicant collection agencies.
RECOMMENDATION
The State Banking Department should adopt a financial statement form with
i n s t r u c t i o n s s i m i l a r t o the Nebraska Collection Agency Board financial state-ment
form .
* A sample of the Nebraska Collection Agency Board financial statement form,
including f i l i n g i n s t r u c t i o n s , is included i n t h i s report as Appendix V.
CHANGES NEEDED TO ENHANCE THE SUPERINTENDENT OF
BANKSt ABILITY TO REGULATE THE COLLECTION INDUSTRY
Our review of the State Banking Department has shown t h a t there are several
regulatory areas t h a t are inadequate and require s t a t u t o r y or procedural
changes. These areas are:
1) State Collection Laws are substandard when compared t o the Federal
Consumer Credit Protection Act ( Public Law 95- 109);
2) The Statutes do not provide for any l a t e f e e f o r renewals which are
received a f t e r January 1 of each year;
3) The Banking Department is not complying with ARS 32- 1052; and,
4 The general public is not s u f f i c i e n t l y informed of the State Bank-ing
Department and its role as the complaint review body for the
collection industry.
Because of these inadequacies, the Superintendent of Banks1 regulatory control
over t h e c o l l e c t i o n industry needs to be enhanced.
Arizona's Collection Agency Code is Substandard
When Compared t o the Federal Consumer Credit
Protection Act ( Public Law 95- 109)
The Federal Consumer Credit Protection Act ( Public Law 95- 109) was passed by
the Congress i n 1977. The purpose of t h i s act was t o f a c i l i t a t e nation- wide
regulation of collection agencies by establishing s i x basic provisions for f a i r
debt collection practice. These s i x provisions are:
1) The collector may not use f a l s e o r misleading representation i n
connection with collection of a debt ( Section 807);
2) The collector may not use unfair or unconscionable means to c o l l e c t
any debt ( Section 808);
3) The collector may not use abusive language or harass the consumer
( Section 806) ;
4) The collector must provide the consumer with a written notice
containing the amount of the debt and the name of t h e c r e d i t o r t o
whom the debt is owed ( Section 809) ;
5) The collector may only contact the consumer during " Reasonable
hours," defined as 8 A. M. t o 9 P. M. ( Section 805); and,
6 ) The collector may contact t h i r d p a r t i e s to obtain s p e c i f i c informa-tion
about the consumer ( i . e . , telephone number or current address)
but may not inform the t h i r d party of any debt or obligation of the
consumer ( Section 804).
O f the s i x provisions enumerated above, only two, provisions 1 and 2, are
codified i n the Arizona Revised Statutes ( ARS 32- 1051.8 and 32- 1051.4,
respectively). The other points are addressed i n the Administrative Rules and
Regulations only, R4- 4- 1501 through R4- 4- 1530, which were adopted by the State
Banking Department on December 6, 1978. A t the present time, there are 31
s t a t e s which have some form of regulation over the collection industry. A
survey of these s t a t e s , conducted by the office of the Auditor General revealed
t h a t 16 s t a t e s have incorporated a l l s i x points of the Federal Consumer Credit
Protection Act. These states are:
1) Alaska
2) California
3) Colorado
4 Connecticut
5) Hawaii
6) I l l i n o i s
7) Indiana
8) Maine
9) Maryland
10) Michigan
11) Minnesota
12) Nebraska
13) Oregon
14) Virginia
15) Washington
16) Wisconsin
The Superintendent of Banks has stated t h a t he would l i k e t o see Provisions 3
through 6 added t o ARS 32- 1001 through 32- 1051- 4. In the opinion of the
Superintendent of Banks, t h i s would provide a clear statement of l e g i s l a t i v e
i n t e n t and enhance the State Banking Department's a b i l i t y t o regulate collec-tion
a c t i v i t i e s i n Arizona.
The State Banking Department Does Not Have the
Statutory Authority t o Fine Licensees Who Do
Not Renew Their Licenses on Time.
Arizona Revised Statutes 32- 1025 s t a t e s that:
" A person desiring to secure renewal of a collection
agency license s h a l l f i l e a financial statement and make a
renewal application t o the Department not l a t e r than
January 1 of each yearn ( emphasis added).
The current Banking Department practice is to accept license renewal applica-tions
up t o February 1 which is the expiration for collection agency licenses.
The Chief Executor of the Banking Department stated t h a t the Department follows
t h i s practice because: ( 1 ) there is no provision i n the Arizona s t a t u t e s for
charging l a t e f i l e r s a penalty; and, ( 2) the Department can process the
renewal applications before the February 1 expiration date.
In a March 21, 1979, opinion*, t h e Legislative Council stated t h a t according t o
Arizona S t a t u t e s , t h e Banking Department's only recourse against applicants
who f i l e a f t e r January 1, but prior to February 1, is to issue a warning to the
collection agency.
Currently, the Department has the statutory authority to assess a penalty of $ 5
per day against c r e d i t unions, small loan companies and escrow agents for not
f i l i n g required license renewals or reports on time. The extension of such
fining authority t o include collection agencies would encourage applicants to
f i l e t h e i r renewal applications on time, i n accordance with ARS 32- 1025.
The Banking Department Is Not Complying
With ARS 32- 1052
Arizona Revised Statutes 32- 10528 s t a t e s that:
A. The superintendent, a t any time he determines but not more frequently
than once each year, s h a l l appoint a c e r t i f i e d public accountant or
licensed public accountant t o determine the current financial
condition of each collection agency licensed under t h i s chapter, and
make a spot check of such agency t o determine whether the agency is
guilty of violating paragraphs 1, 2, 3 or 4 of subsection D of
Section 32- 1055.**
Section D of ARS 32- 1052 s t a t e s t h a t the Superintendent s h a l l pay the accoun-t
a n t for such services.
* See Appendix I V for a f u l l text of t h i s opinion. ** ARS S 32- 1055 D s t a t e s
D. It is unlawful for a person conducting a collection agency i n t h i s
s t a t e to:
1. Fail t o render an account of and pay t o the c l i e n t , f o r whom
collection has been made, the proceeds collected, l e s s
collection charges as agreed to by applicant and c l i e n t , within
t h i r t y days from the last day of the month i n which it is
collected, except when the amount due the c l i e n t is l e s s than
five dollars, i n which event payment may be deferred for an
additional t h i r t y days.
2. Fail t o deposit with a local depository a l l monies collected by
him and due and owing c l i e n t s , and t o keep such monies deposited
u n t i l remitted t o such c l i e n t s .
3. Fail t o maintain an office or place of business i n t h i s s t a t e
for collection of claims.
4. Fail to keep a record of monies collected and the remittance of
such monies.
The Superintendent of Banks has not appointed Certified Public Accountants or
Licensed Public Accountants to examine the financial records of licensed
collection agencies, even though the Superintendent has, on occasion, deter-mined
t h a t such an examination is needed. According t o the Superintendent, the
Department does not have the funds necessary t o pay for such services.
The State Banking Department currently employs bank examiners. The Superin-tendent
is of the opinion t h a t these bank examiners are capable of performing
the type of examination stipulated i n ARS 32- 1052 and 32- 1055 without causing
the Department t o incur additional expenses.
If t h i s review exposes any p o t e n t i a l v i o l a t i o n s of ARS 32- 1055. D, the Superin-tendent
should appoint a c e r t i f i e d public accountant or licensed public
accountant t o make a detailed examination of the licensee's financial records.
ARS 32- 1052. D should be amended t o require licensee's to pay for such detailed
examinations.*
The General Public Does Not Appear t o be Sufficiently Informed
of the State Banking Department's Role i n the Regulation
of Collection Agencies
The general public does not appear t o be s u f f i c i e n t l y informed t h a t the
Superintendent of Banks is responsible for regulating t h e collection industry
i n Arizona. A s a r e s u l t , a significant portion of complaints against collec-tion
agencies are not f i l e d with the Superintendent of Banks.
The Superintendent of Banks assumed responsibility for regulating the collec-tion
industry on September 6, 1978. Between September 6, 1978, and March 31,
1979, the Superintendent of Banks received 100 complaints against c o l l e c t i o n
agencies. However, during t h a t same period t h e Better Business Bureau ( BBB)
and the Federal Trade Commission ( FTC) received 64 complaints against collec-tion
agencies, none of which were forwarded t o the Superintendent of Banks.
Therefore, during the period under review, the Superintendent of Banks did not
receive a t l e a s t 40 percent of the complaints f i l e d i n Arizona against
collection agencies.
* Prior t o January 1, 1970, licensees were required to pay for detailed
financial examinations per ARS 32- 1052. D.
The BBB, upon receiving a complaint against a collection agency, w i l l contact
t h e c o l l e c t i o n agency t o discuss the matter. It is the policy of the BBB t o
attempt to resolve complaints against collection agencies on t h e i r own and not
to pass such complaints on t o governmental agencies. The FTC does not
investigate each complaint it receives against c o l l e c t i o n agencies. Instead,
the FTC i n i t i a t e s an investigation only if 1) a number of related complaints
have been received against c o l l e c t i o n agencies, and 2) these complaints
represent a clear violation of the Federal Fair Debt Collection Act. The FTC
has the authority to: resolve complaints informally, bring c i v i l penalties, or
issue cease and d e s i s t orders. The FTC always advises the complainant of t h e i r
r i g h t s under the law and encourages the complainant t o take further action.
In addition, the Alliance for Information and Referral Service ( AIRS) a
nonprofit community- based public service organization, also provides a
r e f e r r a l service for collection agency complaints. An individual having a
problem with any type of consumer collection is referred to a volunteer with
s p e c i f i c knowledge of Arizona collection laws. During the period November 22,
1978, t o April 6, 1979, an AIRS volunteer received 51 complaints regarding
consumer collections of which 13 dealt with collection agencies. Three of
these complaints were determined t o be violations of the Federal Fair Debt
Collection Act and were referred t o the State Banking Department. The AIRS
volunteer stated t h a t the majority of the individuals who called regarding
consumer complaints were unaware of the State Banking Department or its role i n
the complaint review process.
Since the Superintendent of Banks assumed responsibility from the Secretary of
State for regulating the collection industry, the number of complaints per
month f i l e d against collection agencies has increased as shown below:
TABLE V
Number of Complaints Against
Collection Agencies Since September 6, 1978
Number of
Complaints Received
Average complaints per month during
the Period February 1, 1976, to
September 6, 1978 ( 1) 8
September ' 78 ( 2) 16
October ' 78 18
November ' 78
December ' 78
January ' 79
February ' 79
March ' 79
( 1) This information was obtained through a review of the complaint
f i l e s maintained by the Secretary of S t a t e ' s Office. The
regulation of collection agencies was under the j u r i s d i c t i o n of
the Secretary of State from 1953 t o September 6, 1978.
Complaint records are not available for the period prior t o
January 1, 1976.
( 2) The period September 6, 1978, t o September 30, 1978, is con-sidered
to be a complete month for purposes of t h i s table.
The Superintendent of Banks a t t r i b u t e s t h e increase i n complaints as shown
above to: 1) the publicity surrounding the change of regulatory authority from
the Secretary of State t o the Superintendent of Banks; and, 2) Federal Trade
Commission public service announcements on television and radio regarding
debtor rights. The Office of the Auditor General contacted several t e l e v i s i o n
and radio s t a t i o n s and determined t h a t these s t a t i o n s were willing to a i r
public service announcements for the Superintendent of Banks, providing:
( 1) The Superintendent prepare a statement explaining the purpose
of the message and assuring the s t a t i o n t h a t the message is from
a non- profit organization; and,
( 2) That the Superintendent prepare the announcement ( t h a t is, type
the s c r i p t of the announcement).
The Office of the Auditor General has discussed t h i s point with the Superin-tendent
of Banks. He has s t a t e d t h a t he agrees with our recommendation and
w i l l implement it a t the e a r l i e s t possible opportunity.
CONCLUSIONS
Our review of the State Banking Department has shown t h a t there are several
regulatory areas that a r e inadequate. The State Collection Laws are
substandard when compared t o the Federal Consumer Credit Protection Act.
Presently, there e x i s t s no l a t e f i l i n g fee for renewals received a f t e r January
1 of each year, the State Banking Department is not complying with ARS 32- 1052,
and, the general public is not s u f f i c i e n t l y informed of the State Banking
Department's role i n the regulation of collection agencies. Statutory or
procedural changes are required to correct these deficiencies.
RECOMMENDATIONS
1) ARS 32- 1001 through 32- 1057 should be amended t o incorporate these
provisions of the Federal Consumer Credit Protection Act:
A) Collector may not use abusive langauge or harass consumer
( Section 806);
B) Collector must provide the consumer with a written notice
containing the amount of the debt and the name of the creditor
to whom the debt is owed ( Section 809);
C) Collector may only contact the consumer during " reasonable
hoursm ( 8 A. M. to 9 P. M.) ( Section 805); and,
D) Collector may not inform any t h i r d p a r t i e s of any debt or
obligation of the consumer ( Section 804).
2) ARS 32- 1025 should be amended t o include a $ 5 per day penalty fee for
renewal applications received a f t e r January 1 of each year.
3) ARS 32- 1052. A should be amended to authorize the Superintendent of Banks
t o u t i l i z e bank examiners for t h e routine review of licensee financial
records. If t h i s review exposes any p o t e n t i a l v i o l a t i o n s of ARS 32-
1055. D, the Superintendent should appoint a c e r t i f i e d public accountant
or licensed public accountant t o make a detailed examination of the
licensee's financial records. ARS 32- 1052. D should be amended t o require
licensees to pay for such examination.
4) The Superintendent of Banks should contact the Federal Trade Commission
and Better Business Bureau and establish l i a i s o n with these agencies.
5) The Superintendent of Banks should contact the Arizona media and arrange
for a s e r i e s of public service announcements. These announcements should
explain the consumer's r i g h t s under the Federal and State Regulations.
RESPONSE TO THE OFFICE OF THE AUDITOR GENERAL
ON ITS PERFORMANCE AUDIT OF THE COLLECTION AGENCY
ADVISORY COPfMITTEE AND THE REGULATION OF THE
COLLECTION INDUSTRY IN ARIZONA.
FROM: THE COLLECTION AGENCY ADVISORY COMMITTEE.
DATED: 4: 1.979
In 1949 a group of persons from the collection
industry approached the Legislature with proposals for
licensing and bonding the agencies then i n existence.
This movement resulted i n the f i r s t l a w which
licensed and bonded collection agencies i n Arizona.
In the ensuing years, various members of the
Collection Agency Advisory Committee continued, with
concentrated e f f o r t s to increase the protection of the
General Public, by introducing more stringent laws.
Because of the sedulous action of the Advisory
Committee, a new law was put i n t o e f f e c t i n 1969, which
substantially increased the $ 7.50 license renewal to $ 100.00,
plus a $ 50.00 i n i t i a l investigation fee.
The CAAC has been d i r e c t l y instrumental i n i n i t i a t i n g
proposals for rules and regulations. The CAAC has been actively
engaged i n drafting more rigid laws for t h e collection industry,
a l l of which were directed to the protection of the consumer.
The CAAC therefore believes it has proven i t s e l f
a necessity i n the rule- making process.
Further, the Superintendent of Banks has expressed
his preference to m e e t with a small group such as the CAAC,
prior t o holding any public hearing.
RESPONSE TO PAGE 82 - RECOMMEXDATIONS
1. The Collection Agency Advisory Committee believes
it should be allowed to remain active, and not be
terminated July 1, 1980.
2. The CAAG concurs
3. The CAAC concurs
4. The CAAC concurs
5. The CAAC Concurs. Further, the most recent proposed
rules and regulations by the Advisory Committee did
in fact, include additions which should be in compliance
with Public Law 95- 109.
6. The CAAC concurs
7. The CAAC concurs, with the exception of the l a s t sen-tence,
" ARS32- 1052. D should be amended to require licensees
to pay for such examinations." Since 1970 when the
licensing fee was increased to $ 100-$ 150, the intent
was for the Secretary of State to have sufficient funds
available for administering the collection industry.
The CAAC feels that during this nine year period, the
monies which had been appropriated for that purpose
mag now be utilized. The CAAC believes that ARS32- 1052. D
should remain unchanged.
The CAAC concurs
The CAAC concurs
The Collection Agency Advisory Committee has
performed on a totally voluntary basis; and thus the
CAAC has borne no expense to the People of the State of
Arizona.
The combined years of active collection agency
operation by the members of the CAAC has been of great ser-vice
in the rule- making process. It should continue to
function as an invaluable source of expertise to the
Superintendent of Banks.
Arizona ranks with other progressive states which
have found advisory committees beneficial. Our neighbor,
California is among those states which have elected to retain
the services of the CAAC.
The Advisory Committee had withheld any recommended
changes to 32- 1001- 32- 2105 in the past two legislative
sessions, in order to facilitate the transfer of jurisdiction
from the Secretary of State to the Superintendent of Banks.
The CAAC is prepared to lend its knowledge and
experience to the Superintendent of Banks at any time.
S U M M A R Y
The Arizona State Legislature has urged repre-sentative
groups to become actively involved in assisting
them in the process of law making and government. Ariaona
ranks with other progressive states which have found advisory
committees highly beneficial and essential.
The CAAC believes that it should continue to function
so that legislators, the Superintendent of Banks, and the General
Public may gain through its existence.
RESPONSE TO PARAGRAPH THREE OF THE SUMMARY BY THE OFFICE OF
AUDITOR GENERAL:
1. That the " source of input" from the CAAC
is of inestimable value to the Superintendent
of Banks.
2. That the CAAC has in fact contributed a wealth
of active effort in the rule making process.
3. That the Collection Agency Advisory Committee
constitutes a gainful, productive and practical
asset in the rule making process, to the Super-intendent
of Banks - and ultimately to the
People of the Great State of Arizona.
On Friday, June lst, 1979, between the hours
of 10: Ol A. M. and 1: 07 P. M., four of the f i v e members of
the Collection Agency Advisory Committee held a special
meeting f o r the purpose of drafting and presenting a
response t o the performance audit by the Office of the
Auditor General.
Those members who were present were:
li'
1
Robert L. Taylor
A l e t t e r from the f i f t h member, James Serpe, was unable to
personally attend the meeting, and has indicated his concur-rence
with the findings of t h e o t h e r four members of the
Collection Agency Advisory Committee. Mr. Serpe's letter
is included with t h i s response.
SURETY ACCEPTANCE CORP.
OF TUCSON, INC.
Licensed & Bonded Collection Agency
5316 E. Pima Box 12949 Tucson, AZ 85732
Phone 793- 7181
June 4, 1979
OFFICE OF THE AUDITOR GENERAL
I, JAMES E, SERPE, a member of the Advisory Board on Collec-tions,
was unable to attend the meeting in Phoenix on June 1,
1979.
This is to- advise you that I was contacted by Stephen Sandler,
a member of the committee, who attended the meeting. Mr. Sandler
read all the recommendations discussed at the June 1, 1979 meet-ing
over the telephone to me.
I concur with all recommendations discussed at this meeting and
Y with the information supplied me from the Auditor General's office.
I have received the literature regarding the Arizona Revised
Statutes, Sections 43- 2351 through 43- 2374 on May 23, 1979.
Please accept my apology for no; t being able to attend the
@ above meeting.
ember Advisory Board on Collection Agencies
,' 7 ''
WALTCR C. MADSEN
SUPLRINTCNOCNT OF BANKS
STATBEA NKINDGE PARTMENT
ROOM 101 COMMERCE BUILDING
1601 WEST JEFFERSON
PHOENIX. ARIZONA 8SOQ7
June 6, 1979
Mr. Douglas R. Norton
Auditor General
State of Arizona
Phoenix, Arizona 85007
Dear MI. Norton:
In accordance with your letter of May 23, 1979 relating to the
performance of the Collection Agency Advisory Committee and the
rngulation of the Collection Industry in Arizona, I have now
completed a review of the draft copy of the audit, As a means
of answering the audit report I will address each conclusion and
recommendation separately in this letter.
Conclusion L indicates that a Collection Agency Advisory Committee
is duplicative and of no useful purpose to the State Banking De-partment,
with the recommendation being to allow the Committee to
terminate as of July 1, 1980, I am in agreement with this con-clusion
and recommendation.
Conclusion 2 indicates that regulatory powers, with respect to the
collection industry, are substandard and the recommendation is
made that A. R. S. 32- 1001 through 32- 1057 be amended to give the
Banking Department appropriate regulatory authority over the collec-tion
industry. I am in agreement with both conclusion and recom-mendation
and would point out that appropriate legislation has been
introduced in the last two sessions of the legislature and will be
introduced again next year.
Conclusion 3 relates to the licensing of individual collectors with-in
the collection industry. I am again in agreement with the recom-mendation
to provide this authority, however, would point out that
additional staffing will be needed to carry out this function,
Whether or not one additional FTE would be adequate will depend upon
the type of licensing undertaken,
Conclusion 4 relates to the financial statements currently being
used by the State Banking Department in relation to application for
collection agency license. The recommendation is that the Banking
Department adopt a form with more clear instructions.
M r . Douglas R. Norton
Auditor General
June 6, 1979
Page 2 -
I would agree with this recommendation that the instructions for
use with the financial statement should be made clearer so as
to enable the department to more properly evaluate the financial
condition of the applicant agency, I believe the present form
is adequate and that only the instructions need to be changed.
Conclusion 5 is that there are several regulatory areas that are
inadequate. The basis for the conclusion seems to be a compar-ison
with the Federal Consumer Credit Protection Act. I agree
there exists no late filing fee for renewals, however, this is
a matter of statute and any changes would have to be made by
the legislature. The conclusion also indicates the Banking
Department is not complying with A. R. S. 32- 1052. This statute
states in part " The superintendent, at any time he determines
but not more frequently than once each year, shall appoint a
certified public accountant or licensed public accountant to
determine the current financial condition of each collection
agency....". The language of 32- 1052 appears to be permissive
in that the Superintendent is directed by the words " at any
time he determines" which indicates to me that the language
permits any examination as directed by the Superintendent, how-ever,
there is no minimum in the statute only a maximum of one
examination per yeas. I therefore cannot agree with the con-clusion
to the extent the State Banking Department is not com-plying
with this statute.
I am in agreement with the statement that the general public
is not sufficiently informed with the regulation of Collection
Agencies. I would point out, however, that the Banking Depart-ment
now has a working arrangement with the Better Business
Bureau.
Recommendation 1 relates to the inclusion of a number of the
provisions of the Federal Consumer Credit Protection Act within
Arizona law. I would agree with the recommendation but would
point out that the majority of these recommendations are covered
by either existing or proposed rules and regulations. I am in
agreement with the remainder of the recommendations in this sub-section.
If you have any questions or require additional information
please contact me.
Verx truly yours ,
Walter C. Madsen 9 n 2
WCM: rf r
STATE OF ARIZONA
OFFICE OF THE AUDITOR GENERAL
SCZVEY OF CO:\ IPLAINTS AGAINST COLLECTION AGENCIES
1. & hat agency was the complaint against? ( Various)
2. Pihat was the nature of the complaint you filed?
Note: Complainants sometimes checked more than one response.
18 Harassment by the collect~ r
8 Xistaken debt
3 Other ( please describe) ( beladed being contacted
about the debt of a friend or relative.)
3. W2re yoc zontacted as to zhe result of your complaint?
14 Yes
"
4 . If y z s , xhat was the oufccrne of your zo?. plaint?
- 0- Collection agency's license was revoked
7 Collecti. on agericy's license was suspende6
1 Agency was reprimanded
17 Agency was notified cf complaint
but no action was taken
- 9- No result
1 Other
5. Wers you satisfied with the results?
5 Yes
12 No
3 No response
6. Go you feel your complaint was handled in a reasonable amount
of time?
14 Yes
4 No
2 No response
7. If you have any further comments please include them.
Please return this questionnaire to:
Haty L. Lynn
Auditor General's Office
112 N. Centr. 31 Ave.
Suite 600
Phoenix, Arizona 85004
Appendix I1
TITLE 32
PROFESSIONS AND OCCVP;\ TIONS
CH;\ PTER 9
COLLECTION . AGENCIES
.\ RTICLE 1. : 1D\ lINISTR.\ TION
scc.
32- 1001. Defi~ litions.
38- 10?. Powers of superintendent of banks; advisor). committee.
33- 100: 3. Rccords.
. ARTICLE 2. LICENSISG
32- 1021. Original application for license; financial statement; bond;
exception.
3 - 1 0 . Contents of finnncii~ ls tatement; bond provisions.
32- 1023. Qualifications of ,~ pplicants.
32- 1021. Licensinn, out- of- state- collection agents.
2.2- 1025. . Annual renewal of license.
32- 1O26, Issuance of licenses.
32- 1017. Issuance of pro\- isional license for limited purposes.
32- 1038. Fees.
32- 10.51. Duties of Iicensees.
311- 1052. Examination of licensee records.
321053. Revocation or suspension of license.
32- 103. Judicial review of revocation or suspension of or refusal
to issue license.
3210.55. Unlawful acts.
321056. Penalties.
321057. Prosecution of violations; individual liability.
332- 1001. DEFINITIONS.
In this chapter, unless the context othenvise requires:
1. " Claim" means an obligation for the payment of money or
its equivalent dnd n sum or sun~ so wed, due or asserted to be owed
or due to nothe her, for which a person is employed to demand pay-ment
and collect or enforce such payment. and includes obligations
for the payment of money, in the form of conditional sales agree-ments,
nohvithsti~ nding the personal property sold thereunder, for
\ vhich payment is claimed or may be or is repossessed in lieu of
payment.
3. " Collection ~ igency" m eans and includes:
( a) . I11 persons ensaped directly or indirectly in soliciting claims
for collection or in collection of claims owed, due or asserted to be
owed or due another.
jbl . by person who, in the process of collecting debts occurrin~
in the operation of his own business, uses any name other than his
o\\ n xrhich \ vouId indicate that a third person is collecting or at-tempting
to collect such debts.
3. " Collection agency" does not include the following when en-qa~
edin the regular course of their respective businesses:
( a) .\ ttorneys at law.
( b) Persons reqularly employed on a regular wage or s a l q in
the c~ pacityo f credit men or a similar capacity, except as an inde-pendent
contiactor.
( c) Banks, including trust departments thereof, fiduciaries and
Financing and lending institutions.
( d) Common carriers.
( e) Title insurers and ~ bstracct ompanies while doing an escrow
business.
( 0 Licensed real espnte brokers.
( g) Employees of licensees under this chapter.
( h) Substation pnjment offices employed by or serving as inde-pendent
contractors for public utilities,
4. " Department" means the state banking department.
e a. " Person" means an individual, Finn, partnership, association
or corporation.
6. " Superintendent" means the superintendent of banks.
32- 1002 POWERS OF SUPERINTENDENT OF BANKS;
ADVISORY COXISIITTEE
; I. The superintendent shall enforce the provisions of this chap-ter
2nd prescribe and enforce rules and repl: ltions, not in conflict
with the laws of this state, necessary to enforce this chapter.
B. The superintendent shall:
1. Appoint an advisory committee of five nlembcrs to advise him
in the preparation or revision of rules and requlations which may be
idopted under provisions of this chapter. The inembership of the
committee shdll consist of licensees in good standing under this
chapter. Members $ hall scme for a term of five years. Of the mem-bers
first appointed, one shall serve for a tenn ellding February 1,
1971. and one each for a term ending one, hvo, three . tnd four > ears
thereafter. So member shall be reappointed for a consecutive term.
2. . ippoint and fix the compensation of investig'ltive, clerical,
expert, technic. il, professional and other employers required to ' 1d-minister
the pro\ isions of this chapter.
3. Investigate complaints and eu. unine the books. ,~ ccounts,
claim5 and files of licensees to enforce the provisions of this chapter
, u~ dth e rules and regulations ' ldopted pursumt to this ch'iptcr.
1. Take actions necessary to rectify violations of this chapter
and to suspend or revoke licenses as provided in this chapter.
33 1003. RECORDS
Tile superintendent shall keep In his otficc : I record ot ,111 appli-cations
for licenses ,~ nda ll bonds required to be tiled, including a
statement as to whether a License, renetr~ al license or provisional
license has been issued under each application and bond, rid, if re-voked
or suspended, the date of fiIing the order of revocation or
saspension. The superintendent shall maint. lin A list of 311 indiv-iduals,
firms, partnerships, associabons or corporations who have
h, id a license revoked or suspended, and a wntteo record of cum-pl.~
ints filed against licensees. Each license issued shall be indimted
bv its serial number .\ nd by the name '~ nd address of the iicensee.
The records, except the financial statements of licensees, sh,~ ll be
open to inspecbon as public records.
32- 1021. ORIGINAL . IPPLICATION FOR LICENSE;
FIN. ANCIAL STATESIENT; BOND EXCEPTION
- I. .\ person desiring to conduct a collection agency shall make
an original applimtion to the department upon forms prescnbed by
the superintendent setting forth verified infom~ ntion to asskt the
superintendent in determining the '~ pplicant's ability to meet the
rrcluirements of this chapter.
B. . In application for an original or a rene~~. nlilc ense shall be
; l~ m~ npaniebdy:
I. - 1 financial statement in the form provided in section 32- 1022,
showing the upplicant's = sets and liabilities and truly reflecting his
net worth in cash or its ecluivalent, available for the use of nppli-cant's
business for each oftice he proposes to operate in this state.
9 - 4 bond in the form provided in section 32- 1022, in the amount
of three thousand dollars for each office he proposes to openlte in
this state.
C. The superintendent may require from all applicants ddi-tional
information he deems necessary in determining whether tlie
,~ pplicanits entitled to the license sought.
32- 1022. CONTENTS OF ETUANCML STilTE51ENT;
BOSD PROTISIONS
. The tinancia1 statement requircd by section 32- 1021 shall !) e
sworn to by ' ipplicant, if he is an individual, or a partner, director,
manager or treasurer in its behalf if applicant is a partnership, cor-poration
or incorporated L~ ssociationT. he information in the finan-cial
statement .\ hall be canfidential md not a public record.
B. The bond shall run to the people of the state , ind sh; lll be
executed . lnd acknowledged by the applicant as principal and by . t
corporation, licensed by this ~ tnte to transxt fidelity and surety
insurance business. as surety. The bond shall be continuous in fornl
itnd shall remain in full force and effect and run concurrently with
the license period and any renewal thereof. The bond shall be con-ditioned
that the applicant. within thirty days from the labt c!,~ y of
the month in which a collection is made, shall make an account of
.~ ndp ay to the client the proceeds collected for him by the ~ ppiicznt,
less charzcs for collection in accordance with the agreement behvecn
the applicant and client, but when the . lmount due the client is less
than five doll'~ rs, payment may be deferred for an additional thirty
days.
C. * b y surety company intending to withdraw as surety of any
licensee shoil Qve sixty days' notice of such intention to the suptBr-intendent,
~ r- h: ch notice 3hall be by registered mail and shall also
give sixty days' notice by registered mail to the licensee addressed
to his Idst known address. IVhen a surety shall for any cause
cancel the bond of any licensee, the su erintendent shall immedi-ately
notify. such licensee by registere f mad addressd to his last
knowvn address as shown by the files of the department. The license
of any licensee shall be vo~ du nless, prior to the ternmation, a new
bond has been filed with the department h licensee changing his
surety shnil file a new bond with the department with a surety on .
the new l~ ondm eetin$ the ~~ ualificationosf this section.
A. An applicant for a license issued under this chapter shall:
1. Be a citizen of the United States, of g o d moral character.
2 Have been a resident of this state for one year next preced-ing
the date of filing his application.
3. Not have been convicted of a crime involving morai turpitude.
4. Not have defaulted on payment of money collected or received
for another.
5. Not have bcen a former licensee under the revisions of this
cluently reinstated.
chapter whose license was suspended or revokeP and not subse-
B. If the applicant for a license is a firm, parmership, association
or corporation, the qualifications required by subsection A of this
section shall be required of the individual in active management of
such firm, , partnership, association or co~ oration.
C. When a licensed agency ceases to be under the active man-asement
of a qualified person, as shall be defmed in the rules and
regulations, notice of such fact shall be given to the superintendent
within ten days. The licensee shall have ninety days next suceeed-in^
the termination of the services of the actin5 manager within
~ ofv hthiec hqto u raelipfliaecde rscupcihac qeumaelinfti. e dI P tehneo ang aenndcy n oist infyo tt hpel ascuepde ruinndteenrd tehnet
active management of a new qualified person and notice thereof
given to the supcrintendent within such ninety- day period, the
license of the agency thereupon shall expire unless a provisional
license has been granted under the provisions of section 352- 1021.
$ 2- J- lO2- i. LICENSING OUT- OF- STATE COLLECIION
AGENTS
The superintendent shall issue a license to operate a collection
apncv to a person who holds and presents with his appiication a
valid and subsisting license to operate a collection agency issued by
another state or an agency thereof, if:
1. Requirements for securing the license were, at the time of
issuance, substantially the same or equal to requirements imposed
by this chapter.
2. The state concerned extends reciprocity under simi1. x cir-cumstances
to licensed collection agents of this state.
3. The application is accompanied by the fees and financial and
bollding requirements as set forth in this chapter.
1. The appIimnt agrees to maintain an office in this state for
collection of claims.
32- 1023. . ANNU. AL RESEIVAL OF LICENSE
.\. .\ person desiring to secure renewal of a collection agency
license shall file a financial statement and make a renewal appli-
fcoartmiosn ptore tshceri dbeedp abrtym tehnet snuopt elraitnetre nthdaenn tJ isientutianryg f1o orft he avcehri fyieeda r iun P o"" r-mation
to assist the su erintendent in determinin whether or not the applicant is in deP a ult of or in violation of % e tenns of this
chn ter and whether the applicant is still meeting the requirements
of t g is chapter. If the renewal applicant is unable to make a finan-cia1
statement at the time of filing the application the applicant may
make a written request for an extension of time to file such finan-ci.
11 report, and if extension is granted the applicant shall file a
Financial statement within thirty days ,~ ftert he issuance of a re-newal
license.
B. - 4 renewaI Iicense shall be issued Febnrary 1 each year upon
npplication as provided in subsection - 4 of this section.
352- 1026. ISSUANCE OF LICENSES
4. Within one hundred hventy days after receipt of an original
application. and within thirty days after receipt of a renewal appli-cation.
accompanied by the fees, financial statement and bond,
required by this chapter, the superintendent shall investigate the
r[ rralifiations of the applicant and, if he meets the qualifications
of this chapter, shall approve the application. If the application is
anproved, the License shall be promptly issued to the applicant.
If it. is disapproved, the fees submitted shall be retained by the
superintendent.
32- 1027. ISSU. LUCE OF PROVISIONAL LICENSE FOR
U\ LITED PURPOSES
In the event of the death of an individual Licensee, dissolution of
a licensee partnership by death or operation of law, or termination
of employment of the active manager if the licensee is a firm, part-nership,
association or corporation, if it is shown that the financial
and bonding requirements of this chapter have been met. the super-intendent
shall issue without fee a provisional license to the personal
representative of the deceased or his appointee, to the surviving
partners, or to the h, asso ciation or corporation, as the case may
be, which shall be valid for the following purposes only and expire
at the folIo\ vi. g times:
1. A provisional license issued to a personal representative or
his appointee shall expire one year from the date of issuance and
shall not be subject to renewal. Authority of the provisional licensee
shaIl not be limited to those activities deemed necessary to wind up
the business of the former licensee.
2 Other provisiond Iicenses shall expire three months from
the date of issuance unless the provisional licensee within such
period can qualify for a full license.
321023. FEES
Every original application filed on or before June 30 of each year
shall be accompanied by a nonrefundable investigation fee of fifty
dollars and a yearly license fee of one hundred dollars. Every origi-nal
application filed after June 30 each year shall be accom anied
by a nonrefundable investigation fec of fifty doUars and a Ecense
fee of one hundred dollars. Every renewal application shall be
accompanied by a fee of one hundred dollars.
32- 1051, DUTIES OF LICENSEES
.4n individual, firm, partnership, association or corporation to
whom a license is to be issued under this chapter shall:
1. Sleet the financial responsibility and bonding requirements
of this chapter.
2 Agree to maintain an office in this state for collection of
claims.
3. Not have been a former licensee under the revisions of this
chapter whose license was suspended or revoke and not subse-quently
reinstated.
d
4. Deal openly, fairly and honestly in the conduct of the collec-tion
agency business.
5. Not attempt to collect any collection fee, attorney's fee, court
cost or e. xpenses unless such fees, charges or e- xpenses are justly
due from ' and ! egaIly chargeable against the debtor, or have been
judicially determined, nor shall any licensee engage in any unfair
or misleading practices or resort to any oppressive, vindictive or
ilIegal means or methods of collection.
6. Not give or send to any debtor, or cause to be given or sent
to any debtor, any notice, letter, message or form which:
( a) Simulates any legal process-
( b) Is ambiguous as to or misrepresents the character, extent or
amount of ttle obli31tion of the debtor.
( c) Represents or infers that the existing obligation of the debtor
may be increased by the addition of attorneys' fees, investigation
fees, service fees, or any other fees or charges when in fact such
fees or charges may not lecplly be added to the existing obligation
of such debtor.
( d) Threatens to sell the obligation of the debtor to any person,
firm or group.
( e) Uses or sets forth the name of or purports to be from any
attorney at law or legal firm.
7. Not use any Ietterhead, or literature bearing any heading,
sIogan or statement representing or infemng that the licensee prac-
tices la\\*, legal services or advice, or maintains a Iegal
department.
8 Not by the use of any letterhead, advertisemenf agreement,
form, circuliir or other printed matter, or athenvise, convey the im-pression
that i t is vouched for or is an instrumentality of the state,
or n political subdivision of the state, or of the department.
32- 10.52 EX. Ih1LVATION OF LICENSEE RECORDS
. The superintendent, at any time he determines but not more
Frecpcntly than once each year, shall appoint a certified public ac-countant
or Iicensed public accountant to determine the current
financial condition of each collection Jgency Iicensed under this
chapter, and make a ot check of such agency to determine whether
the agency is ~ i l t oy violating paragraphs 1, 2, 3 or 4 of subsection
D of section 32- 105.
9
B. The accountant so appointed shnlI have free access to all
books. recards and files of the licensee. The superintendent shall
require each licensee to keep its look, records and files in such con-dition
that the spot check may be resdily and easily made.
C. The licensee may appoint a certified public accountant or a
licensed public accountant to audit the books of the licensee at
least once in each year. The superintendent may prescribe certain
omf inai mcoupmy orfe qthueir ermepeonrtts coofv esruincgh sauucdhi ta uadnidt isnh ahlils roef l ucier. e S tuhceh faiulidnigt
may at the option of the superintendent be accepted as a substitute
for or in lieu of an audit by the superintendent.
D. . An accountant a pointed under the provisions of subsection - 4 of this section shall \ e paid such fees as shall be fixed by the
superintendent at prevailing rates for such services and shall be
paid by the licensee to the accountant for all services performed
prior to January 1, 1970 and thereafter shall be paid by the superin-tendent.
09- 1053, REVOC. QTION OR S'LTSPENSION OF LICENSE
- 4. Upon the filing of a verified written complaint with the de
partment by an interested person chargng a licensee under this
chapter with having violated any of the terms of this chapter, the
superintendent s h d immediately have the alleged violation inves-tigated-
B. If the superintendent finds that such violations or misconduct
do not wanant the suspension or revocation of the license, he may
order that such licensee be warned concerning such violations or
mismnduct, and for a fixed period such licensee's operation shail be
subject to inspection as set forth in the order. Any repetition as
described in such order occurring within the time specified in such
order shall be sufficient cause to institute and impose disciplinary
action. Writtm notice of any such order of ivming, includin%. thr
eriod and terms of warning, shall be prornptIy given to the su lect
& censee by registered mail with return recei t requestd,
addressed to the last known business address of suc f~ licensee as
disclosed by the records of the department, and copies of all such
warning orders shall be placed in the records of the department.
C. If the investigation shows probable cause for revocation or
suspension of the license, the superintendent shaIl immediately issue
summons to the licensee, to be sewed in the same manner as in a
civil action, stating the alleged grounds for revocation or suspension
and fixing the time and place for a hearing which shall be not more
than twenhr days from the time. of senice of the summons. The
superintendent may subpoena witnesses, books and records and
administer oaths. The Iicensee may appear in person, or by or with
counsel to defend himseif against the charges.
D. If, upon hearinq, the superintendent finds the charges true,
he shall revoke or suspend the license. Suspension of the license
shall be for a definite time, but not longer than one year. person
whose license has been revoked after such hearing shall not be per-mitted
to again become 3 licensee under this chapter for two years.
E. The revocation of any license shall revoke any and a11 other
licenses issued to the same person, partnership, association or cor-poration
in all cues where such revocation results from the com-mission
of fraud or misrepresentation or any offense invoIbing morn1
turpitude or any m~ llful violation of the provisions of this chapter
or the rules and regulations adopted pursuant to this chapter, except
in those instances where any revocation results merely from failure
to do any act within the time specified in this chapter or such n11es
and regulations.
F. Reapplication for a license after revomtion as provided in
this section, shall be made in the same manner as for an orignal
application.
32- 1054. JUDICLAL REVIEW OF REYOCATION OR SUSPEN-SION
OF OR REn'SAL TO ISSUlE LICENSE
h decision of the superintendent revokicg suspendino, or refusing
to issue a. license may be appeaIed to the superior court of the county
in which the licensee resides for trial de nova, and a judament of
such court may be appealed to the supreme court, as in other civil
actions, by either party to the action.
321055. UZTCY4WFUL ACTS
k It is unIawfd for a erson to conduct a collection agency ia
this state without having applied for and obtained a license
under this chapter.
B. ; i collection asency licensed under this chapter shall not
directly or h~ duectlya id, abet or receive compensation from a un-licensed
erson, but nothing in this chapter shall prevent a licensed
iipencv ? ro m accepting, as forewardee, claims For collection From
n collection agency or attorney whose place of business is outside
the state.
C. .4 licensee shall not advertise a claim for sale, or threaten
to so '~ dvertise a claim, as a means of endeavoring to enforce such
payment, nor shall he agree to do so for the purpose of soliciting
ci~~ imbs. u t this subsection shall not be deemed to affect 3 licensee
acting , IS assignee for the benefit of a creditor, or acting under court
order.
D. It is unlanfuf for a person conducting a collection ngency
in this st. lte to:
1. F'lil to render an account of and ny to the client, for whom
collt~ ction has been made, the procee $ s collected, ! ess colIection
ch. irqes as dgreed to by applicant and client, within thirty days from
the last day of the month in which it is collected, except when the
amount due the client is less than five dollars, in which event pay-
~ ncnmt nv be deferred for an additional thirty days.
2. Fail to deposit with a local depository all monies collected
by him and due and owina clients, and to keep such monies de-posited
until remitted to succ clients.
3. Fail. to maintain an office or pIace of business in this state
for collection of claims.
4. Fail to keep a record of monies collected and the remittance
of such monies,
5. Foil to notify the department within ten days of any change
ot name under which the person does business as a collection agency
or ncfdress at which the business is conducted.
6. Aid or abet, directly or indirectly, any person, persons or
orzanizations in evading or violating any of the provisions of this
chapter.
E. The violation of any of the provisions of this chapter or the
r~ ilesa nd requiations adopted pursuant to this chapter shall mnsti-tute
grounds for n warning, the suspension or the revocation of a
license after a hearing as provided in this chapter. Upon the sus-pension
or revocation of a license, the department shall immediately
give notice by registered mail of such action.
32 10.33. PENALTIES
A. A person operating a collection agency without a license shalI
be piItv of a misdemeanor and shaii be punished as follows:
1. If the violation is by an individual, by a fine of not to exceed
five hundred dollars, by irnprisonment for not to exceed one year,
or both.
2, If the violation is by a corporation. by a fine of not to exceed
one thousand doIIars.
B. A licensee violating the provisions of section 32- 10.35 or the
rules and regulations adopted pursuant to this chzpter shall be sub-ject
to revocation of license and shall be pilty of a misdemeanor
punishalie as provided in subsection . i of th~ sse ction.
32- 1057. PROSECUTION OF VIOL- ITIOXS; INDWIDIJAL
LIABILITY
4 The prosecutinq officer OF ' 1 county or city shall prosecute
all violations of this cht~ ptcr occurring within his jurisdiction.
B. An officer or agent of a corporation or associahon participst-ing
in a violation of this chapter by such corporation or association
shall be subject to the penalties prescribed by section 3- 7- 10.56 for
an individua1.
SUPERINTENDENT OF BAVKS
Pursuant to A. R. S. 5s 6- 123 and 32- 1002, the Superintendent
of Banks adopts the following rules and regulations:
Part 1. Article 15, Chapter 4, T i t l e 4, A. C. R. R., adopted
as an emergency measure on September 6, 1978, is repealed.
Part 2. Chapter 4, T i t l e 4 , A. C. R. R., is amended by adding
a new a r t i c l e 15 to read as follows:
ARTICLE 15. COLLECTION AGENCIES
R4- 4- 1501. Definitions.
In t h i s a r t i c l e , unless the context otherwise requires:
1. " Client" means any person who has contracted w i t h a
collection agency w i t h regard to the coll2ction by the collec-tion
agency of any debt for such person.
2. " Collection agency" means a l l persons required to ob-
8
tain a collection agency license under Chapter 9 , T i t l e 32,
Arizona Revised Statutes.
3. nCredit bureau" and ' credit reporting agency' means any
person engaged exclusively in gathering, recording, and d i s -
seminating favorable, as well as unfavorable, information rela-tive
to the credit- worthiness, f i n a n c i a l r e s p o n s i b i l i t y , paying
habits and character of persons being considered for credit
extension, so that a prospective creditor may be able to make a
sound decision i n the extension of c r e d i t .
4. " C r e d i t o r n means any person who o f f e r s or extends cred-it
c r e a t i n g a d e b t , or to whom a debt is owed, but such term
does not i n c l u d e any person t o t h e e x t e n t t h a t he r e c e i v e s an
assignment or t r a n s f e r o f a debt i n 2 e f a u l t s o l e l y f o r the pur-pose
of f a c i l i t a t i n g c o l l e c t i o n of such debt f o r a n o t h e r .
5. " Debtn means any o b l i g a t i o n , or a l l e g e d o b l i g a t i o n , of
a debtor to pay money, whether or not such o b l i g a t i o n has been
reduced to judgment .
6. " Debtorw means any person o b l i g a t e d , or a l l e g e d l y o b l i -
g a t e d , t o pay a debt.
7. " Licenseen means the person t o whom a l i c e n s e has been
issued pursuant t o A. R. S. 5 32- 1026.
8. " Managern means the a c t i v e manager who is a c t u a l l y i n
charge of t h e conducting o f t h e o f f i c e and b u s i n e s s of any
l i c e n s e e a s defined h e r e i n , and who meets the q u a l i f i c a t i o n s
set f o r t h i n A. R. S. S 32- 1023( A).
9. " Superintendentff means the S t a t e Superintendent of
Banks, or h i s a u t h o r i z e d agent.
R4- 4- 1502. A p p l i c a t i o n s .
A. Application for a c o l l e c t i o n agency l i c e n s e s h a l l be
made by completing and f i l i n g with t h e Superintendent an
a p p l i c a t i o n on the form p r e s c r i b e d i n R4- 4- 1530. A. The
a p p l i c a t i o n f i l e d with t h e Superintendent s h a l l be accompanied
by the following:
1. The bond r e q u i r e d by A. R. S. 5 32- 1022;
2. The nonrefundable i n v e s t i g a t i o n f e e and o r i g i n a l
l i c e n s e f e e p r e s c r i b e d by A. R. S. § 32- 1028;
3. A c u r r e n t f i n a n c i a l s t a t z m e n t on the form p r e s c r i 5 e d i n
R4- 4- 1530. B;
4. A c e r t i f i e d copy of the c u r r e n t a r t i c l e s of incorpora-t
i o n , by- laws, p a r t n e r s h i p agreement, or o t h e r governing docu-ments
under which the a p p l i c a n t proposes to conduct b u s i n e s s ;
and
5 . A Statement o f Personal H i s t o r y f o r each p r i n c i p a l of-f
i c e r , p a r t n e r and manager of t h e a p p l i c a n t on t h e form pre-s
c r i b e d i n R4- 4- 1410.
B. An o u t - o f - s t a t e c o l l e c t i o n agency applying f o r a
l i c e n s e under A. R. S. § 32- 1024 s h a l l f i l e an a p p l i c a t i o n a s
provided i n s u b s e c t i o n A, and s h a l l f i l e with s a i d a p p l i c a t i o n
a signed s t a t e m e n t d e c l a r i n g t h a t :
1. The requirements f o r s e c u r i n g t h e l i c e n s e upon which
r e c i p r o c i t y is sought were, a t t h e t i m e of i s s u a n c e , substan-t
i a l l y t h e same or equal to the requirements imposed under
Chapter 9, T i t l e 32, Arizona Revised S t a t u t e s , t o g e t h e r with a
I, complete d e s c r i p t i o n of what those requirements were;
2. The state i s s u i n g t h e l i c e n s e upon which r e c i p r o c i t y is
s o u g h t e x t e n d s r e c i p r o c i t y under s i m i l a r c i r c u m s t a n c e s t o li-
I, censed c o l l e c t i o n agents of t h i s state, t o g e t h e r with a com-p
l e t e d e s c r i p t i o n of the c o n d i t i o n s upon which s a i d s t a t e ex-tends
r e c i p r o c i t y ;
3. The a p p l i c a n t a g r e e s , a s a c o n d i t i o n of l i c e n s u r e , to
maintain an o f f i c e i n t h i s s t a t e f o r t h e c o l l e c t i o n of claims.
C. A p p l i c a t i o n f o r renewal of a l i c e n s e s h a l l be made by
completing and f i l i n g with the Super i n t e n d e n t , p r i o r t o January
1 of each y e a r , an a p p l i c a t i o n f o r renewal on t h e form pre-s
c r i b e d i n R4- 4- 1530. C. Each a p p l i c a t i o n f o r renewal s h a l l be
accompanied by t h e renewal f e e p r e s c r i b e d i n A. R. S. 5 32- 1028,
and a c u r r e n t f i n a n c i a l s t a t e m e n t on the form p r e s c r i b e d i n
R4- 4- 1530. B.
D. Application f o r a p r o v i s i o n a l l i c e n s e under A. R. S. g
32- 1027 s h a l l be made by completing and f i l i n g with t h e Super-i
n t e n d e n t w i t h i n t h i r t y days from the occurrence of t h e event
warranting t h e l i c e n s e as p r e s c r i b e d i n A. R. S. § 32- 1027, an
a p p l i c a t i o n on the form p r e s c r i b e d i n R4- 4- 1530. C. The a p p l i c a -
t i o n s h a l l be completed i n a l l r e s p e c t s except t h a t i n t h e c a s e
of the death of an i n d i v i d u a l l i c e n s e e t h e a p p l i c a n t s h a l l be
s a i d l i c e n s e e ' s p e r s o n a l r e p r e s e n t a t i v e or h i s appointee; i n
the case of the d i s s o l u t i o n of a p a r t n e r s h i p l i c e n s e e , t h e
a p p l i c a n t s h a l l be t h e s u r v i v i n g p a r t n e r s ; and i n t h e case of
I) the t e r m i n a t i o n o f employment of the a c t i v e manager, t h e a p p l i -
c a n t s h a l l be the e x i s t i n g licensee and q u e s t i o n s regarding t h e
a c t i v e manager need not be completed. The a p p l i c a t i o n s h a l l be
c l e a r l y i d e n t i f i e d a t t h e top of t h e f i r s t page with t h e in-scr
i p t i o n " APPLICATION FOR PROVISIONAL LICENSE PURSUANT TO
A. R. S. 5 32- 1027" and s h a l l be accompanied by t h e following:
a. The bond required by A. R. S. S 32- 1022 executed and
acknowledged by the applicant as principal.
b. A current financial statement on the form
prescribed in R4- 4- 1530.8.
c. A detailed description of the facts justifying
the issuance of a provisional license.
d. In the case of termination of the employment of
the active manager, evidence that the Superintendent was
notified of such termination within ten days as required by
A. R. S. $ 32- 1023.
E. The Superintendent may require additional information
he considers necessary in connection with any application under
this rule.
R4- 4- 1503. Reserved,
R4- 4- 1504. Records.
A. All collection agencies shall keep and maintain books,
accounts and records adequate to provide a clear and readily
understandable record of all business conducted by the collec-tion
agency, including without limitation:
1. Records or books o f a c c o u n t s e t t i n g f o r t h t h e account
of each c l i e n t i n numerical o r d e r , or i n a l p h a b e t i c a l o r d e r
according to t h e names of t h e c l i e n t s . If t h e c o l l e c t i o n
agency's books of accounting a r e kept i n numerical o r d e r , t h e
c o l l e c t i o n agency s h a l l maintain an a l p h a b e t i c a l cross- index of
each c l i e n t c o r r e s p o n d i n g w i t h the number of t h e account. Each
s u c h a c c o u n t s h a l l reflect t h e t r u e c o n d i t i o n of each c l i e n t ' s
account at the end o f e a c h calendar month, and s h a l l i n c l u d e :
a. The name and addreqs of t h e c l i e n t ;
b. Name of the debtor or d e b t o r s from whom collec-t
i o n was or is being made;
c. Amount and d e s c r i p t i o n of each d e b i t and each
c r e d i t , and date t h e r e o f ;
d. Balance due to, or owing from, c l i e n t ; and
2. A record and h i s t o r y of each debt f o r c o l l e c t i o n which
s h a l l c l e a r l y show:
a. Name of t h e debtor;
b. P r i n c i p a l amount of the d e b t ;
c. Any i n t e r e s t charged or collected;
d. Any o t h e r charges, with a d e s c r i p t i o n t h e r e o f ;
e. Each payment received or collected, and t h e d a t e
t h e r e o f ;
f . The c u r r e n t balance due on t h e debt.
3. An o r i g i n a l of a l l w r i t t e n c o n t r a c t s and amendments
thereto which a r e e n t e r e d i n t o between the c o l l e c t i o n agency
and its c l i e n t s .
B. In addition to the foregoing, a l l receipts issued by
the collection agency shall be signed by and w i t h the name of
the person issuing the receipt, and shall show the name of the
collection agency thereon.
R4- 4- 1505. Reserved.
R4- 4- 1506. Reserved.
R4- 4- 1507. Representations of identity of licensee.
Each collection agency shall at a l l times i n its contacts w i t h
debtors, whether such contacts are written or oral, represent
i t s e l f as a collection agency, but it shall not represent,
either directly or indirectly, that it is a credit- reporting
agency or credit bureau when it is not such an entity, nor
shall it represent, either directly or indirectly, that it is
a law enforcement agency or that it is a law firm.
R4- 4- 1508. Representations of the law.
A collection agency shall not misrepresent to a debtor the
state of the law, shall not send to the debtor any written
material simulating legal process, and shall not represent or
imply that the debtor is or may be subject to criminal prosecu-
8 tion or arrest as a result of h i s failure to pay the debt.
Representations as to fees, costs and legal
proceedinqs.
8 A collection agency shall not threaten to collect or
attempt to collect any attorney's fee, collection cost or other
fee not provided for i n the contract establishing the debt
between the debtor and h i s c r e d i t o r , and a c o l l e c t i o n agency
s h a l l n e i t h e r inform a debtor t h a t l e g a l proceedings a g a i n s t
him have been i n i t i a t e d i n c o u r t when, i n f a c t , they have n o t ,
nor s h a l l a c o l l e c t i o n agency t h r e a t e n t o i n s t i t u t e l e g a l
proceedings or t h r e a t e n to t u r n t h e a c c o u n t o v e r to a lawyer
when, i n f a c t , such a c t i o n is not then intended. A c o l l e c t i o n
agency s h a l l not f i l e a l a w s u i t a g a i n s t a debtor unless such a
l a w s u i t is f i l e d by an a t t o r n e y who has no p e r s o n a l or finan-cial
i n t e r e s t in t h a t c o l l e c t i o n agency.
R4- 4- 1510. R e p r e s e n t a t i o n s a s to r i g h t s waived or
remedies a v a i l a b l e .
A c o l l e c t i o n agency s h a l l not inform a debtor t h a t , as a
r e s u l t of h i s f a i l u r e to c o n t a c t the c o l l e c t i o n agency, the
d e b t o r h a s waived, or w i l l have waived, any r i g h t or defense
l e g a l l y due him, or t h a t t h e c o l l e c t i o n agency may, by any
process, circumvent t h e l e g a l p r o c e s s , or o t h e r w i s e misrepre-s
e n t to the debtor any remedies a v a i l a b l e to the c o l l e c t i o n
agency.
R4- 4- 1511. P r o h i b i t i o n of harassment.
A c o l l e c t i o n agency s h a l l not engage i n unauthorized or
o p p r e s s i v e tactics designed to h a r a s s the debtor or o t h e r s to
pay any d e b t , i n c l u d i n g t h e use of any language, w r i t t e n o r
o r a l , tanding to r i d i c u l e , d i s g r a c e or humuliate, or tending to
imply, or a c t u a l l y implying, t h a t t h e debtor is g u i l t y of fraud
o r o t h e r crime. A c o l l e c t i o n agency s h a l l not permit its
a g e n t s , employees, representatives, or o f f i c e r s to employ
obscene o r a b u s i v e language a g a i n s t a debtor i n connection with
the attempt to c o l l e c t any d e b t . A c o l l e c t i o n agency s h a l l be
l i a b l e f o r a l l of t h e unlawful a c t s of its a g e n t s , employees,
r e p r e s e n t a t i v e s o r o f f i c e r s as provided for under A. R. S. 5 32-
1056. B.
R4- 4- 1512. C o n t a c t s w i t h d e b t o r s and others.
I f a c o l l e c t i o n agency c o n t a c t s , or a t t e m p t s to c o n t a c t , a
debtor by telephone i n connection w i t h t h e c o l l e c t i o n of a
debt, such c o n t a c t or a t t e m p t s h a l l be made during r e a s o n a b l e
hours only. A c o l l e c t i o n agency s h a l l not t h r e a t e n to c o n t a c t ,
or c o n t a c t , a d e b t o r ' s neighbors, f r i e n d s , r e l a t i v e s , employ-ers,
or o t h e r t h i r d p a r t i e s t o inform them of the d e b t , to ask
them to p r e s s u r e or coerce t h e debtor i n t o paying t h o d e b t , or
to a s k t h a t they, themselves, pay the debt where they a r e not
l e g a l l y o b l i g a t e d to pay t h e debt. A c o l l e c t i o n agency s h a l l
not c o n t a c t a debtor a t h i s p l a c e of employment u n l e s s a rea-sonable
attempt has been made to f i r s t c o n t a c t t h e debtor at
h i s p l a c e of r e s i d e n c e , and such attempt has f a i l e d . This r u l e
s h a l l not be c o n s t r u e d , however, t o prevent the l a w f u l s e r v i c e
upon t h i r d p a r t i e s , i n c l u d i n g employers, or any w r i t o f g a r -
nishment o b t a i n e d a f t e r judgment has been rendered a g a i n s t t h e
debtor f o r t h e d e b t being collected.
R4- 4- 1513. C e s s a t i o n o f c o n t a c t with d e b t o r .
A c o l l e c t i o n agency s h a l l cease a l l c o n t a c t s , d i r e c t or
i n d i r e c t , with t h e debtor i f and when t h e debtor informs t h e
c o l l e c t i o n agency t h a t he is r e p r e s e n t e d by an a t t o r n e y and
t h a t f u r t h e r communications r e l a t i v e t o the debt should be
d i r e c t e d t o such a t t o r n e y . If, upon c o n t a c t i n g such a t t o r n e y ,
it is discovered t h a t no bona f i d e a t t o r n e y - c l i e n t r e l a t i o n s h i p
e x i s t s , t h e c o l l e c t i o n agency may resume lawful c o n t a c t s with
the debtor,
R4- 4- 1514. Disclosure of information t o debtor.
A c o l l e c t i o n agency must d i s c l o s e t o the debtor from whom
it is attempting t o c o l l e c t the debt the name of the c r e d i t o r ,
t h e t i m e and place of t h e c r e a t i o n of the debt, the merchan-d
i s e , s e r v i c e s or o t h e r t h i n g s of value underlying the debt,
and the date when the account was turned over to the c o l l e c t i o n
agency by t h e c r e d i t o r . A debtor s h a l l have t h e r i g h t of
access to a c o l l e c t i o n agency's books and records concerning
the debtor or the debt. Upon request, the c o l l e c t i o n agency
s h a l l provide to the debtor, without c o s t , copies of any docu-ment
r e l e v a n t to the debt or its c o l l e c t i o n .
R4- 4- 1515. Aiding and Abetting.
No person s h a l l aid o r a b e t , d i r e c t l y or i n d i r e c t l y , any
other person in evading o r v i o l a t i n g any of the p r o v i s i o n s of
t h i s a r t i c l e or any of the provisions of T i t l e 32, Arizona
Revised S t a t u t e s .
R4- 4- 1516. Advertising.
No c o l l e c t i o n agency s h a l l , by the use of any l e t t e r h e a d ,
advertisement, agreement, form, c i r c u l a r or other p r i n t e d
m a t t e r , o r otherwise, convey t h e inpression t h a t it is vouched
f o r or is the Super i n t e n d e n t of any agency or i n s t r u m e n t a l i t y
of t h e S t a t e of Arizona, or t h a t it is a u t h o r i z e d to p r a c t i c e
law.
34- 4- 1517. Holder i n due course.
A l i c e n s e e s h a l l not be deemed a holder i n due c o u r s e even
if he is an a s s i g n e e f o r value, or o t h e r w i s e g i v e s value f o r
the debt.
R4- 4- 1518 through R4- 4- 1529. Reserved.
R4- 4- 1530. Forms.
ARUONAL EC; ISL~ TIVCEO UNCIL APPENDIX IV
M E M O March 21, 1979
TO: Douglas R. Norton, Auditor General
FROM: Legi s 1 at i ve Counc i 1
RE: Request for Research and Statutory Interpretation
( 0- 79- 6)
This is in response to a request made on your behalf on March 6, 1979 by
Gerald A. Silva.
QUESTION PRESENTED:
What should the Banking Department do when it receives a renewal
application for a collection agency license after the January 1 deadline but
prior to February 1 when the old license expires?
Section 32- 1025, Arizona Revised Statutes, requires a person desiring to
renew a collection agency license to make a renewal application to the state
banking department not later than January I of each year. Upon proper
application and approval, a renewal license is issued by the department on
February 1.
' No specific penalty for filing a late application for license renewal is
provided in section 32- 1025, Arizona Revised Statutes, or in the rules and
regulations ( A. C. R. R. R- 4- 8) promulgated by the superintendent of banks to
enforce the provisions of Title 32, chapter 9, Arizona Revised Statutes, relating
to the administration, licensing and regulation of collection agencies.
However, within the chapter, section 32- 1055, subsection E, Arizona
Revised Statutes, provides:
E. The violation of any of the provisions of this chapter or
the rules and regulations adopted pursuant to this chapter shall
constitute grounds for a warning, the suspension or the revocation of
a license after a hearing as provided in this chapter. Upon the
suspension or revocation o f a license, the department shall
imnediately give notice by registered mail of such action.
In addition, section 32- 1002, subsection B, paragraph 4, Arizona Revised
' tatutes, states that the superintendent of banks " shall take actions necessary
to rectify violations of this chapter and to suspend or revoke licenses as
provided in this chapter."
These provisions thus require the superintendent to deal with the
0 collection agency submitting the late renewal application either by taking
" actions necessary to rectify" the violation or by following the procedures for
revocation and suspension o f a collection agency license specified in section
32- 1053, Arizona Revised Statutes. These procedures include:
1. Imnediate investigation by the superintendent of the alleged
violation.
2. A warning to the licensee concerning the violation if the
superintendent finds that the violation does not warrant suspension or
revocation of the license.
3. A sumnons, hearing and revocation or suspension for up to one year of
the license if the investigation indicates probable cause for revocation or
suspension of the license and the superintendent finds the charges to be true.
Conclusion
When the appropriate official of the state banking department receives a
late renewal application for a collection agency license, the official should
notify the superintendent of banks of the violation of section 32- 1025, Arizona
Revised Statutes, and the superintendent should take appropriate action under
section 32- 1302, subsection 8, paragraph 4 or section 32- 1053 and section
32- 1055, subsection E, Arizona Revised Statutes.
If the renewal application is filed prior to the expiration of the existing
license it would seem that at least a warning would be in order. Arizona Revised
Statutes section 32- 1025, subsection A requires license renewal applications to
be filed not later than January 1 of each year and subsection B provides for
renewal licenses to be issued on February 1 upon application as provided in
subsection A. In the suggested case, hcwever, the facts involve a failure to
I) comply with the application filing date by the applicant which would release the
superintendent from the requirement of complying with the specified renewal
license issuance date of February 1 since sectior 32- 1026, Arizona Revised
Statutes, allows the superintendent a period of thirty days from receipt of a
renewal application, accompanied by the fees, f inanci a1 statement and bond to
investigate to determine if an applicant seeking a renewal license is qualified.
I) Hence it seems that such cases would properly result in a warning to the
applicant indicating the following:
1. The applicant violated Arizona Revised Stacutes section 32- 1025,
subsection A by failure to make a timely application for license renewal.
I) 2. That the superintendent, because of the applicant's delayed compliance
with the license renewal requirements, was authorized to utilize a period of
time, not to exceed thirty days, to investigate the applicant to determine
whether the applicant meets prescribed licensure qualifications.
3. That the applicant would violate Title 32, chapter 9, Arizona Revised
Statutes by conducting a collection agency without having obtained a license by
engaging in the regulated activities of collection agencies for the time period
between February 1 of the current year and the date of the actual license renewal
i ssuance.
APPENDIX V
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s h o u l d p r e c s d e che dztte o f t3. i; a ; p ~ : c z t L s n by ~ c zio r = t h a - 3 ~ j is.
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i a b l a a s s e t s v h i c h s h o u i d be l i s c e d a t c o s c l s s s a i l z w a n c z i o r c e -
p r e c i a t i o n . In t h e c a s e of r e a l e s t a t e , : he c u r r e n t m a r k e t v s l u e of
which s u b s t a n t i a l l y e:< ceeds c a s t , c t e n a r k e t v a i s e x a y 5e e c t e r e i a s
a f o o t n o t e t o t h e s r a t e r e n t of f i n a n c i a l c o n d i t i o n .
The a g u i t y p r o t i o n of ; he ; c a t e n i c : s h o . ~ i id i s c l o s e ::-.* 7 r : ; r i e -
, . . t c r s h i ? , ? a r t n e r s h i p o r s h a r e h o l d e r s ' ecui: y ic 3 s i n g l s aauun: : n: c:
z o u l d i n c l u d e t h e i n v e s t z e n t a c c o u n t a u j u s c ~ df o r r e t a i - e c e a r - i c - 6- J
o r i a s s e s a s of t h e i a t e of t h e s t i t + x e n t .
? l e a s e a n s v e r r h e f c l l o w i c s q a s s t i c n s :
1. T a s e and a d d r e s s of b a n k ( s ) v i t h v h i c h t h e s ; q l i c a n t h a s had an
a c c o u n t d u r i n g t h e p a s t f i v e y e a r s .
2 . Sana and a d d r e s s of e s c h p r i n c l ? a i s h a r e n c l d s r , showing zxz.>+ r ; f
s h a r e s of s t o c k k e l d by z a c n .
3 . Ar* any s f t z e a s s e t s of che a s p l ; c a n t ? l e d ; e c fsr = n3- ? 4 r > s s e
i?. c; udicg p e r s o n a : l o a n s ?
i. Our T i n a n c i a i S t a c e a e n t s as 3 i :-, a* re! >.;-? e cd z
3 3 ~ 2of s t a c ~ ~ s n r
3ern 2:< 3ti-+ d b y a c i z i ? ? ? n ? e n t a u i i t z r .
--- n h< 32 SA.> fE LUZE. a SOLE PRCPRIETGRSBIP a P A X T K E R S B I ? ~
BUSISESS ACDEESS S t r e e t C i t y S t a t e z i p
ASSETS:
C u r r e n t A s s e t s :
Cash on Hand - o p e r a t i n g a c c o u n t
t r u s t a c c o u n t
Cemand c h e c k i n g a c c o u n t s
S a v i n g s a c c o u n t s i n c l u d i n g
C e r t i f i c a t e s of D e p o s i t
S o t e s r e c e i v a b l e
A c c o u n t s r e c e i v a b l e
M e r c h a n d i s e i n v e n t o r y
O t h e r , s p e c i f y
T o t a l C u r r e n t A s s e t s
F i x e d A s s e t s :
C o r p o r a t e s h a r e s
C o r p o r a t e bonds
Z e a l e s t a t e
F u r n i t u r e , f i x t u r e s and e q u i p m e n t
O t h e r , s p e c i f y
T o t a l F i x e d A s s e t s
TOTAL ASSETS
C u r r e n t L i a b i l i t i e s
A c c o u n t s p a y a b l e
Notes p a y a b l e
Taxes p a y a b l e
O t h e r , s p e c i f y
T o t a l C u r r e n t L i a b i l i t i e s
Long Term L i a b i l i t i e s :
E o t e s p a y a b l e , u n s e c u r e d
K o t e s p a y a b l e , s e c u r e d
O t h e r , s p e c i f y
T o t a l Long T e r n L i a b i l i t i e s
TOTAL LIABILITIES
TOTAL LIAaILITIES and EQCITY