Chapter 5.  Debt Collection Agencies
§501. Reserved
§503.  DISBURSEMENT OF SECURITY MONIES
(LAC 10:XV.503)

Under the authority of the Administrative Procedure Act, LSA-R.S. 49:950 et seq., and particularly LSA-R.S. 49:953 B(1) relating to emergency rulemaking, and in accordance with the provisions of LSA-R.S. 9:3576.16 C. contained within the Collection Agency Regulation Act, LSA-R.S. 9:3576.1 et seq., the Commissioner of the Office of Financial Institutions hereby determines that adoption of the following rule, which provides for the procedure this Office and all affected constituents are to follow upon the forfeiture or voluntary surrender of the posted security of a licensed debt collection agency and the resolution of competing claims to these monies, is necessary and that failure to do so would pose an imminent peril to the public health, safety and welfare.

The Office of Financial Institutions ("office") is presently faced with competing claims by former clients of now-defunct collection agencies to the monies represented by surety bonds or other security posted by these companies and assigned to this Office in accordance with the provisions of LSA-R.S. 9:3576.15. This office must now promulgate a procedure for the disbursement of the underlying funds of such posted security as required by LSA-R.S. 9:3576.16 C. to assure that such monies are fairly, equitably and expeditiously distributed among all proper claimants.

Therefore, in accordance with LSA-R.S. 49:953 B., the office hereby adopts this rule, the effective date of which is March 10, 1998, and such rule shall be in effect for a period of 120 days or until promulgation of a final rule, whichever occurs first.

FINANCIAL INSTITUTIONS, CONSUMER CREDIT,
INVESTMENT SECURITIES, AND UCC

Part XV. Other Regulated Entities
Chapter 5. Debt Collection Agencies

A.     Purpose. The Office of Financial Institutions is presently faced with competing claims by former clients of now defunct collection agencies to the security monies represented by surety bonds or cash monies posted by these licensed companies and assigned to this office in accordance with LSA-R.S. 9:3576.15. This office must promulgate procedures for the discovery and recognition of claims against this security, and for the fair, equitable and expeditious distribution of these funds among all qualified claimants.

B.     Definitions.

Bar Date - the date after which no new claims may be filed.

Claim - any obligation of a licensed debt collection agency owed to a client for the payment of money arising out of any agreement or contract for the collection of funds owed to the client by a debtor.

Client - any person authorizing or employing a collection agency to collect a debt on their behalf.

Commissioner - the Commissioner of Financial Institutions.

Concursus - a proceeding similar to that which is set forth in the Louisiana Code of Civil Procedure, LSA-C.C.P. arts. 4651-4662.

Defunct Agency - a debt collection agency that has voluntarily relinquished its license or has had its license terminated, and does not have sufficient funds in its trust account(s) to pay its outstanding claims owed to its clients.

Security monies - a surety bond or, cash monies which is required to be posted by a debt collection agency to ensure the prompt and full payment of claims.

C. Background.
LSA-R.S. 9:3576.15 A. requires entities licensed as debt collection agencies under the Collection Agency Regulation Act, ("CARA") LSA-R.S. 9:3576.1, et seq., to post a surety bond in favor of the Office of Financial Institutions ("office") in the amount of $10,000. LSA-R.S. 9:3576.15 C. permits a licensee to deposit cash or other securities with the office in lieu of such bond. LSA-R.S. 9:3576.16 permits clients or customers to bring suit against such bond or other security when such parties allege damages through the failure of the licensee to properly remit due and owing funds in accordance with LSA-R.S. 9:3576.18. LSA-R.S. 9:3576.16 B. requires the Commissioner to maintain a record of all suits commenced under CARA upon a surety bond, cash or other security deposited in lieu thereof.

D. Bar Date.
The bar date for filing claims shall be the same as provided for in Rule 3002(c) of the Federal Bankruptcy Rules of Procedure, which shall be 90 days after the post mark date on the notice form. The post mark date on the notice form shall not be included in calculating the 90-day bar date period.

E. Maintenance of Suit Records.
The office will file a motion with the appropriate Clerk of Court for the Judicial District wherein the affected debt collection agency is located, requesting that the clerk provide notice of all suits commenced against the surety bond or cash monies which have been posted with the Commissioner in accordance with LSA-R.S. 9:3576.16 C., when he has knowledge that a suit may be or has been commenced.

F. Action on a Surety Bond.
If the Commissioner receives notice that a client has commenced an action on a surety bond posted as security by the licensee, he may require the debt collection agency to provide notice to each client, as identified on the records of the licensee, of the commencement of said action, and include therein the name and address of the surety company that has issued the surety bond.

G. Procedure to Resolve a Defunct Agency.

1. If the licensee has opted to post security in the form of cash, in accordance with the requirements established by the Commissioner, and the licensee has surrendered its license or has had its license terminated, and if the licensee does not have sufficient funds available in its trust account(s) to pay all of its outstanding client claims, the office may avail itself of the following method of resolving competing claims:

2. Such an action may be initiated in the nature of a concursus proceeding; however, the Commissioner may modify the procedures set out in La. C.C.P. Articles 4651 -4662 in any manner he deems necessary to accomplish the dissolution and distribution of the cash monies in an equitable and expeditious manner.

3. The following is an illustrative listing of the steps to be followed in providing notice to claimants and to distribute securities monies to all qualified persons having competing claims. The Commissioner may modify this procedure as he deems necessary and appropriate to effectuate its purposes.

a. A written notice shall be provided to all clients advising them of the intention of the Office to distribute the cash monies held in actual or constructive possession by the Commissioner.

b. Such notice shall provide the name and address of the office where claims may be filed, and the person to whom such claims should be directed.

c. The notice shall also provide that any and all claims which are either disqualified or which are not timely filed will be barred from participating in the distribution of the cash monies.

d. Along with the notice referred to above, the Commissioner will provide each claimant with a proof of claim form which must be completed in every respect and filed with the Office within the bar period provided in Section 507 above. The Commissioner will be required to verify each proof of claim as being valid before accepting them for filing. If a claim cannot be verified, it will be disqualified and will not be eligible to participate in the distribution of the cash monies.

e. Upon the expiration of the bar date, and after each qualified proof of claim has been verified, the Commissioner will compile a list of all persons who are eligible to participate in the distribution of the cash monies, and the amount of funds that each person has claimed they are owed.

f. All notices, proof of claim forms, and other required forms shall be as prescribed by the Commissioner.

H. Distribution of the Cash Monies.

1. After the office has determined the names of all eligible claimants, the Commissioner shall petition the Nineteenth Judicial District Court for authority to have each claimant recognized as having a valid claim against the cash monies in the possession of the office.

2. To his petition the Commissioner shall attach a proposed method of distribution, setting out the amount he proposes each claimant is due, and seeking Court approval of the method of distribution.

3. The Commissioner may pray in his petition for an order of the Court authorizing payment of the competing claims in accordance with the method of distribution set out in his petition.

4. The method of distribution of the cash money shall be accomplished in a manner which the Commissioner deems to be reasonable, and which shall assure prompt and expeditious payment to the claimants and is calculated to minimize the expenses associated with the distribution of funds.

5. After the distribution of funds has been completed, the Commissioner shall seek an order of the Court to be released from any further liability for the distribution of funds.

6. The Commissioner may also pray for any other relief, both legal and/or equitable, that he deems necessary and appropriate to effectuate the purposes of this rule.

I. Severability. If any section, term, or provision of any of the foregoing rule, LAC 10:XV.503, is for any reason declared or adjudged to be invalid, such invalidity shall not affect, impair, or invalidate any of the remaining rules, or any term or provision thereof.

AUTHORITY NOTE: Promulgated in accordance with LSA-R.S. 9:3576.16 C.

HISTORICAL NOTE: Promulgated by the Department of Economic Development, Office of Financial Institutions, 24:

Larry L. Murray
Commissioner