Fiscal Note & Local Impact Statement

125 th General Assembly of Ohio

Ohio Legislative Service Commission

77 South High Street, 9th Floor, Columbus, OH 43215-6136 ² Phone: (614) 466-3615

² Internet Web Site: http://www.lsc.state.oh.us/

BILL:

Sub. H.B. 420

DATE:

May 26, 2004

STATUS:

As Reported by Senate Finance and Financial Institutions

SPONSOR:

Rep. T. Patton

LOCAL IMPACT STATEMENT REQUIRED:

No —

Minimal cost

 


CONTENTS:

Modifies the Secured Transactions Law, modifies the Garnishment Law, enacts provisions relative to engaging in the business of debt adjusting, eliminates provisions related to regulating entities engaging in the business of debt pooling, and prohibits the unauthorized use of the name or logo of a financial institution in connection with the sale or advertising of any product or service if such use is misleading or deceptive

 

State Fiscal Highlights

 

STATE FUND

FY 2005

FY 2006

FUTURE YEARS

General Revenue Fund (GRF)

     Revenues

Potential negligible gain

Potential negligible gain

Potential negligible
annual gain

     Expenditures

Potential increase

Potential increase

Potential annual increase

Consumer Protection Enforcement Fund (Fund 631)

      Revenues

Potential gain, likely to be sporadic and minimal

Potential gain, likely to
be sporadic and minimal

Potential annual gain, likely to be sporadic and minimal

      Expenditures

Potential increase,
up to available revenue

Potential increase,
up to available revenue

Potential annual increase,
up to available revenue

Victims of Crime/Reparations Fund (Fund 402)

     Revenues

Potential negligible gain

Potential negligible gain

Potential negligible
annual gain

     Expenditures

- 0 -

- 0 -

- 0 -

Note:  The state fiscal year is July 1 through June 30.  For example, FY 2005 is July 1, 2004 – June 30, 2005.

 

·        Office of the Attorney General workload.  The administrative, investigative, and enforcement duties assigned to the Office of the Attorney General under the bill would most likely be performed by its Consumer Protection Section, whose funding is split between the Consumer Protection Enforcement Fund (Fund 631) and the General Revenue Fund (GRF).  Presumably, any additional annual operating expenses generated as a result of performing these administrative, investigative, and enforcement duties might be offset by additional revenues that could be collected and deposited in Fund 631.  At the time of this writing, it appears that the Office of the Attorney General is uncertain as to how, if at all, the bill’s debt adjusting provisions will affect its annual consumer protection workload and related operating costs. 


·        Fund 631 revenues.  The Consumer Protection Enforcement Fund (Fund 631) may realize a gain in annual revenues through the pursuit of civil remedies that result in courts of common pleas assessing fines and penalties against violators and awarding the Office of the Attorney General all costs and expenses associated with their investigation, in addition to reasonable attorney’s fees.  At the time of this writing, it appears unlikely that the total amount of additional revenue that might be credited to Fund 631 annually would exceed minimal on a regular basis.[1] 

·        Court cost revenues: debt pooling provisions.  As a result of the debt pooling provisions in the bill, it is possible that some individuals may be prosecuted and sanctioned who may not otherwise have been prosecuted and convicted under existing law.  As a result, the state may gain locally collected court cost revenues that are deposited to the credit of the GRF and the Victims of Crime/Reparations Fund (Fund 402).  As the number of affected individuals appears to be relatively small, the amount of court cost money that each of those state funds may gain annually is likely to be negligible.[2] 

·        Court cost revenues: unauthorized use of the name or logo of a financial institution.  As a result of the provisions in the bill dealing with the unauthorized use of the name or logo of a financial institution, it is possible that some individuals may be prosecuted and sanctioned who may not otherwise have been prosecuted and convicted under existing law. Violating the associated prohibition is a misdemeanor of the first degree, which carries a possible jail term of up to six months and a maximum fine of $1,000.  At the time of this writing, LSC fiscal staff is uncertain as to the number of new criminal cases that could be prosecuted annually, but estimate that the number would be relatively small for any affected county or municipal criminal justice system.  As a result, the state may gain locally collected court cost revenues that are deposited to the credit of the GRF and the Victims of Crime/Reparations Fund (Fund 402).  As the number of affected individuals appears to be relatively small, the amount of court cost money that each of those state funds may gain annually is likely to be negligible.[3] 

Local Fiscal Highlights

 

LOCAL GOVERNMENT

FY 2004

FY 2005

FUTURE YEARS

Counties and Municipalities

     Revenues

Potential gain, not likely to exceed minimal

Potential gain, not likely
to exceed minimal

Potential gain, not likely
to exceed minimal annually

     Expenditures

Potential increase, not likely to exceed minimal

Potential increase, not
likely to exceed minimal

Potential annual increase, not
likely to exceed minimal

Note:  For most local governments, the fiscal year is the calendar year.  The school district fiscal year is July 1 through June 30.

 

·        Local criminal justice system expenditures: debt pooling provisions.  Based on LSC fiscal staff’s largely anecdotal information, it appears unlikely that a large number of new criminal matters will be generated each year and added to the prosecutorial workloads of local prosecutors as a result of the bill’s debt pooling provisions.  Thus, if there is any resulting increase in the annual expenditures of county and municipal criminal justice expenditures to adjudicate, prosecute, defend (if indigent), and possibly sanction violators, it seems likely that such an increase would be no more than minimal.[4]  This potential fiscal effect on local government expenditures could be minimized if local prosecutors defer the handling of these criminal cases to the Office of the Attorney General or ask for the assistance of the Office of the Attorney General in the prosecution of these cases.

·        Court cost and fine revenues: debt pooling provisions.  If, as expected, a relatively small number of new criminal cases and subsequent convictions result from the bill annually, then the amount of additional court cost and fine revenues that counties and municipalities might collect annually is not likely to exceed minimal on an ongoing basis.[5]

·        Attorney General-initiated civil actions: debt pooling provisions.  It appears unlikely that the bill’s requirements will generate a costly new burden for courts of common pleas, county courts, or municipal courts in the form of a large number of civil cases requiring adjudication brought about by the Office of the Attorney General’s pursuit of civil remedies.  Depending upon the civil remedy that the Office of the Attorney General brings, a portion of the fine that could be assessed against a violator by the court might go to the treasury of the county where the case took place.  It appears unlikely that the amount of additional revenue that any given county might receive annually would exceed minimal on a regular basis.

·        Consumer-initiated civil actions: debt pooling provisions.  Legislative Service Commission fiscal staff is uncertain as to the number of consumers that will elect to pursue a civil remedy, but assume that it will be a fairly small number on an annual basis.  Based upon this assumption, then the amount of additional filing fee and court cost revenue that might be collected by counties and municipalities annually is likely to be relatively small and the annual cost associated with common pleas courts, county courts, and municipal courts adjudicating these matters is not likely to exceed minimal.

·        Civil actions: unauthorized use of the name or logo of a financial institution.  As a result of the provisions in the bill dealing with the unauthorized use of the name or logo of a financial institution, it is possible that some new civil actions may be filed in a court of competent jurisdiction by financial institutions.  At the time of this writing, LSC fiscal staff is uncertain as to the number of new civil actions that could be filed annually.  However, it is probable that the number would be relatively small for any affected court. 

·        Criminal provisions: unauthorized use of the name or logo of a financial institution.  As a result of the provisions in the bill dealing with the unauthorized use of the name or logo of a financial institution, it is possible that some individuals may be prosecuted and sanctioned who may not otherwise have been prosecuted and convicted under existing law.  Violating the associated prohibition is a misdemeanor of the first degree, which carries a possible jail term of up to six months and a maximum fine of $1,000.  At the time of this writing, LSC fiscal staff is uncertain as to the number of new criminal cases that could be prosecuted annually, but estimate that the number would be relatively small for any affected county or municipal criminal justice system.  Any resulting expenditure increase or revenue gain seems unlikely to exceed minimal annually for any affected county or municipal criminal justice system.


 


 

Detailed Fiscal Analysis

 

For the purposes of this fiscal analysis, the bill most notably:

 

·        Modifies the Secured Transactions Law relating to the notice of disposition requirement and the amount of recoverable damages.

·        Modifies the Garnishment Law relative to property subject to garnishment held by a judgment debtor’s employer or another person.

·        Eliminates current law regulating debt-pooling companies.

·        Enacts new provisions relative to engaging in the business of debt adjusting, including providing a criminal penalty and civil remedies.

·        Enacts new provisions prohibiting the unauthorized use of the name or logo of a financial institution including providing a criminal penalty and a civil remedy.

 

Secured Transactions Law

 

The bill makes various modifications to the Secured Transactions Law that will effectively reduce recoverable damages by a debtor or secondary obligor in a civil action against a creditor that violates the Secured Transactions Law.  If the state or a local government were to be a party, specifically acting as a debtor or secondary obligor, to such a civil action, the state or that local government could conceivably be awarded less in damages than otherwise might have been the case under current law.  However, at the time of this writing, LSC fiscal staff is unaware of any such cases in which the state or a local government is, or may be, a party.  Therefore, the likelihood that the bill’s modifications to the Secured Transactions Law could fiscally impact the state or a local government seems improbable.

 

Garnishment Law

 

            The bill modifies the Garnishment Law to require that a judgment creditor’s affidavit seeking garnishment specify that a judgment debtor’s employer or another person “may have” personal earnings or other property that is not exempt from garnishment.  It does not appear that this provision of the bill will have any fiscal related effects on either the state or local governments.

 

Debt adjusting

 

Attorney General expenditures

 

Under the bill, any person engaging in debt adjusting is required to arrange for and undergo an annual audit conducted by an independent, third party, certified public accountant of the person’s business, including any trust funds deposited and distributed to creditors on behalf of debtors.  In accordance with this requirement, (1) the person must file the results of the audit and the auditor’s opinion with the Consumer Protection Division of the Office of the Attorney General, and (2) the Office of the Attorney General is required to make available a summary of the results of the audit and the auditors’ opinion upon written request of a person and payment of a fee not exceeding the cost of copying the summary and opinion.

 

The administrative, investigative, and enforcement duties assigned to the Office of the Attorney General under the bill would most likely be performed by its Consumer Protection Section, whose funding is split between the Consumer Protection Enforcement Fund (Fund 631) and the GRF.  Presumably, any additional annual operating expenses generated as a result of performing these administrative, investigative, and enforcement duties might be offset by additional revenues that could be collected and deposited in the Consumer Protection Enforcement Fund (Fund 631).

 

At the time of this writing, it appears that the Office of the Attorney General is uncertain as to how, if at all, the bill’s debt adjusting provisions will affect it’s annual consumer protection workload and related operating costs. 

 

Criminal provisions

 

Relative to criminal penalties and its debt adjusting provisions, the bill:

 

·        Makes certain violations a misdemeanor of the third degree and a misdemeanor of the second degree for any subsequent offense.

·        Imposes an additional fine of not more than $10,000 for certain violations.

 

Table 1 below summarizes the debt adjusting prohibitions and their associated penalties.

 

Table 1

Debt Adjusting Prohibitions and Related Penalties

Prohibition

Unfair or Deceptive Act or Practice

Criminal Penalty

Additional Fine

Distribution of funds

(ORC 4710.02 (A)(1))

Yes

·   3rd degree misdemeanor on first offense; Maximum 60 days in jail/$500 fine.

·   2nd degree misdemeanor on second and subsequent offense; Maximum 90 days in jail/$750 fine

None

Maintain separate trust accounts

(ORC 4710.02 (A)(2))

Yes

Same as above

None

Contribution limits

(ORC 4710.02 (B)(1)-(3)

Yes

Same as above

None

Auditing requirements

(ORC 4710.02(D))

No

Same as above

$10,000/violation

Insurance requirements

(ORC 4710.02 (E))

No

Same as above

$10,000/violation

 

As a violation of any of the prohibitions noted in Table 1 above is a misdemeanor, the adjudication of such a violation would fall under the subject matter jurisdiction of either a county court or a municipal court.  At the time of this writing, the number of misdemeanor cases that might result from certain debt adjusting violations and require adjudication is difficult to quantify.  That said, based on LSC fiscal staff’s largely anecdotal information, it appears that the number of misdemeanor cases requiring adjudication in any given county court or municipal court annually appears likely to be relatively small.

 

Local prosecutors would have the right to refuse handling these criminal cases, thus, in effect, turning them over to the Office of the Attorney General.  Alternatively, local prosecutors can accept these criminal cases and request assistance from the Office of the Attorney General.  If the Office of the Attorney General were involved in these cases, the necessary legal work would most likely be done by its Consumer Protection Section.

 

The potential fiscal effect on local government expenditures could be minimized if county and municipal prosecutors defer the handling of these criminal cases to the Office of the Attorney General or ask for the assistance of the Office of the Attorney General in the prosecution of these cases.

 

If these violations are successfully prosecuted in local criminal justice systems, then the state, counties, and municipalities could gain revenues.  Counties and municipalities might gain court cost and fine revenues and the state might gain locally collected state court cost revenues that would be divided between the GRF and the Victims of Crime/Reparations Fund (Fund 402).  If, as expected, a relatively small number of new criminal cases and subsequent convictions result from the bill annually, then the amount of additional revenue that counties and municipalities might collect annually is not likely to exceed minimal on an ongoing basis and the amount of additional revenue that the state might collect annually is likely to be negligible.

 

Civil remedies

 

Under the bill, a violation related to certain provisions – 30-day disbursal of funds to creditors, maintenance of separate accounts for debtors, contribution limits – is deemed an unfair or deceptive act or practice in violation of the state’s Consumer Sales Practices Act (CSPA). Under the CSPA, there are two civil remedies available for handling violations of Consumer Sales Practices Act:  one civil remedy would be available to the Office of the Attorney General, who can investigate violations, seek a declaratory judgment, an injunction or other equitable relief, or organize and bring a class action, and the other civil remedy would be available to consumers. 

 

Attorney General-initiated remedy.  It seems likely that in many cases where the bill’s debt adjusting prohibitions are violated the Office of the Attorney General would probably pursue a civil, as opposed to a criminal, remedy and that the associated legal work would be handled by its Consumer Protection Section.  It also seems likely that the Office of the Attorney General would try to settle the issues surrounding violating these new prohibitions prior to initiating any formal legal action.  For example, the violators could simply agree to cease their conduct, and assuming they do so, the Office of the Attorney General would stop incurring any related legal expenses.  Similar to the procedures taken in existing Consumer Sales Practices Law cases, the Office of the Attorney General would seek court action against a person as a last resort if they perceive that the person is receiving a pattern of consumer complaints. 

 

Assuming a less formal negotiating strategy does not work, the Office of the Attorney General could request that a court of common pleas issue a declaratory judgment, a temporary restraining order, or an injunction in order to persuade violators to cease their offending behavior. 

 

If, on the other hand, the Office of the Attorney General successfully pursues a civil remedy under preexisting Consumer Sales Practice Law, the court adjudicating the matter can award the Office of the Attorney General all costs and expenses associated with their investigation, in addition to reasonable attorney’s fees.  The court may also order civil penalties up to $25,000.  Three-quarters of this civil penalty (as much as $18,750 if the maximum $25,000 possible fine is assessed), as well as the investigation costs and attorney’s fees would be credited to the state’s Consumer Protection Enforcement Fund (Fund 631).  The remaining one-quarter of the civil penalty that violators could be ordered to pay would go to the treasury of the county where the case took place (as much as $6,250 if the $25,000 maximum possible fine is assessed). 

 

Consumer-initiated remedy.  A consumer injured by a violation of the bill’s restrictions has the same civil remedies as are currently available under the Consumer Sales Practices Law, which means that additional civil suits could be filed.  The filing of such civil suits would likely generate some additional filing fee and court cost revenue for counties and municipalities and place some additional burdens on the courts that will have to adjudicate these matters.  Legislative Service Commission fiscal staff is uncertain as to the number of consumers that will elect to pursue a civil remedy, but assume that it will be a fairly small number on an annual basis.  Based upon this assumption, then the amount of additional filing fee and court cost revenue that might be collected by counties and municipalities annually is likely to be relatively small and the annual cost associated with courts adjudicating these matters is not likely to exceed minimal.

 

Unauthorized use of the name or logo of a financial institution

 

            Civil remedy

 

Under the bill, any financial institution may proceed by suit to enjoin the use of the financial institution’s name or logo in connection with the sale, offering for sale, distribution, or advertising of any product or service without the express written consent of the financial institution, if such use is misleading or deceptive.  Under current law, financial institutions are already entitled to a course of action under the deceptive trade statutes as well as other common law provisions.  The bill provides an additional course of action that may perhaps make it easier to enjoin the before mentioned prohibited action.  That said, it is possible that some new civil actions may be filed in a court of competent jurisdiction by financial institutions.  At the time of this writing, LSC fiscal staff is uncertain as to the number of new civil actions that could be filed annually.  However, it is probable that the number would be relatively small for any affected court. 


            Criminal offense

 

The bill makes the unauthorized use of the name or logo of a financial institution a misdemeanor of the first degree. As a result of the bill, it is possible that some individuals may be prosecuted and sanctioned who may not otherwise have been prosecuted and convicted under existing law.  Violating the associated prohibition is a misdemeanor of the first degree, which carries a possible jail term of up to six months and a maximum fine of $1,000.  At the time of this writing, LSC fiscal staff is uncertain as to the number of new criminal cases that could be prosecuted annually, but estimate that the number would be relatively small for any affected county or municipal criminal justice system.  Any resulting expenditure increase or revenue gain seems unlikely to exceed minimal annually for any affected county or municipal criminal justice system.

 

In addition, the state may gain locally collected court cost revenues that are deposited to the credit of the GRF and the Victims of Crime/Reparations Fund (Fund 402).  As the number of affected individuals appears to be relatively small, the amount of court cost money that each of those state funds may gain annually is likely to be negligible.

 

 

 

LSC fiscal staff:  Jamie L. Doskocil, Budget Analyst

 

HB0420SR.doc/cm



[1] Regarding fiscal effects on state revenues, “minimal” means an estimated revenue gain of less than $100,000 per year for Fund 631.

[2] “Negligible” means an estimated revenue gain of less than $1,000 per year for either state fund.

[3] “Negligible” means an estimated revenue gain of less than $1,000 per year for either state fund.

[4] Regarding fiscal effects on local government expenditures, “minimal” means an estimated cost of no more than $5,000 per year for any affected county or municipal criminal justice system. 

[5] “Minimal” in this case means an estimated annual revenue gain of no more than $5,000 for any affected county or municipality.