As An Arizona Licensee: Are You Following The Arizona Trust Account Rules?

The Arizona Department of Financial Services (DFS) strictly interprets Ariz. Admin. Code § 20-4-1505 as to how debt collector licensees are prohibited from trust account commingling with their operating account funds.

It has long been the law in all jurisdictions that debt collectors may not “borrow” funds from their client trust accounts for their day-to-day business needs. Trust accounts exist to ensure that consumer funds are submitted timely to creditor/clients.

But many debt collectors during Arizona audits have been subjected to monetary assessments when they meet client contract obligations by protecting consumers. Debt collectors are penalized by the DFS for using their operating account to cover trust account shortfalls when mandatory client remittances are required at month-end. These trust account infusions from operating are for all recorded consumer payments regardless of actual cleared or backed-off consumer ACHs or checks.

Yes, the effect of this operating account deposit is to benefit consumers by giving them full account credit before the ACH hits or a check clears, all by complying client contract requirements.

Recently, we received the Department’s guidelines as how they are interpreting their trust account reviews.

Per the DFS:

• A licensee shall deposit client [or consumer] funds only to its trust account.
• The trust account should be labeled as a trust account by the bank, that means it is recognized as a trust account vs. "naming" it as a trust account internally.
• A licensee shall deposit all funds collected for a client in a trust account within 3 business days.
• A licensee shall not deposit funds from its operating account to its trust account for any amount for any period of time for any reason.
• All unpaid client funds must be kept in a designated trust account.
• All unpaid client funds over 3 years must be escheated to the State.
• All client funds shall be remitted to a client when such funds become available funds to remit.
• A licensee shall withdraw from its trust account all fees and commissions due the licensee under its contract with a client and deposit them directly into its own operating account.  
• A licensee shall not pay any funds from its trust account except remits to a client and the licensee's actual earned commissions.

Questions about Arizona trust account rules or licensing and regulatory responsibilities? We are here to help!

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