1.1                          A bill for an act
  1.2             relating to commerce; regulating payroll services 
  1.3             firms; amending Minnesota Statutes 1994, section 
  1.4             13.71, by adding a subdivision; Minnesota Statutes 
  1.5             1995 Supplement, section 332.13, subdivision 2; 
  1.6             proposing coding for new law in Minnesota Statutes, 
  1.7             chapter 332. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1994, section 13.71, is 
  1.10  amended by adding a subdivision to read: 
  1.11     Subd. 21.  [PAYROLL SERVICES FIRM DATA.] Reports of current 
  1.12  operations and business plans of payroll services firms are 
  1.13  classified under section 332.305. 
  1.14     Sec. 2.  Minnesota Statutes 1995 Supplement, section 
  1.15  332.13, subdivision 2, is amended to read: 
  1.16     Subd. 2.  "Debt prorating" means the performance of any one 
  1.17  or more of the following: 
  1.18     (a) managing the financial affairs of an individual by 
  1.19  distributing income or money to the creditors thereof; 
  1.20     (b) receiving funds for the purpose of distributing said 
  1.21  funds among creditors in payment or partial payment of 
  1.22  obligations of a debtor; or 
  1.23     (c) settling, adjusting, prorating, pooling, or liquidating 
  1.24  the indebtedness of a debtor.  Any person so engaged or holding 
  1.25  out as so engaged shall be deemed to be engaged in debt 
  1.26  prorating regardless of whether or not a fee is charged for such 
  2.1   services.  This term shall not include services performed by the 
  2.2   following when engaged in the regular course of their respective 
  2.3   businesses and professions: 
  2.4      (1) Attorneys at law, escrow agents, accountants, 
  2.5   broker-dealers in securities; 
  2.6      (2) Banks, state or national, trust companies, savings 
  2.7   associations, title insurance companies, insurance companies and 
  2.8   all other lending institutions duly authorized to transact 
  2.9   business in the state of Minnesota, provided no fee is charged 
  2.10  for such service; 
  2.11     (3) Persons who, as employees on a regular salary or wage 
  2.12  of an employer not engaged in the business of debt prorating, 
  2.13  perform credit services for their employer; 
  2.14     (4) Public officers acting in their official capacities and 
  2.15  persons acting pursuant to court order; 
  2.16     (5) Nonprofit corporations, organized under Minnesota 
  2.17  Statutes 1967, Chapter 317, giving debt prorating service, 
  2.18  provided no fee is charged for such service; 
  2.19     (6) Any person while performing services incidental to the 
  2.20  dissolution, winding up or liquidation of a partnership, 
  2.21  corporation or other business enterprise; 
  2.22     (7) The state of Minnesota, its political subdivisions, 
  2.23  public agencies and their employees; 
  2.24     (8) Credit unions, provided no fee is charged for such 
  2.25  service; 
  2.26     (9) "Qualified organizations" designated as representative 
  2.27  payees for purposes of the Social Security and Supplemental 
  2.28  Security Income representative payee system and the federal 
  2.29  Omnibus Budget Reconciliation Act of 1990, Public Law Number 
  2.30  101-508; ~~and~~ 
  2.31     (10) Accelerated mortgage payment providers.  "Accelerated 
  2.32  mortgage payment providers" are persons who, after satisfying 
  2.33  the requirements of sections 332.30 to 332.303, receive funds to 
  2.34  make mortgage payments to a lender or lenders, on behalf of 
  2.35  mortgagors, in order to exceed regularly scheduled minimum 
  2.36  payment obligations under the terms of the indebtedness.  The 
  3.1   term does not include:  (i) persons or entities described in 
  3.2   clauses (1) to (9); (ii) mortgage lenders or servicers, 
  3.3   industrial loan and thrift companies, or regulated lenders under 
  3.4   chapter 56; or (iii) persons authorized to make loans under 
  3.5   section 47.20, subdivision 1.  For purposes of this clause and 
  3.6   sections 332.30 to 332.303, "lender" means the original lender 
  3.7   or that lender's assignee, whichever is the current mortgage 
  3.8   holder; and 
  3.9      (11) Payroll services firms.  "Payroll services firms" 
  3.10  means persons who have custody of or control over an employer's 
  3.11  funds for the purpose of paying, on behalf of the employer, 
  3.12  taxes, wages, salaries, fringe benefit premiums, or retirement 
  3.13  plan contributions. 
  3.14     Sec. 3.  [332.305] [PAYROLL SERVICES FIRMS.] 
  3.15     (a) Before beginning or continuing a payroll services 
  3.16  business in this state, a payroll services firm as defined in 
  3.17  section 332.13, subdivision 2, clause (11), shall submit to the 
  3.18  commissioner of commerce either: 
  3.19     (1) a surety bond in which the payroll services firm is the 
  3.20  obligor, in an amount determined by the commissioner; or 
  3.21     (2) if the commissioner agrees to accept it, a deposit: 
  3.22     (i) in cash in an amount equivalent to the bond amount; or 
  3.23     (ii) of authorized securities, as defined in section 50.14, 
  3.24  with an aggregate market value equal to the bond amount.  The 
  3.25  cash or securities must be deposited with the state treasurer. 
  3.26     (b) The amount of the bond required by the commissioner 
  3.27  shall be based upon the maximum amount of Minnesota customer 
  3.28  funds held or to be held by the obligor.  For new businesses, 
  3.29  the bond amount must be no less than $100,000.  The commissioner 
  3.30  may increase the required bond amount upon 30 days' written 
  3.31  notice to the payroll services firm.  The payroll services firm 
  3.32  shall provide to the commissioner annually a written summary of 
  3.33  its current operations and a business plan sufficient to permit 
  3.34  the commissioner to determine the bond amount required under 
  3.35  this paragraph.  If a payroll services firm has custody of or 
  3.36  control over a customer's funds in an amount that exceeds the 
  4.1   amount of the bond or other security provided under this 
  4.2   section, the payroll services firm shall notify the commissioner 
  4.3   in writing within five business days.  Items submitted to the 
  4.4   commissioner under this paragraph are nonpublic data as defined 
  4.5   in section 13.02, subdivision 9.  
  4.6      (c) If a bond is submitted, it must have as surety an 
  4.7   insurance company authorized to transact fidelity and surety 
  4.8   business in this state.  The bond must run to the state of 
  4.9   Minnesota for the use of the state and of any customer who may 
  4.10  have a claim against the obligor arising out of the obligor's 
  4.11  activities as a payroll services firm.  The bond must be 
  4.12  conditioned that the obligor will not commit any fraudulent act 
  4.13  and will faithfully conform to and abide by the provisions of 
  4.14  its payroll services agreements with Minnesota customers.  
  4.15     (d) If a payroll services firm has failed to satisfactorily 
  4.16  account to a customer for the customer's funds or has failed to 
  4.17  distribute funds as required by the payroll services agreement, 
  4.18  the customer or the customer's legal representative or receiver 
  4.19  or the commissioner shall have, in addition to any other legal 
  4.20  remedies, a right of action in the name of the customer on the 
  4.21  bond or the other security given under this section. 
  4.22     (e) The commissioner of commerce may conduct financial 
  4.23  examinations under section 46.04 of payroll services firms to 
  4.24  determine compliance with this section and section 332.306. 
  4.25     Sec. 4.  [332.306] [SEGREGATED ACCOUNTS.] 
  4.26     A payroll services firm shall hold amounts received by it 
  4.27  from or on behalf of a customer in a separate trust account 
  4.28  clearly designated for customer funds.  The account must be in a 
  4.29  bank or other depository institution authorized or chartered 
  4.30  under the laws of any state or of the United States.  The 
  4.31  payroll services firm shall not commingle funds held for payment 
  4.32  on behalf of customers with its own property or funds.  The 
  4.33  payroll services firm shall not withdraw funds from this account 
  4.34  except to make payments on behalf of a customer, as required 
  4.35  under a payroll services agreement with the customer, or to 
  4.36  receive compensation from a customer, as specified in a payroll 
  5.1   services agreement with the customer.  These trust accounts are 
  5.2   subject to audit by the commissioner of commerce, to ascertain 
  5.3   compliance with this section and for purposes of section 332.305.
  5.4      Sec. 5.  [EFFECTIVE DATE.] 
  5.5      Sections 1 to 4 are effective January 1, 1997.