Arizona Court of Appeals Division One holds that under the statutes defining debt management companies: (1) “receiving money” includes constructive receipt where the company exercises substantial control over clients funds; and (2) the company does not have to actually disburse money to creditors, it only has to receive money for that purpose.

The Arizona Department of Financial Institutions (“the Department”) executes Arizona’s laws pertaining to financial institutions and enterprises including banks, lenders, and debt management companies.  Under those laws an entity must be licensed as a debt management company if it “engages in the business of receiving money . . . as agent of a debtor for the purpose of distributing the same to his creditors.”  A.R.S § 6-701(4). 

The Department investigated JHass for unlicensed activity and issued a cease and desist order and fine.  JHass argued that it was not a debt management company because it did not actually receive money.  Instead of receiving client money directly, JHass had its clients deposit money into an account operated by a third party.  JHass then had the authority to schedule payments from that account to itself and creditors.  The third-party and the debtors also had some control over the account.

The Department concluded that under this arrangement JHass constructively received money and qualified as a debt management company.  JHass appealed that decision to the superior court and lost.  At the Court of Appeals, JHass again argued that to be considered a debt management company under the statute, it had to actually receive the clients’ money and then actually disperse money to creditors. 

The Court of Appeals determined that “receive” has various definitions, making the statute ambiguous.  Although the statutes regulating debt management companies do not contain an express declaration of purpose, reading the statutes as a whole shows that the legislature intended the definition of “receiving money” to be broader than physical possession.  Courts in other states have reached the same conclusion applying similar statutes.  The Court of Appeals held that an entity “receives” money if it exercises substantial control over client funds.

Finally, the Court of Appeals determined that the statute only requires that the money was received for the purpose of disbursing it to creditors.  The Department did not have to establish that JHass actually paid any money to creditors.

Judge Brown authored the opinion; Presiding Judge Swann and Judge Jones concurred.