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Debt Settlement Attorney Model Looks Dead

May 12, 2009

It appears that the latest version of the Debt Settlement Consumer Protection Act kills the attorney model people are running to adopt in order to avoid the regulation.

While the new bill increases the performance fee earned after a successful settlement to 10% it define a debt settlement service as:

“(i) offering to provide advice or service, or to act or acting as an intermediary between or on behalf of a consumer and one or more of a consumer’s creditors, where the primary purpose of the advice, service, or action is to obtain a settlement, adjustment, or satisfaction of the consumer’s debt to a creditor in an amount less than the full amount of the principal amount of the debt or in an amount less than the current outstanding balance of the debt; or

“(ii) offering to provide services related to or providing services advising, encouraging, assisting, or counseling a consumer to accumulate funds for the primary purpose of proposing, obtaining, or seeking to obtain a settlement, adjustment, or satisfaction of the consumer’s debt to a creditor in an amount less than the full amount of the principal amount of the debt or in an amount less than the current outstanding balance of the debt.

That sure seems to cover any work that would have been done by an attorney to reduce debt or settle.

The only attorney exemption now is for bankruptcy:

The term `debt settlement service’ does not include services of an attorney in providing information, advice, or legal representation with respect to filing a case or proceeding under title 11, United States Code.

Also, the following is included:

‘‘(B) EXCEPTION.—The term ‘debt settlement provider’ does not include the following:

‘(i) An attorney providing a debt settlement service to a consumer who—

‘‘(I) is licensed to practice law and in good standing in the jurisdiction where the consumer resides;

‘‘(II) personally provides such service while acting in the ordinary practice of law;

‘‘(III) puts any advance fee received from the consumer in a client trust account until earned pursuant to the terms of a written agreement that details the work to be performed by the attorney and the fee schedule for the attorney’s work;

‘‘(IV) is engaged in the practice of law through the same business entity ordinarily used by the attorney when providing legal services that are not part of a debt settlement service;

‘‘(V) does not share any fee received for the provision of such service with a person who is not an attorney; and

‘‘(VI) does not provide such service through a partnership, corporation, association, referral arrangement, or other entity or arrangement—

‘‘(aa) that is directed or controlled, in whole or in part, by an individual who is not an attorney;

‘‘(bb) in which an individual who is not an attorney holds any interest;

‘‘(cc) in which an individual who is not an attorney is a director or officer thereof or occupies a position of similar responsibility;

‘‘(dd) in which an individual who is not an attorney has the right to direct, control, or regulate the professional judgment of the attorney; or

‘‘(ee) in which an individual who is not an attorney and who is not under the supervision and control of the attorney delivers such service or exercises professional judgment with respect to the provision of such service.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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