Just one day after the Senate hearing on the debt settlement industry, many inside the industry think the hearings went okay or feel they were a bit one sided but they can recover from that. People, it’s time to wake up and smell the coffee.
A Washington Post article today confirms what I’ve been saying about federal legislation being pushed forward by the credit counseling industry trade groups and major banks. According to the Washington Post the legislation is to be introduced by Senator Charles Schummer next week.
I’ve seen that legislation and if the debt settlement industry didn’t like the hearings yesterday they sure as hell are not going to like this legislation that limits up-front fees to $50, allows no monthly fees, caps settlement fees at 5% of the debt actually settled, allows for full refunds by consumers, and prohibits claims of debt reductions or settlement success unless verified by an independent audit.
I think what is most interesting about the legislation to come is that if the debt settlement industry thinks creditors are behind them they are in for a cold shower. Guys, your date is just about to run off with your best friend.
You see, the biggest banks have participated in the drafting or already reviewed this new Schummer legislation, along with the National Foundation for Consumer Credit, (NFCC), and the Association of Independent Consumer Credit Counseling Agencies (AICCCA). And one thing I do have to praise the NFCC for is that they know how to give an ass whopping extraordinaire. They have tremendous street cred with regulators.
Here are some key excerpts from the Washington Post article titled “Debt-settlement firms misled consumers, GAO report says.”
A government investigation into the burgeoning debt-settlement industry has found that many firms misled consumers by claiming to be affiliated with federal stimulus programs and exaggerating their ability to reduce consumers’ loans.
The report by the Government Accountability Office, presented Thursday at a Senate commerce committee hearing, included audio recordings of salesmen describing their companies as “government approved” and linking settlements to the federal bailout of troubled banks. Another sales recording stated that all customers eliminated their debt in three years, while others encouraged customers to stop paying their creditors — a practice that violates the industry’s own standards.
“It is appalling beyond words,” Sen. John D. Rockefeller IV (D-W.Va.), who heads the committee, said at the hearing. “These debt-settlement companies are kicking people when they are down.”
Industry groups have defended their business by pointing to roughly $2 billion in debts that they have settled. The U.S. Organizations for Bankruptcy Alternatives (USOBA) and the Association of Settlement Companies (TASC) said that their members are supposed to fully disclose the terms of their agreements with customers and are prohibited from encouraging them to stop paying bills.
But the GAO examination, which was conducted from November through this month, found that 17 of the 20 companies contacted told undercover investigators to do just that.
In addition, the companies claimed success rates from 85 to 100 percent. The FTC and state investigations have found the rate to be less than 10 percent, though the industry argues that it is closer to 34 percent.