As I said, a bill would be coming to control debt settlement companies and here it is.
Of particular interest are the consumer groups that are part of the release.
SCHUMER, MCCASKILL UNVEIL BILL TO REIN IN PREDATORY DEBT SETTLEMENT COMPANIES—SCAMMERS TAKE CONSUMERS’ MONEY AND LEAVE THEM DEEPER IN THE HOLE
Debt Settlement Companies Offer ‘Quick and Easy’ Solutions to Consumer Credit Problems, But Instead Leave Consumers Deeper in Debt With Further Damaged Credit Ratings
Schumer-McCaskill ‘Debt Settlement Consumer Protection Act’ Would Provide Greater Disclosure, Limit Fees to Consumers, and Provide Additional Enforcement Power to State and Federal Agencies to Protect Consumers from Scams
Senators: Deceptive and Abusive Debt Settlement Scams Are Rampant and Need to be Shut Down
WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) and Claire McCaskill (D-MO) introduced new legislation Wednesday to protect millions of working families that are struggling with substantial personal debt but are being preyed upon by scammers that claim to provide debt-settlement assistance. The “Debt Settlement Consumer Protection Act” would provide greater disclosure to consumers, limit fees that debt settlement firms can charge, and provide additional enforcement power to state and federal official to crack down on these abusive and predatory companies.
There has been an exponential growth in the number of debt settlement companies offering so-called “quick and easy” solutions to consumer credit problems. On radio and television, consumers have been bombarded with an onslaught of advertisements with false and deceptive claims about debt settlement companies’ ability to negotiate deals with creditors to reduce or cancel consumer debts. Many consumers facing challenges in meeting their financial obligations have increasingly turned to these companies for debt settlement assistance – with disastrous results. In reality, these for-profit companies take consumers’ money and leave them even deeper in debt. Consumers’ credit scores also take a big hit.
“When consumers are working to get their financial house in order, the last thing they need is for debt settlement scams to bury them deeper into debt,” said Schumer. “This legislation will crack down on predatory companies that are preying on those already in dire financial situations. We need to make sure that working families who are digging themselves out of debt and trying to recover from financial ruin are protected from companies that are out to increase their profit. This legislation will help keep the wolves at bay while families try to regain their financial strength.”
“Debt settlement companies prey on people who are desperate and vulnerable, often through misleading and fraudulent promises of help,” McCaskill said. “This bill would rightfully crack down on these predatory practices and help protect hard-working families who are struggling to pay off their bills.”
The premise of debt settlement is simple: the consumer is advised to stop paying their creditors and instead make monthly payments into an escrow account to accumulate money. The debt settlement company promises to use the account to strike a bargain with creditors. The company claims it will negotiate with the consumer’s creditors and convince them to accept partial payment in full satisfaction of the amount owed by the consumer.
In reality, the vast majority of debts do not settle. In fact, many credit card companies refuse to work with debt settlement firms. Not only are consumers out the hefty fees charged by debt settlement companies, including up-front fees (often a percentage of the total debt), fees to set up escrow accounts, and monthly maintenance fees. They also often are sued by their creditors for the balance due – which, perversely, has grown larger as a result of the debt settlement companies’ advice to consumers to stop paying their debts.
In these economically troubled times, financially vulnerable consumers should be shielded from these kinds of predatory anti-consumer practices. The Debt Settlement Consumer Protection Act would do just that by requiring debt settlement companies to provide meaningful written disclosures to consumers before services are rendered, limiting the types of fees that debt settlement companies can charge, and providing federal and state enforcement authorities with the tools necessary to protect consumers from abuses.
The Schumer-McCaskill Debt Settlement Consumer Protection Act does three main things:
Specifically it requires debt settlement companies to itemize the services to be provided, list the consumer’s debts, provide a clear and conspicuous list of all fees and compensation to be paid by the consumer to the debt settlement company, and inform consumers of their right to cancel the debt settlement contract and get fees refunded. It prohibits a debt settlement company from requesting or receiving any debt settlement fee from a consumer until the company has provided the consumer with documentation that a debt has, in fact, been settled, ensures settlement fees are reasonable and commensurate to the actual services provided, and that they cannot exceed specified amounts.
It also provides consumers with the right to cancel a debt settlement contract and receive a full refund of unearned fees. Lastly, the legislation provides for enforcement through the Federal Trade Commission, state Attorneys General, and private rights of action as well as giving the FTC the ability to regulate the advertising and marketing practices of debt settlement companies.
The Debt Settlement Consumer Protection Act will provide much-needed, fundamental consumer protection to millions of working families. Consumer groups and non-profit credit counseling organizations that have endorsed the bill include: Consumers Union, the Consumer Federation of America, the National Consumer Law Center on behalf of its low income clients, and the National Foundation for Credit Counseling.
Gail Hillebrand, Senior Attorney & Financial Services Campaign Manager, Consumers Union, said: “Senator Schumer’s bill will address the serious problems for consumers in debt settlement and end the incentive for debt settlement companies to sign up consumers who they have no realistic likelihood of helping.”
Susan C. Keating, President & CEO, National Foundation for Credit Counseling, said: “In a business where the norm seems to be to mislead consumers in advertising, to fail to make meaningful disclosures, and to collect excessive fees in advance of providing services, Senator Schumer’s legislation is the first comprehensive bill in Congress to protect consumers struggling to pay their bills from these and other deceptive and predatory practices that are rampant in the debt settlement industry. We congratulate Senator Schumer for his leadership on this important consumer issue.”
Travis Plunkett, Legislative Director of the Consumer Federation of America, said: “The Consumer Federation of America applauds Senators Schumer and McCaskill for introducing important legislation to crack down on debt settlement predators. These firms often charge outrageous fees by falsely claiming that they can slash the amount consumers owe their credit card companies. However, the sad reality for many debt settlement clients is the opposite of what they are promised: more debt, a ruined credit rating, and a bleak financial future.”
The National Consumer Law Center has also endorsed the bill: “Senator Schumer’s bill will give consumers long-needed protection from those who prey on the desperate by offering false hope of relief from crushing debts at an exorbitant price.”