I’ll admit I’m a bit late with this news but on April 13, 2010 Kentucky signed into law a new tough set of rules that regulate credit counseling, debt settlement and foreclosure assistance.
FRANKFORT, Ky. — Gov. Steve Beshear was joined today by Kentucky Attorney General Jack Conway as he signed into law HB 166, a consumer protection bill that addresses debt-adjusting contracts that are often entered into by desperate homeowners who have fallen behind on their mortgage payments and are seeking a quick, easy solution to their financial problems.
Sponsored by Rep. Susan Westrom, of Lexington and co-sponsored by Rep. Robert Damron, of Nicholasville, and Rep. Tommy Thompson, of Owensboro, HB 166 now forces debt-adjusting companies to have written and signed contracts; prohibits a debt adjuster from accepting a fee, contribution or other consideration in advance of complete performance of promised services; and gives the debtor legal recourse if they have suffered a loss of money or property, including the right to punitive damages and attorney’s fees and costs.
“Many Kentuckians are still battling the effects of the financial recession our state and country have endured for nearly two years,” said Gov. Beshear. “Unfortunately, a number of homeowners are looking for easy ways to restructure their mortgage in order to avoid foreclosure, falling prey to unscrupulous debt-adjustors that promise to get them lower monthly payments in return for exorbitant up-front fees. By signing this legislation today, I am sending a message to these debt-adjustors that Kentuckians will not allow their future to be taken from them as a result of scams that take their money and deliver nothing in return.”
HB 166 allows civil penalties to be sought by the Attorney General for willful violations in the amount of $5,000 per violation of the Consumer Protection Act. It also adds a $50,000 bond requirement, both enhancements of the current debt-adjustor legislation already on the books. The legislation also requires debt-adjustors to take reasonable precautions to ensure the security and confidentiality of a debtor’s personal information. The law takes effect 90 days after the General Assembly adjourns sine die.
Attorney General Jack Conway today hailed the enactment of House Bill 166 as an important consumer protection law. The Kentucky General Assembly unanimously passed the measure to better protect struggling Kentuckians from ‘foreclosure relief’ or ‘loan modification’ scams.
“This new law will better protect Kentucky families who are struggling to pay their home mortgages from scams that prey on their sense of desperation and hopelessness,” General Conway said. “There will now be strict limits on upfront fees charged by these companies, tougher civil penalties against debt adjusters who violate the Consumer Protection Act and consumers will have a clear right to sue on their own.”
“Our biggest challenge is to first steer people away from unscrupulous foreclosure relief companies,” said Rep. Westrom. “Our second challenge is to be diligent in tracking down the bad actors who will always prey upon those who feel they have limited options.”
House Bill 166
HB 166 contains the following provisions:
- Strict limits on upfront fees that many foreclosure relief companies charge for their services. Maximum of $75 for one-time set-up fees, and up to $50 each year for consultation fees.
- Can charge $30 a month or 8.5% of amount of debt the company is servicing as a handling charge.
- Debt adjusters dealing with debts secured by a mortgage on a consumer’s residence must obtain more insurance coverage ($250,000 more than the $100,000 to $250,000 required for all debt adjusters).
- All debt adjusters must post a surety bond of $25,000, but the bond is $75,000 for debt adjusters dealing with debts secured by a mortgage on a consumer’s residence.
- All debt adjuster contracts must be written, have a 14-day right to cancel, fully disclose all fees and services, and can be terminated by the consumer at any time.
- Debt adjusters cannot make certain representations about their services or their effectiveness. For instance, they cannot claim that they can prevent litigation, foreclosure, or collection efforts against the consumer, or that the debt adjuster will provide money to pay bills or prevent liens, or that the fees paid to the debt adjuster for its services will be used to pay creditors. Debt adjusters also cannot misrepresent their ability or competence to give legal advice or legal services.
- Debt adjuster contracts must include similar disclosures. For example, contracts must disclose that failure to make required payments to creditors may breach agreements and lead to adverse effects, and must tell the earliest date or amount of money the consumer must save before the debt adjuster will contact creditors.
- Debt adjusters must continue to register with the Attorney General’s Office, and renew the registration each year.
- Enforcement capabilities will be increased. For instance, the Attorney General’s Office can investigate and take enforcement action using Kentucky’s Consumer Protection Act, and civil penalties are increased to $5,000 (the penalty was $500). Additionally, consumers will have a clear right to sue on their own.
- Consumers’ private information cannot be sold without authorization, and the information must be properly protected by the debt adjuster.
General Conway says the passage of HB 166 is the result of the hard work of numerous agencies and members of the Kentucky General Assembly working together to better protect Kentucky families during these tough economic times. “I appreciate the hard work of Representatives Westrom, Damron and Thompson as well as my Office of Consumer Protection, the Kentucky Housing Corporation, Kentucky’s Department of Financial Institutions and Legislative Research Commission,” General Conway said. “I would also like to give special thanks to Bill Harned, Johnny Cantrell and the other members of the Consumers Advisory Council, who helped craft this legislation and advocated passage of the bill.”
What is interesting about this new law is that the release seems to focus on foreclosure relief and loan modification companies but in reading the new law it also applies to:
Debt adjusting” means doing business in this state in debt adjusting, budget counseling, debt management, debt modification or settlement, foreclosure assistance, or debt pooling service, or holding oneself out as acting or offering or attempting to act as an intermediary between a debtor and his or her creditors for a fee, contribution, or other consideration, or[,] by words of similar import, as providing services to debtors in the management, settlement, modification, or adjustment of their debts, to do any of the following:
(a) Effect the adjustment, compromise, settlement, modification, or discharge of any account, note or other indebtedness of the debtor;
(b) Receive from the debtor and disburse to the debtor’s creditors any money or other thing of value; or
(c) Solicit business and advertise as a debt adjuster;
There are some interesting features in the new law that you might be interested in. In fact the law makes no allowance for any debt settlement fee based on settling the debt.
- Any person that engages in debt adjusting shall arrange for and undergo an annual audit of the person’s business, including any trust funds deposited and distributed to creditors on behalf of debtors, which shall be conducted by an independent, third-party certified public accountant.
- The bond required by paragraph (a) of this subsection shall be in effect during the period of the debt adjuster’s registration as well as for two (2) years after the debt adjuster ceases to provide debt-adjusting services to debtors.
- A debt adjuster may not, directly or indirectly:
Settle a debtor’s debt if the amount the debtor will owe after settlement is equal to or more than fifty percent (50%) of the amount of the debt prior to settlement unless, after the creditor has assented, the debtor assents to a settlement for which the amount the debtor will owe after settlement is equal to or more than fifty percent (50%) of the amount of the debt prior to settlement;
Take a power of attorney that authorizes the debt adjuster to settle a debt, unless the power of attorney is expressly limited to the debtor’s debts and grants authority to settle debts only if the amount the debtor will owe after settlement is less than fifty percent (50%) of the amount of the debt prior to settlement. However, in no event shall an agreement confer on a debt adjuster a power of attorney to negotiate or settle any of the debtor’s debt that is primarily for personal, family, or household use that is secured by a mortgage, deed of trust, other equivalent consensual security interest on residential real property, or collateral that has a mortgage lien interest in residential real property;
Initiate a transfer from a debtor’s account at a bank or with another person unless the transfer is:
1. A return of money to the debtor; or
2. Before termination of an agreement, properly authorized by the agreement and this chapter, and for payment to one (1) or more creditors pursuant to a plan or payment of a fee;
Settle a debt or lead a debtor to believe that a payment to a creditor is in settlement of a debt to the creditor unless, at the time of settlement, the debtor receives a certification by the creditor that the payment is in full settlement of the debt or is part of a payment plan, the terms of which are included in the certification, that upon completion will lead to full settlement of the debt;
Misrepresent that it is authorized or competent to furnish legal advice or perform legal services;
Charge the debtor for or provide credit or other insurance, coupons for goods or services, membership in a club, access to computers or the Internet, or any other matter not directly related to debt adjusting services or educational services concerning personal finance.
Notwithstanding any other provision of law, a debt adjuster shall not sell or transfer a debtor’s personal information unless the debtor provides a valid authorization that includes a specification that the debtor’s personal information may be sold or transferred by the debt adjuster who received the debtor’s personal information.
Kentucky Registered Debt Adjusters
At the time of this publication, May 11, 2010, here are the registered debt adjusters in Kentucky.
- A New Horizon Credit Counseling Services, Inc.
- Achieve CCA, Inc. Advantage Credit Counseling Service, Inc.
- Advantage Debt Management of America, Inc.
- Alliance Credit Counseling, Inc.
- American Credit Counselors, Inc.
- American Debt Counseling, Inc.
- Cambridge Credit Counseling Corp.
- CareOne Services, Inc.
- Christian Credit Counselors, Inc.
- ClearPoint Financial Solutions, Inc.
- Consolidated Credit Counseling Services, Inc.
- Consumer Credit Counseling Service of Greater Atlanta, Inc.
- Consumer Credit Counseling Service of Huntington, A Division of Goodwill Industries of the KYOWVA Area
- Consumer Credit Counseling Service of San Francisco
- Consumer Credit Counseling Service of the Midwest, Inc.
- Consumer Credit Management Services, Inc.
- Consumer Education Services, Inc.
- Credit Advisors Foundation Credit Advisors, Inc.
- Credit Card Management Services, Inc.
- Debt Counseling Corp
- Family Credit Counseling Service, Inc.
- Family Financial Education Foundation
- Garden State Consumer Credit Counseling, Inc.
- GreenPath, Inc.
- InCharge Debt Solutions
- iPayDebt Financial Services, Inc.
- Money Management International, Inc.
- North Seattle Community College Foundation
- NoteWorld LLC
- PlanFirst Payment Solutions, Inc.
- SafeGuard Credit Counseling Services, Inc.
- Springboard Nonprofit Consumer Credit Management, Inc.
- Take Charge America, Inc.
- Trinity Credit Counseling, Inc.
- United Financial Systems, Inc.
For the current list of Kentucky debt adjusters, click here.