The Maryland Consumer Rights Coalition today released its recommendations for better regulation of the debt settlement industry. The recommendations are in conjunction with those from the Maryland Office of the Attorney General and the Maryland Office of the Commissioner of Financial Regulation, which MCRC feels do not go far enough. (Read report/recommendations here, including the story of a Marylander who lost thousands of dollars after dealing with a debt settlement company. MCRC can provide her contact information.)
Debt settlement is a scheme that promises to help consumers escape from pressing debt, but instead often leaves them in worse shape than before. The practice is unregulated in Maryland, and ranks of those who have been taken in by this system are growing at an alarming rate. Instead of helping consumers negotiate lower rates for their debt and then pay it off in a timely manner – as a credible debt management firm would do – many debt settlement companies instead collect huge upfront fees, encourage consumers to stop paying their creditors, and typically perform no real service but still walk away with thousands of dollars in profit. The consumer is left with less money, a worse credit score, angrier creditors, and dwindling options.
In the 2010 General Assembly session, MCRC supported legislation that would have regulated the debt settlement industry. Instead of passing the legislation, lawmakers convened a working group to study the issue and give recommendations for legislation in the 2011 session. MCRC, which was part of the working group, had argued for stronger regulation than what the Attorney General’s office and the Commissioner’s office are now recommending.
While MCRC is pleased that the joint recommendation from the two offices calls for licensing of debt settlement companies and specifies that attorneys would also be covered by the law and improves disclosures, MCRC is very disappointed at the rate cap proposed and by the fact that there is no requirement of annual disclosures.
“MCRC wanted to see a 15 percent rate cap on fees—an amount we feel would allow companies to make a profit without gouging consumers—and we are disappointed that the offices of the Attorney General and the Commissioner recommend capping fees at 30 percent,” said MCRC Executive Director Marceline White. “This level is much too high and would drain even more assets from consumers who are already in dire financial straits.”
MCRC calls on the General Assembly to protect Marylanders and keep money in their pockets by setting a fee cap at 15 percent which enables consumers to keep more of the money saved and use it to feed, clothe, and shelter their families. MCRC will be tracking this issue closely and will report on committee votes and the General Assembly votes in its annual legislative scorecard.
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