The following is a guest post by Scott Johnson, the person I consider to be a leader in helping debt relief companies understand compliance issues and avoid compliance problems. If you have any questions or would like to attend one of his upcoming compliance webinars, contact Scott at [email protected]
Compliance with State Laws
A step beyond the TSR compliance
Debt settlement is big business and the numbers are staggering as they affect billions of dollars of consumer debt and the Debt Settlement Companies initial opponent is multi billion dollar international corporations. In addition to the servicing of a client seeking debt relief assistance a provider has many Federal and State requirements to comply with that requires a significant amount administrative time and understanding. At a mere glance of these acts you find yourself in a jungle of acronyms and cross referenced government agencies that oversee them. Answering the questions of if and how these might apply to the practice of debt settlement has long been debated and still being interpreted. The following information is to take a look at State Laws in the area of Debt Adjusting and it impact on Debt Settlement firms.
What is debt adjusting and how does a debt relief firm get an interpretation that protects and serves the consumer and ensures the company is compliant. I look no further than government representatives as their views represent the position of the state and have the authority of enforcement.
The following definition if from Kentucky’s statute –
“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:1
As recently as February the Attorney Generals Office in Washington State put forth the position in an amicus brief “to ascertain and give effect to legislative intent”2 (Basic Rules of Statutory Interpretation Apply Several of the basic rules of statutory interpretation that apply in this case were summarized in Schweikert v Venwest Yachts, Inc., 142 Wn. App. 886, 176 P.3d 577 (2008)) of the States Debt Adjustment Act. The conclusion is clear that Debt Settlement companies by definition are covered under the states DAA. 3
Georgia appears no different as its law regulates the activities of companies that offer credit counseling and renegotiation and payoff of consumer debt. Under the Debt Adjustment Act (O.C.G.A. Section 18-5-1 et seq.) 4
Cost for Non Compliance
The cost for non compliance reaches far beyond fines to the provider and sometimes irreparable damage to a company’s image as the protection for consumers is breeched. The intent of the statute is to protect consumers and state compliance is the 1st line of defense
In Vermont the Attorney General claims that a company violated state law by engaging in the business of debt adjustment without a license, and by failing to comply with the Vermont Consumer Fraud Act. Under the settlement, the company must pay full refunds of $69,000 to all of its Vermont customers and $50,000 in civil penalties and costs to the State. In addition, the company will pay $2,000 to any Vermonter who was sued by a creditor after signing up with the firm, and will offer to complete, without charge, negotiations with the creditors of its Vermont customers. 5 These fines are for having only 25 clients in the state.
Where are companies positioned?
Its right out of the Wizard of Oz and Dorothy said it best; license, insurance and bonds! Oh my!
The approach to compliance should be taken in a holistic approach and the best decision for providers will come from an understanding of all laws required of them and then make logical business decision as tough as it might be in which states they can operate in. First order of business will be to contact all states and request an opinion letter and guidance from legal counsel
Cost For Getting Compliant
The facts indicate that it is a very expensive to properly register in multiple states. The focus should be on only a few states and make 100% sure you are licensed, registered and complaint. States have variations on licensing fees, insurance requirements and company certifications. The bond requirements vary from state to state and the average is around $50,000. A company’s compliance officer will be busy with filing dead lines overseeing financial audits and completion of prerequisite certifications. Mean while some states restrict for profit enterprises from operating at all. 6
The Bank of America Condition
The debt relief industry now finds another creditor/debt owner asking formally for compliance. Bank of America is requiring debt relief providers to agree to comply with all applicable state laws associated with the offering or provision of debt resolution related services. Could failure of a company to be in compliance or to be found in violation of state laws result in the forfeiture of its ability to provide debt relief service to Bank of America consumers? This could result in the same path to what the industry experienced with state exclusion. How soon will debt relief providers see red and green Creditors?
The assessment of the risk and liability of a debt relief practice operating without being in compliance of the states DAA appears not to be if but when it will result in enforcement. In addition to the fines and penalties to the debt relief provider it could also result in the loss of creditor participation which will create a limitation to the programs being offered to debt burdened consumers or loss of privileges entirely.
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