California Debt Settlement Legislation Tries to Close Attorney Loophole

Apparently the attorney loophole for debt settlement services is being address in new legislation. The current bill passing through the legislative process in California has had a recent addition that specifically targets advanced fee attorney model debt settlement services.

Here is what the current version of the bill says regarding attorney exemptions:

Section 12501

“(E) An attorney who provides debt settlement services to a consumer, and meets all of the following requirements:

(i) The attorney is licensed to practice law in the State of California and is in good standing with the California Bar

(ii) The attorney personally provides debt settlement services while acting in the ordinary practice of law, and is not primarily engaged in the business of providing debt settlement services.

(iii) The attorney puts any advance fee received from the consumer in a client trust account until earned in accordance with California law and the California Rules of Professional Conduct, and pursuant to the terms of a written agreement that details the work to be performed by the attorney and the fee schedule for the attorney’s

(iv) The attorney does not share any fee received for the provision of debt settlement services with a person who is not an attorney.

(v) The attorney does not provide debt settlement services through a partnership, corporation, association, referral arrangement, or other entity or arrangement (I) that is directed or controlled, in whole or in part, by an individual who is not an attorney; (II) in which an individual who is not an attorney holds any interest; (III) in which an individual who is not an attorney is a director or officer of the entity or occupies a position of similar responsibility; (IV) in which an individual who is not an attorney has the right to direct, control, or regulate the professional judgment of the attorney; or (V) in which an individual who is not an attorney and who is not under the supervision and control of an attorney, that delivers debt settlement services or exercises professional judgment with respect to the provision of debt settlement services.” – Source

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