The Consumer Financial Protection Bureau (CFPB) has recently published guidance that appears to have a direct connection to debt relief companies that manage the finances of others using a Power of Attorney (POA).
I frequently see these types of relationship between consumers and debt relief companies, like settlement companies, and now more student loan assistance organizations.
While the guidance in this guide is more broad it does create an expectation what consumers should look for and companies deliver.
It also gets back to that topic of fiduciary responsibility that we have spoken about for years now.
The guide defines exactly what the duties are under a power of attorney when you are responsible for managing the financial affairs of others.
Using the fictitious consumer Martina we learn what the CFPB expects to see.
Since you have been named to manage money or property for someone else, you are a fiduciary. The law requires you to manage Martina’s money and property for her benefit, not yours. It does not matter if you are managing a lot of money or a little. It does not matter if you are a family member or not.
The role of a fiduciary carries with it legal responsibilities. When you act as a fiduciary for Martina, you have four basic duties that you must keep in mind:
- Act only in Martina’s best interest.
- Manage Martina’s money and property carefully.
- Keep Martina’s money and property separate from yours.
- Keep good records.
As a fiduciary, you must be trustworthy, honest, and act in good faith. If you do not meet these standards, you could be removed as a fiduciary, sued, or have to repay money. It is even possible that the police or sheriff could investigate you and you could go to jail. That’s why it’s always important to remember: It’s not your money!
The catch in using the Power of Attorney or giving a company a Power of Attorney to manage your debt is the actions have to be in the best interest of the consumer.
“Because you are dealing with Martina’s money and property, your duty is to make decisions that are best for her. This means you must ignore your own interests and needs, or the interests and needs of other people.”
For a debt relief company this means that debts settled or advice given must first serve the consumer, and not yourself.
People also have to avoid conflicts of interest. “A conflict of interest happens if you make a decision about Martina’s property that may benefit someone else at Martina’s expense. As a fiduciary, you have a strict duty to avoid conflicts of interest—or even the appearance of a conflict of interest.”
This can happen in the debt relief world when a company settles one debt of a higher amount to earn a bigger commission or a credit counseling agency pays a creditor first that pays them more money.
The Guide Tells Consumers What to Look For
The CFPB guide provides specific advice for consumers when dealing with companies that require a POA.
In managing Martina’s affairs, you may need help from professionals such as lawyers, brokers, financial advisors, accountants, real estate agents, appraisers, psychologists, social workers, doctors, nurses, or care managers. You can pay them with Martina’s money. If you need help from any professionals, remember these tips:
- Check on the professional’s qualifications. Many professionals must be licensed or registered by a government agency. Check credentials with the government agency. Make sure the license or registration is current and the professional is in good standing. Check the person’s complaint history.
- Interview the professional thoroughly and ask questions.
- Review contracts carefully before signing. Before hiring any professionals, get their proposed plan of work and expected fee.
- Make your own decisions based on facts and advice. Listen to their advice, but remember you are the decision-maker.
That sounds a lot like the specific advice I give in my guides.
- The Ultimate Consumer Guide to Checking Out a Debt Relief Company Before You Sign On the Line
- 10 Must Do Steps to Find the Best Credit Counseling or Debt Settlement Company for You
- How to Check Out a Business or Company to Avoid Getting Scammed or Ripped Off
Consumers Can Protect Themselves
After hearing a sales pitch, take time to compare prices. Ask for information in writing and read it carefully. If it sounds too good to be true? Ask yourself why someone is trying so hard to give you a “great deal.” If it sounds too good to be true, it probably is.
Watch out for deals that are only “good today” and that pressure you to act quickly. Be suspicious if you are not given enough time to read a contract or get legal advice before signing. Also watch out if you are told that you need to pay the seller quickly, for example by wiring the money or sending it by courier.
For those interested in reading the full guide, click here.