Last year Attorney General Blumenthal in Connecticut fought to get new laws in place to protect consumers from debt settlement and debt negotiators that charge consumers and up-front fee to settle debts.
The law has the following provisions:
- Obtain a Connecticut debt negotiators license and file a surety bond
- Not refer to state licensing or bonding as an endorsement
- Disclose 10-year criminal history on license application
- Evaluate likelihood of success in reducing debt or saving a home before contracting with the consumer
- Sign a written agreement with the consumer
- Provide complete list of services, costs and results to be achieved
- Perform services outlined in contract before charging fees
- Adhere to fees regulated by the state banking commissioner
- Allow a 3-day right of rescission for the consumer to cancel the contract
- Comply with state law or have the contract voided and subject to enforcement
According to Blumenthal, the typical scam involves a consumer paying large upfront fees – often $1,000 to $3,000 or more – to a company claiming to negotiate with creditors to lower the debt. Instead, the firm takes the money, never applies it to the debt, and sometimes vanishes.
Typically, a “debt negotiator” is any individual or firm that assists a person in helping to reduce, manage or settle consumer or mortgage debt owed to creditors. These enterprises can refer to themselves as debt-settlement companies, debt-management companies, mortgage modification companies or even foreclosure rescue firms.
Connecticut already licenses so-called “debt adjusters,” but those individuals or firms receive and submit funds to a creditor without actually negotiating on the debtor’s behalf, said Marlene Mannix, assistant director of the consumer credit division of the Connecticut Department of Banking.
This new expanded law prohibits a debt negotiator from charging upfront fees, requiring the enterprise to perform services outlined in a contract first. Before a contract is signed, the debt negotiator is required to register for a state license and evaluate the likelihood of success in reducing debt or saving a home for the consumer. Source