DISCLAIMER: This is a proposed bill. It has not been passed yet.
The Debt Settlement Consumer Protection Act
Protecting Consumers from Deceptive, Abusive and Financially Injurious Practices Rampant In the Debt Settlement Industry
The Debt Settlement Consumer Protection Act will protect consumers from deceptive, abusive and financially injurious practices rampant in the debt settlement industry. The bill provides relief and fundamental consumer protection to millions of working families who are struggling with substantial personal debt, and who are seeking assistance in managing their debts and finances.
There has been an exponential growth in the number of debt settlement companies offering “quick and easy” solutions to consumer credit problems. Many consumers facing challenges in meeting their financial obligations have increasingly turned to these companies for debt settlement assistance – with disastrous results. On radio and television, consumers have been bombarded with an onslaught of advertisements with false and deceptive claims about debt settlement companies’ ability to negotiate deals with creditors to reduce or cancel consumer debts. In reality, these for-profit companies take consumers’ money and leave them even deeper in debt. Consumers’ credit scores also take a big hit.
In these economically troubled times, financially vulnerable consumers should be shielded from predatory anti-consumer practices. The Debt Settlement Consumer Protection Act is intended to address the deceptive, unfair and financially injurious practices that permeate the debt settlement industry. Below are key provisions of the bill –
Mandates the Use of Written Contracts for Debt Settlement Services, With Meaningful Disclosures to Consumers Before Services are Rendered and Any Fee is Collected. The lack of meaningful consumer disclosure in existing debt settlement practices is one of the most egregious deficiencies.
• Required disclosures set forth in the legislation include an itemization of the services to be provided, a list of the consumer’s debts, a clear and conspicuous list of all fees and compensation to be paid by the consumer to the debt settlement company, a good faith estimate of the proposed accumulation goals and the total amount to be paid by the consumer, and a notices of the consumer’s cancellation and refund rights.
• The legislation mandates that before entering into a contract, debt settlement providers must provide to consumers a written determination, supported by a financial analysis, that the consumer is able to reasonably meeting the requirements of the of the proposed debt settlement program, and that there is a tangible benefit to the consumer to enter into the proposed debt settlement program. The legislation also requires a disclosure to the consumer that the failure to make scheduled payments to creditors will likely have serious adverse consequences.
Limits and Caps the Types of Fees That a Debt Settlement Company May Charge. It is all too common for consumers to pay exorbitant up-front and advance fees to debt settlement companies while receiving little or nothing in the way of actual services in return, and to end up in far worse financial condition than when they started. The legislation makes clear that requiring consumers to pay for services that have not been rendered is prohibited.
• The legislation prohibits a debt settlement company from requesting or receiving any debt settlement fee from a consumer until the company has provided the consumer with documentation that a debt has, in fact, been settled.
• The legislation mandates that debt settlement fees are reasonable and commensurate to the actual services provided, and that they cannot exceed specified amounts. The legislation also provides consumers with the right to cancel a debt settlement contract and receive a full refund of unearned fees, as well as the money accumulated and held for settlement.
Ensures That Federal and State Enforcement Entities Have the Tools Necessary to Protect Consumers from Abuses. Deceptive and unfair practices permeate the debt settlement industry. The legislation sets a floor of basic consumer protections while allowing states to set more stringent standards affording their citizens an even higher level of protection.
• The legislation provides for enforcement through the Federal Trade Commission, state Attorneys General, and private rights of action. The legislation explicitly protects the rights of the States to regulate in this area and to provide additional consumer protections under State law.
• The legislation provides the Federal Trade Commission with the explicit authority and obligation to regulate the advertising and marketing practices of debt settlement companies, and prohibits debt settlement providers from advertising or marketing results that are better than the average that it actually achieves.