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From Banking and Finance Law Daily, June 28, 2013

Ohio, Pennsylvania debt settlement legislation prompts industry concern

By Charles A. Menke, J.D.

Legislators in Ohio and Pennsylvania are currently working to enact legislation in their respective states aimed at regulating debt settlement businesses. The legislation, however, has met criticism from industry representatives for its lack of consumer protections.

Ohio legislation. House Bill 173 would enact the Debt Settlement Services Law to regulate debt settlement service providers—an intermediary between a debtor and one or more unsecured creditors of the debtor for the purpose of obtaining concessions with respect to the debtor's unsecured debt. Debt settlement service providers would be excluded from the state’s existing Debt Adjusting Law, which governs debt adjustment services, budget counseling, debt management, and debt pooling services. The Debt Adjusting Law imposes various requirements on debt adjusters, including maintaining insurance coverage and undergoing annual audits.

The Ohio bill prohibits the furnishing of debt settlement services unless the provider complies with certain requirements, including the following:

  1. submits certain business-related information to the Department of Commerce prior to furnishing debt settlement services;
  2. maintains a corporate surety bond in the amount of $50,000;
  3. acts in good faith;
  4. provides a debtor with a financial analysis of the debtor's income and debts;
  5. discloses certain material information to a debtor;
  6. meets certain conditions in order to impose fees and receive payment for debt settlement services;
  7. complies with certain conditions regarding the use of a debtor's funds; and
  8. maintains a toll-free communication system.

House Bill 173, which is sponsored by Reps. Louis Terhar and Dale Mallory, is currently pending in the Financial Institutions, Housing and Urban Development Committee.

Pennsylvania legislation. Senate Bill 622 would enact the Debt Settlement Services Act to provide for: the licensing of debt settlement service providers; enforcement powers and administrative duties of the Department of Banking and Securities; and civil penalties. In addition, the Act, similar to the Federal Trade Commission’s Federal Telemarketing Sales Rule, would: prohibit debt settlement service providers from collecting advance fees when negotiating agreements with creditors; require providers to make specific disclosures to consumers; and prohibit misrepresentations.

The measure, which is sponsored by Sen. Kim Ward, is currently pending before the Senate Appropriations Committee.

Industry reaction. The Association of Independent Consumer Credit Counseling Agencies (AICCCA) believes that while the bills provide some consumer protections, the measures do not address some of the more unscrupulous practices that harm consumers. “We have written to the state legislators sponsoring this legislation in both Ohio and Pennsylvania outlining our concerns for consumers,” said AICCA President David Jones. "Recent actions taken by the Consumer Financial Protection Bureau against abusive and even criminal debt settlement abuses would indicate that many consumers are still suffering because of the practices of some for-profit debt settlement companies and these proposed bills will not help address the problem without substantial amendment," he added.

The AICCCA advised legislators in both states to amend their proposals to include fee caps, prohibitions for enrolling consumers whose financial conditions make it highly unlikely that they can complete a debt settlement program, meaningful bonding requirements to provide restitution, enhanced penalties for violations, and other specific remedies to ensure broad and effective consumer protections.

Companies: Association of Independent Consumer Credit Counseling Agencies

LegislativeActivity: ConsumerCredit CFPB DebtCollection OhioNews PennsylvaniaNews StateBankingLaws

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