subject: New legislation may provide regulation over debt settlement industry [print this page] New legislation may provide regulation over debt settlement industry
Consumers trying to escape credit card debt may want to pick their approach with care.
Debt settlement companies often charge high up-front fees in exchange for a promise to negotiate with lenders into eliminating thousands of dollars in debt. Simply signing up for these services can trim points off consumers' credit scores, while the limited results they are able to provide often bury consumers deeper into debt.
Two Democratic senators recently took efforts against these companies by proposing legislation that would force them to provide better disclosure and reduce fees charged to customers before services are provided, according to a recent release. The Debt Settlement Consumer Protection Act introduced by Charles Schumer and Claire McCaskill would also increase state and federal regulatory powers over debt settlement agencies.
"We need to make sure that working families who are digging themselves out of debt and trying to recover from financial ruin are protected from companies that are out to increase their profit," Schumer said. "This legislation will help keep the wolves at bay while families try to regain their financial strength."
Consumers who sign up for debt settlement services are often told to stop making payments to their lender, in an effort to force a bargain. If the debt fails to settle, consumers are still responsible for the up-front fees, monthly payment fills and any lawsuits made by the credit card company in an effort to receive their debt.
The new law will provide documentation that debt has been settled before fees are charged, according to the release. These fees will be capped and must be appropriate for the size of the settlement's success. Current legislation makes it difficult for consumers to receive reparation for damage caused by debt settlement. The Debt Settlement Consumer Protection Act will enable private lawsuits as well as state attorneys general and the Federal Trade Commission to take action against these practices.
Some within the debt settlement industry have reacted to threats of increased regulation. The Consumer Credit Rights Campaign was recently launched by consumers and debt settlement professionals in an effort to protect an individual's right to choose his or her way out of debt.
"Instead of hearing just from the banks and the Washington-based groups, this Campaign focuses on real consumers and their challenges," Don Goldberg, spokesman for the Consumer Credit Rights Campaign, said.
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