Bankruptcy

Proposed Law Would Place Restrictions on Debt Settlement Companies

By Meaghan Olson

Two senators have proposed new regulations that may drastically change the way debt settlement companies do business.

The amendments are part of a larger financial reform bill currently being discussed and were jointly proposed by Senator Charles Schumer of New York and Claire McCaskill of Missouri, the Associated Pres reports.

The laws propose some major changes to how debt settlement companies collect fees, operate and the damages for which they are liable. The main points of the law include:

• No fees could be collected until a settlement is reached
• A cap on fees charged. Most companies charge consumers a percent of their debt for the service. Some companies may charge 20 percent of the debt, but the proposed cap would likely be much lower.
• More disclosures from companies to consumers, including costs and services to be performed
• No monthly fees
• Consumers would be able to cancel a debt settlement contract and receive a complete refund of fees
• More regulatory powers of the industry for the Federal Trade Commission
• Companies would be subject be subject more punitive damages liability during civil lawsuits

As of right now, these are only proposals for a bill that has not yet passed, and changes could be made. The proposals would not affect any bankruptcy laws.

Full post as published by The Bankruptcy Blog on May 12, 2010 (boomark / email).