In the beginning, there was a booming economy plagued by excessive credit card use and the comfort of a soft landing in the form of Chapter 7 for those who overextended. Almost in unison with our struggling economy came the advent of the debt settlement boom. While it seems that the beleaguered economy should be reason enough to explain the barrage of radio and internet ads offering a cash-strapped audience a quick path to debt relief, there were other factors at play that spawned the growth of the debt relief industry.
In 2005, President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, which dramatically tightened the requirements allowing financially distressed US citizens to file for Chapter 7. Instead of Chapter 7, which is Noted for allowing taxpayers to discharge all unsecured debt, most filers would now have no choice but to enter a Chapter 13, which is a reorganization plan that requires partial payment of debt over a 3- to 5 years. Under the new policies, Chapter 7 filers would have to demonstrate extreme financial hardship and would typically have to have made at least one best attempt to complete a debt management plan. The Uniform Debt Management Services Act makes it clear that such a plan could be in the form of Consumer Credit Counseling or Debt Settlement.
on walks tea credit crisis…
In mid-2007, foreclosure and credit crises descended upon us and a perfectly understood storm of battered industries and incapacitated consumers gave rise to opportunistic debt settlement, loan modification and credit repair companies promising to help economically disadvantaged. Until recently, the debt settlement industry has been allowed to flourish with virtually no opposition, as the federal and state governments have had little or no regulatory framework to ensure the safety of consumers of such companies. The lack of a regulatory framework served to ensure a Wild West vibe. Even if there was a sheriff in town, there were no laws that the sheriff could enforce.
Where is the legislation and regulation that should protect consumers?
Fortunately, there are some positive developments in the works that may one day help drive bad actors out of the arena while also elevating some companies that can demonstrate honest, ethical, and transparent business practices. Under the guidance of the Uniform Debt Management Services Act, there is a regulatory model for supervising both debt settlement and credit counseling companies at the state level. States like Colorado have begun using this guidance, and Colorado now requires debt settlement companies to be licensed and subject to applicable state regulations.
The Association of Settlement Companies (TASC) is a non-profit industry association made up of various settlement company executives and other insiders who lobby state legislators to adopt laws regulating the settlement industry . TASC also provides the settlement industry with guidance for best practice standards while serving as a self-proclaimed industry watchdog. While it may seem precarious that TASC is a lobbying organization that also oversees the very industry they lobby for, it should be noted that the government has been slow to take on the otherwise vacant enforcement role.
Better times may be ahead, but what about all the people who have been let down?
Complain, complain, and complain some more if you feel like you’ve been shortchanged by a settlement company. There are some very harsh realities that anyone entering a liquidation program can expect, and often these pitfalls will not be clearly or accurately portrayed through any or all marketing, advertising, or sales presentations intended to win new business. . Even though there is a lack of regulation, fraud is still fraud and there are a number of ways you can take action against a company that you believe has misled you.
Attorneys general in New York and Texas have filed laws against companies they believe have defrauded their constituents. Andrew Cuomo, the New York AG, also recently issued a subpoena to 14 liquidation companies and a law firm. He is quoted as saying, “These companies are taking advantage of people in New York and across the country who are facing tremendous economic hardship.” While the subpoenas are informative in nature, it is clear that the tone of the rhetoric is decidedly hostile towards those being questioned.
Do you feel you are a victim of fraud?? Here are some ways you can take action:
- File a complaint with the FTC
- Find out what city and state the company is located in and file a complaint with the company’s local BBB.
- Contact the Attorney General in your state: The AG’s office is staffed by investigators and attorneys and their role is to serve as a legal advocate for the public.
- Contact a consumer defense attorney. In most states, the State Bar provides a legal directory for visitors to its websites.
- There is a Legal Referral Service (LRS) in most states that maintains a handy directory of attorneys who participate with the LRS by charging a minimal initial legal consultation fee, usually $25 to $50, and, in some cases, free of charge.
- If you cannot afford a lawyer, you may qualify for free legal help from a Legal Aid office or Legal Services Corporation (LSC).