Bill AB350 to affect modus operandi of debt settlement companies
More and more consumers are opting for debt settlement as they are wrestling with their debts. Debt settlement is usually opted for when you fail to get the desired results from debt consolidation or you have not qualified for bankruptcy. Filing bankruptcy has become increasingly difficult after the new federal bankruptcy laws were introduced in 2005.
In debt settlement, the amount you owe is greatly reduced and if the debt settlement company you are hiring is capable enough, the amount you owe can get reduced by as much as 40% to 60%. A debt settlement company has always acted as the Good Samaritan but lately the Federal Trade Commission; state attorney generals have received several complaints against debt settlement companies.
The common complaint against these debt settlement companies is that these companies charge very high upfront fees and before they can deliver what they have promised, they want to get paid for the services. If a debtor is enrolling for debt settlement, the company helping the debtor in settling the debts has to be paid when the debtor signs up for the program. Alternatively, the debtor can make the payment when the program kicks off. However, the payment has to be made during the first few months of the program.
The incidence of dropouts of such program is also high. So, a debtor may have to shell out the entire money even if he drops out in the middle of the program. In order to do away with such anomalies, bill AB350 that is expected to regulate the modus operandi of debt settlement companies in California is “moving closer to passage”.
As far as paying upfront fees is concerned there is a “twist” in the bill which says “The provider’s total fees must be spread over at least half the length of the program or until offers of settlement by creditors are obtained on at least half of the debts enrolled to the provider”.
As per requirements of bill AB350, the debt settlement companies have to be licensed to offer their services to the debtors and they will be regulated by Department of Corporations. The bill also requires that the debt settlement companies have to be transparent with their fees structure and upfront fees. The structure of fees has to be disclosed. The bill is however not going to come into force before January 2012.
The debt settlement companies are unregulated in most of the states. However, there are few states where laws govern the activities of the debt settlement companies. Majority of the states still have pending bills that are expected to regulate activities of debt settlement companies.
Once the bill is passed, it is expected to bring in some relief for debtors opting for debt settlement. However, there are many companies offering debt settlement that are not very happy with the ongoing state of affairs. They feel that for a handful of dishonest debt settlement companies, all the companies in the debt settlement industry have to face the wrath.
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