State Senator Bob Duff
June 11, 2009
Quiet Banking Bill Takes Aim at Debt Fixers
Legislation introduced by State Representative Ryan Barry (D-Manchester) and Senator Bob Duff (D-Norwalk), co-chairs of the General Assembly’s Banks Committee, aims to protect individuals weighed down by household and consumer debt from unscrupulous debt negotiators who make grandiose claims to dramatically reduce debt or stave off home foreclosure.
The bill (SB950) quietly received final legislative approval on a unanimous vote on the final day of the 2009 General Assembly, June 3, and is set to be signed into law by the governor.
“Use of debt negotiators by those in financial difficulty has escalated in this troubled economy and while there are many credible credit counselors, the number of predatory so-called debt fixers has also proliferated,” said Barry. “You see them lined up in the back of courtrooms during foreclosure cases like ambulance chasers ready to pounce on unsuspecting and vulnerable people.”
Barry and Duff say consumers facing unmanageable debt are easy prey for misleading debt counselors who demand up front fees and often never deliver on credit relief. Legitimate debt reducers arbitrate between debtors and creditors to change the terms of a debt and reduce monthly payments by lowering the interest rate or eliminating fees and finance charges.
“Debt adjustment scammers prey on the vulnerability of desperate people who are just trying to work their way out of a difficult situation,” said Duff. “They tarnish the good name of those services that are in operation solely to provide real help. In these difficult times, it’s important that we hold the unscrupulous accountable. This legislation will help prevent fraud and help protect thousands of families in our state.”
The legislation regulates debt negotiation companies and all debt adjustment companies, both nonprofit and for-profit, and requires all of them to register with the state Banking Department, pay a license fee and post a surety bond. It also prohibits debt negotiators from charging up-front fees before completing their services and requires them to evaluate and notify the consumer of the likelihood of success in saving the consumer’s home or reducing their debt. The bill requires a written contract with all fees and services, and a consumer’s right to rescind within three days.
In addition, debt adjusters would be required to provide credit counseling and budgeting assistance, evaluate the debtor’s ability to meet the anticipated payment plan, and confirm that creditors will accept the payment plan and schedule. Payments made by consumers to a debt adjustment company must be remitted to creditors in a timely fashion, a protection designed to keep money flowing to creditors so that consumers will not be assessed late fees and interest. The bill also requires regular financial statements to consumers of account activity.
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