Monday, March 29, 2010

Tell your senator to support debt settlement regulation - today!

Monday, March 29: Debt settlement legislation faces a huge hurdle on Tuesday and state senators need to hear from you today.

Legislation that could protect vulnerable consumers in Maryland from unscrupulous debt settlement firms faces the make-or-break point on Tuesday when the Senate Finance Committee is scheduled to vote on Senate Bill 701.

Some in the industry are pushing hard against the ban on advance payments and say the only way they can stay profitable is to charge debt-strapped consumers huge fees before actually completing the tasks they were hired to perform.

Maryland Attorney General Doug Gansler and 40 other state Attorneys General said in a letter to the FTC that “prohibition on advance fees will prevent the substantial monetary losses suffered by consumers, level the playing field, discourage unscrupulous operators from flocking to the industry and facilitate efficient and timely enforcement.”

Also at issue is the amount of money companies can charge the consumer for their services. SB 701 would cap the fees at 15% of whatever the debt settlement firm saves the consumer based on their debt at the time of enrollment with the program. For example, if the company cuts the consumer’s debt from $30,000 to $20,000, the company would receive $1,500 (15% of $10,000). Some debt settlement firms say need to charge far more than that in order to make a profit. MCRC feels more than 15% is too high of a price for economically fragile consumers to pay.

To find out more about advance fees, fee limits and how other states are regulating the industry, read this MCRC debt settlement fact sheet.

Another question is whether attorneys will be exempt from the new regulations. Industry lobbyists are pressing for an amendment that says the new rules do not apply to those "providing legal services in an attorney-client relationship." Both the AG's office and MCRC view this amendment as highly problematic and do not support it.

This language would create a huge loophole for attorneys who operate debt settlement businesses under the guise of attorney client relationships, including those such as Frederick-based Richard Brennan who took millions from consumers before the state’s Consumer Protection Division was able to stop him (and the Bar revoked his license). The only recourse available for consumers who worked with an attorney-based debt settlement firm would be to have the attorney disbarred, which could take years and cost consumers millions of dollars.

Our position is that if an attorney is principally engaged in operating a debt settlement business, they should be regulated like a debt settlement business. Regulation by the Bar is after the fact and does not prevent harm to consumers in the first place.

Consumers and their advocates should let the Senate Finance Committee know how important this legislation is to protecting Marylanders. Although today is cross over day, this bill still has a good chance of passage if it makes it through the committee vote tomorrow because House leaders have promised to move quickly once the SFC votes.

Senate Finance Committee members’ contact information is below:

Thomas M. Middleton, Chair

John C. Astle, Vice-Chair

George W. Della, Jr. (SB 701 co-sponsor)
Nathaniel Exum (SB 701 co-sponsor)
Robert J. Garagiola
Barry Glassman
Delores G. Kelley (SB 701 co-sponsor)
Allan H. Kittleman
Katherine A. Klausmeier
E. J. Pipkin
Catherine E. Pugh (SB 701 sponsor)

Thank you for your efforts on this critical issue!

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