Friday, March 25, 2011

Bad Debt Settlement Bill Passes Senate Second Reader -Call NOW to Oppose

 The Senate passed SB 741 on second reader. The bill would regulate debt settlement firms in Maryland (SB 741) but as amended, the bill provides virtually no consumer protections. Senate Bill 741 was intended to cap fees for debt settlement companies and regulate the industry in Maryland to provide much stronger protections for financially distressed consumers who turn to debt settlement companies for relief. The original bill called for debt settlement firms to collect no more than 30 percent of what they save consumers in fees. This “savings” model provides incentives for the settlement firms to settle debts quickly and efficiently, because companies are paid only when the debt is settled and on the basis of how much they save consumers.  

The Senate Finance Committee passed out a bill based on industry concerns which instead caps fees at 25% of the total debt a consumer enrolls with a settlement firm. This cap would result in much higher fees for consumers that would likely erase any savings consumers might realize. This fee is higher than any limit proposed by the industry. This model also provides perverse incentives -- it rewards debt settlement firms for talking consumers into enrolling their debts, whether or not they succeed in settling those debts.  

CALL YOUR SENATOR NOW AND ASK HIM OR HER TO OPPOSE SB 741.   To contact or find your Senator go here:http://mlis.state.md.us/

BACKGROUND

Debt settlement companies have grown in tandem with rising consumer debt as working families have struggled to make ends meet amid stagnant wages and rising costs for health care, education and housing.   Debt settlement firms promise to settle consumers’ debts by having consumers save enough money in a separate account to make a “lump sum” settlement with a creditor. They often encourage consumers to quit paying their debts while they pay into that separate account. Many consumers have then found that the settlement firms have NOT reduced their debts and have had to face collection activity and bankruptcy after paying fees to a debt settlement firm.  New federal regulations mean that a debt settlement firm cannot charge a consumer fees until a debt is settled. Legislation introduced this year in Maryland (HB 1022/SB 741) would cap these fees for consumers but as the Senate bill now stands it would permit fees so high that it would do little to protect consumers.  

To read our debt settlement policy brief: http://www.marylandconsumers.org/Resources/MCRCreports/tabid/72/Default.aspx
To watch Marylanders stories about debt settlement: http://www.youtube.com/user/MDConsumerRights

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