New Guidelines in Place for Debt Settlement Firms

CHICAGO–(ENEWSPF)–March 17, 2011.  A new law that establishes stringent guidelines and enhances consumer protections for Illinois families that seek help paying overdue bills took effect earlier this month. The Debt Settlement Consumer Protection Act, for the first time, creates a fund to pay restitution to consumers who have lost money through a debt settlement provider.

“Unscrupulous debt settlement companies have, in the past, targeted debt stricken families and enticed them to make payments toward a scheme that left them in even worse financial shape,” said Brent E. Adams, Secretary of Financial and Professional Regulation. “With this law, we will have real oversight and the ability to reimburse consumers who are harmed by unlawful practices.”

Debt settlement companies seek to settle a person’s debt for a lump sum that is less than the amount owed to creditors. This differs from debt management companies, which work to ease minimum payment requirements allowing consumers to pay their bills over a longer period of time.  The Department now licenses both debt settlement companies and debt management companies.

The law establishes major consumer protections for families that utilize debt settlement companies. Those protections include: terms must be disclosed before the consumer signs a contract; upfront fees are limited to $50; settlement fees are capped at 15 percent of the amount saved by the consumer; the debt settlement company is not entitled to any settlement fee if the consumer realizes no savings; consumers may cancel contracts at any time and be eligible for a refund of fees; and, companies are prohibited from making false or misleading statements regarding their services.

The law also requires debt settlement providers to provide the state with an annual report that contains statistical data about all accounts, and the law empowers the state to make restitution payments from the Debt Settlement Consumer Protection Fund to consumers who have lost money through a debt settlement company. The fund will be supported by payments received from debt settlement companies.

Source: illinois.gov