Debt settlement companies: Illinois Treasurer Alexi Giannoulias has outline to regulate them

Debt settlement companies: Illinois Treasurer Alexi Giannoulias has outline to regulate them

Proposal for Illinois Legislature calls for licensing firms, limiting fees

Earlier this year, I told you about the Chicago man who lost $2,200 to a debt settlement company that authorities said made false promises of being able to reduce his credit card debt.


Such complaints have grown, prompting state officials to seek legislation to crack down on the operations of debt settlement firms.

Illinois State Treasurer Alexi Giannoulias is calling on the General Assembly to require firms to be licensed, to limit fees to $50 upfront and $30 a month, and to allow consumers to receive a full refund if they cancel their settlement contracts within the first 90 days. He also wants debt settlement companies barred from advising consumers to stop paying creditors.

Debt settlement firms often tell consumers to pay their money into a settlement fund rather than paying creditors. Consumer advocates argue that the companies frequently eat away at the settlement money with large upfront fees, leaving little to pay the debt. And in many cases, advocates say, the settlement companies fail to negotiate lower debts, leaving consumers with bigger balances due to accrued penalties and interest.

"We haven't seen many cases in which these debt settlement companies actually help consumers," said Giannoulias, who is slated to outline his proposal Monday. "We need common-sense regulation of these companies so that we don't hear any more of these horror stories."

Illinois Attorney General Lisa Madigan, who has filed suit against several debt settlement firms, is proposing that such firms be required to be licensed, that they be prohibited from charging upfront fees and that firms disclose the drawbacks of debt settlement.

Negative consequences can include damaging a consumer's credit score and the possibility of tax liabilities. The Internal Revenue Service requires consumers to declare as income any amount of debt written off over $600, advocates say.

Wesley Young, legislative director for The Association of Settlement Companies, said the group supports legislation that requires licensing, mandatory disclosures and other "enforcement of consumer rights."

But Young said the fee structures proposed by Giannoulias and Madigan would effectively put debt settlement companies out of business in Illinois.

"The fees do not provide us with enough funding to provide the services we need to provide to make the programs successful," he said. "In these economic times, people need to have more options in dealing with their debt, not less."

Original Source: chicagotribune.com