Illinois Gov. Pat Quinn signed a law this week that he says will help protect consumers against deceptive business practices and abusive fees from debt settlement agencies.
The legislation passed both chambers of the General Assembly with strong bipartisan support.
"Many older individuals accumulate high credit debt, and often fall prey to unscrupulous debt settlement firms," says Bob Gallo, a state director with the American Association of Retired Persons. "This new law will allow individuals to have the protections they need as they try to get out of debt and get back on their feet."
Industry data reveals that 1,000 debt settlement firms handle $18 billion in debt across the nation, with the average customer owing about $30,000 in credit card debt.
AARP strongly backed the legislation after surveys found that more than one in five debtors were over the age of 55; 27% of AARP members reported having difficulty paying off credit card debt; and nearly half – 44% – consider credit card debt to be a major concern.
Debt settlement companies routinely advertise they can settle all of a consumer's credit card debt in 24 to 36 months for less than 60% of the amount owed.
The legislation prohibits upfront fees and many monthly charges. It also caps fees at 15% of the savings achieved from settling a debt. It further bans companies from advising consumers to stop payments to creditors and allows consumers to cancel a contract at any time, with prompt refunds.
Last week, in a related story, the Federal Trade Commission announced new rules against debt relief companies.