A bill to license and regulate for-profit debt settlement companies doing business in Massachusetts is gaining traction with state lawmakers.
Massachusetts Governor Deval Patricks administration has twice before proposed regulating debt settlement companies. The bill under review won initial approval from two House committees in July and is being championed by the states Office of Consumer Affairs and Business Regulation.
Debt settlement companies would be required to disclose their fees to customers, create a budget analysis for clients before signing an agreement and send consumers a monthly account statement.
Many consumer groups argue tougher restrictions are necessary for the industry. Some critics of debt settlement firms, including the National Consumer Law Center, argue that the companies should be banned and not simply licensed.
Debt settlement companies attract business from consumers overwhelmed by credit card bills. Such firms negotiate with credit card companies to settle a client's account for a reduced lump sum.
According to Massachusetts regulators, other state regulators and a 2010 report from the Government Accountability Office, their success rates are lower than advertised and their promises sometimes come with a substantial price tag to consumers - including larger debts, because of the fees involved, and deteriorated credit ratings.
"The longer Massachusetts waits, choosing not to oversee this industry, the more consumers will be taken advantage of by these companies," said Barbara Anthony, undersecretary of the Office of Consumer Affairs and Business Regulation, in a statement earlier this summer to a legislative committee.
Under the proposed bill, debt settlement companies would be required to post a bond to do business in Massachusetts. Violations of the proposed law could result in up to a $100,000 fine and prison sentence. Unlike an earlier proposal, which did not gain the support of the Massachusetts Legislature, the bill does not require any caps on fees that debt settlement companies can charge clients.