SPRINGFIELD, Ill. (Legal Newsline) - Illinois Attorney General Lisa Madigan has introduced legislation designed to end abusive and unfair practices allegedly used by the debt settlement industry.
The legislation, introduced this week, seeks to prohibit debt settlement firms from charging upfront fees, basing final compensation on the amount saved from settling a debt and to ban advising consumers to stop paying their creditors.
Rep. Marlow Colvin (D-Chicago) will sponsor the bill, introduced as HB 4781. In the Senate, Sen. Jacqueline Collins (D-Chicago), will sponsor the bill.
"Consumers seldom, if ever, see all their debts settled when they enroll with these types of programs," Madigan said.
"In fact, they often end up owing more than the credit card debt they originally incurred. As consumer debt rates continue to grow, we must put an end to these abusive, deceptive practices and enact comprehensive reforms that require these companies to earn the fees they charge."
Complaints filed with Madigan's office allege that after paying a debt settlement provider for several months, consumers see little to no debt settled and, as a result of the missed payments to creditors, credit cards then add interest, fees and penalties to the consumers' credit card balances.
Collection efforts are then usually started against consumers to recoup debt, negatively impacting the credit reports of consumers, she says.
Many consumers enrolled in debt settlement agreements have been sued by credit card companies attempting to collect the balance of the consumers' accounts.
Under Madigan's legislative proposal, debt settlement companies would be banned from operating in Illinois unless they meet a set of requirements, including not charging upfront or monthly fees and capping fees at five percent of the savings resulting from settling a debt.
Additionally, debt settlement companies wishing to operate in Illinois would not be allowed to advise consumers to stop paying creditors and would have to allow cancellation of a debt settlement contract at any time, promptly refunding any fees.
The companies would also be required to prohibit deceptive promises of specific results in advertising, marketing and other communications to consumers and disclose the risks involved in entering a debt settlement contract.
Madigan's proposal also calls for debt settlement companies to obtain a license through the Illinois Department of Financial and Professional Regulation and requires written, individualized financial analysis of each consumers financial situation before entering into a written contract with the consumer.