If the promises made by the debt-settlement companies seen regularly in television commercials seem both too good to be true and suspiciously vague it is because they are. A bill that is expected to come before the state Legislature this fall that would license and regulate the for-profit companies is welcome, but it can be made even stronger.
These companies negotiate with credit card companies to produce a lump-sum payment for debtors. According to state regulators and a 2010 report by the federal Government Accountability Office, the debt-settlement companies can drive consumers into even deeper debt because of their high fees and by causing their credit card ratings to deteriorate even further. The companies’ success rates are also lower than advertised.
A bill that has been passed by two House committees calls for the companies to be licensed and regulated by the state banking commissioner. They would be required to disclose their fees (it is remarkable that any consumer would not ask this information but evidently that has been the case) and send consumers an account statement. Governor Deval Patrick has proposed regulating these companies.
This is a good law, but it could be better. "At a minimum this bill should have good fee caps," Andrew Pizor, a state attorney with the National Consumer Law Center, told The Boston Globe. The center also advocates tough licensing standards, which could weed out the worst of the companies. Ideally, a joint legislative committee will add these recommendations to the bill and a strict bill regulating debt-settlement companies will become law in Massachusetts in the near future.