NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
211 E. Ontario Street, Suite 1300, Chicago, IL 60611
312-915-0195, Fax 312-915-0187, www.nccusl.org
Contact: John McCabe, NCCUSL Legislative Director, 312-915-5976
Katie Robinson, NCCUSL Communications Officer, 312-915-5962
For Immediate Release:
ABA Approves New State Law that Regulates the Credit Counseling Industry
Uniform Debt-Management Services Act Already Pending in Four States
February 13, 2006 – A new uniform act that deals with the oversight of debt counseling services was approved today by the American Bar Association’s House of Delegates at its Midyear Meeting in Chicago, Feb. 8-13. The Uniform Debt Management Services Act (UDMSA), drafted and approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2005, provides guidance and regulation to the debt counseling industry. Though the UDMSA has not yet been enacted in any state, it is currently pending in Colorado, Illinois, Nebraska and Utah.
Consumer debt counseling services have become a critical concern since Congress passed bankruptcy reform legislation last year. Under the federal act already in effect, many bankrupt consumers will be forced to seek consumer debt counseling as part of bankruptcy proceedings. It is therefore important for the states to regulate the services for honest and responsible handling of consumer debt problems.
While the federal legislation mandates credit counseling, it does not authorize funds to investigate these agencies, their fees, practices or success rates. The only federal regulation of credit counseling agencies occurs through scrutiny of their tax-exempt status under Section 501 of the Internal Revenue Code. State regulation is spotty at best. But the UDMSA could go a long way to regulate the credit counseling agency industry.
The UDMSA applies to both consumer debt counseling services and debt management services (debt counseling services generally help a consumer repay all of his or her debt, while debt management services generally attempt to persuade creditors to settle for less than the full amount of the consumer’s debt). The Act is a comprehensive statute that provides rules for, among other things, registration requirements, bond requirements, disclosure requirements (including a list of goods and services – and the charges for each – that the agency will provide to the consumer), and penalties for non-compliance. The Act gives states the option of applying to both for-profit and not-for-profit agencies.
The consumer credit counseling industry arose as a means of assisting individuals to pay their credit card debt without resorting to bankruptcy and to enable creditors to collect debt that would otherwise be discharged in bankruptcy. But over the last decade, the industry has changed significantly, and a new generation of agencies – many rife with deceptive practices – has appeared. The Federal Trade Commission has filed lawsuits against numerous companies; the Better Business Bureau has reported some 2,000 complaints in the past three years.
While there is clearly a need for better debt counseling to help consumers get out of financial trouble – according to the Administrative Offices of the U.S. Courts, in 2004, 1,137,958 individuals filed for Chapter 7 bankruptcy while 449,129 filed for Chapter 13 bankruptcy – there is currently very little oversight of these debt counseling services.
“The Uniform Debt Management Services Act addresses the problems that have developed and enables the states to take a common approach to regulation of the credit counseling industry,” says John M. McCabe, Legal Counsel and Legislative Director for NCCUSL. “A uniform approach is particularly important because the great majority of agencies operates in multiple states and would otherwise be subject to multiple and sometimes conflicting requirements. The importance of this new uniform act is clear given the rules under the federal bankruptcy act, which requires consumers to consult a debt counseling service before declaring bankruptcy.”
The approved text of the Uniform Debt-Management Services Act can be found at www.nccusl.org.
NCCUSL is the organization comprised of more than 350 practicing lawyers, governmental lawyers, judges, law professors and lawyer-legislators, who are appointed by each state, as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and promote enactment of uniform state laws in areas of state laws where uniformity is desirable and practical. Now in its 115th year, NCCUSL has provided states with over 250 uniform acts that help bring clarity and stability to critical areas of state statutory law.
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