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, 312-915-0195
Kate Robinson, NCCUSL Communications Officer, 312-915-0195
For Immediate Release:
Utah First State to Enact Important New Law That Regulates the Debt-Management Industry
March 20, 2006 – Utah has recently become the first state in the country to enact the Uniform Debt Management Services Act (UDMSA), an important new act that deals with the regulation of all debt management services. UDMSA, introduced as SB 79 by Senator Lyle Hillyard, was signed into law by Utah Governor Jon Huntsman, Jr., on March 15. UDMSA, drafted and approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2005, provides guidance and regulation to the debt management industry. It is also currently pending in Colorado, Illinois, Nebraska, and Rhode Island.
Debt management services include a range of services, from counseling debtors to active debt settlement. These services have become more critical since Congress passed bankruptcy reform legislation last year. Under the federal act already in effect, many debtors will be forced to seek consumer debt counseling before declaring bankruptcy. The restriction on access to bankruptcy means that many debtors will be led to more and more private debt management. 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.
“The changes in federal bankruptcy law require debt counseling, and the whole debt management industry is likely to grow as a result,” says John M. McCabe, Legal Counsel and Legislative Director of NCCUSL. “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 entire debt management industry.”
The UDMSA 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 debt management 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 management 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 services. The UDMSA could go a long way to regulate the industry.
The approved text of the Uniform Debt-Management Services Act can be found here or 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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