Monday, May 21, 2018
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No relief

There’s no need to gut a good state law that protects consumers from abusive debt settlement companies

So-called debt settlement companies offer — for a fee, often large — to help desperate consumers, in Ohio and elsewhere, get out from under suffocating credit-card debt without going bankrupt. Reputable companies in the industry deliver on this promise.

Too often, though, such companies are debt mills that prey on the poor and elderly people they are supposedly helping. They engage in aggressive telemarketing, enrolling customers in debt-relief programs that require monthly payments they know their clients can’t afford.

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They charge hefty fees with the promise of settling customers’ debt in just a few months. But they usually don’t, leaving consumers even more destitute.

Sponsors of bipartisan legislation before the General Assembly say they want to crack down on debt-settlement abuses in Ohio. But their bill, backed by the industry, actually would allow settlement companies — most of them from out of state — to expand their presence in Ohio, evade current enforcement practices, and charge unlimited fees.

Good for the companies, bad for consumers. Whose side are lawmakers on?

Our state has a good law called the Ohio Debt Adjuster Act. It limits the fees that for-profit credit counseling and debt management organizations that do business in the state, including settlement companies, can charge. It requires these businesses to submit to annual outside audits and maintain insurance coverage to protect against debtors’ losses.

The law specifies the fees such companies can collect for consultation and other services. And it enables the state attorney general to regulate them effectively.

The bill before the legislature — similar to legislation that failed twice before — would exempt debt settlement companies from the law, including its fee and oversight provisions. In return, sponsors say it would provide new consumer safeguards. But these protections do no more than duplicate Federal Trade Commission rules for settlement companies that took effect in 2010.

Debt settlement companies generally instruct their customers to stop paying their debts, and instead to create escrow accounts that supposedly can finance cents-on-the-dollar settlements with creditors and collectors. The companies also tap the escrow accounts for the fees they charge, which amount to as much as half of any debt they are able to reduce.

But not paying bills can wreck consumers’ credit records and cause their debt to grow. Default subjects them to higher interest rates, mounting late fees, and creditor lawsuits.

Many creditors won’t deal with settlement companies. Lending analysts estimate that 40 percent of the companies’ customers get none of their debt forgiven. It’s risky business for consumers, and can leave them even worse off.

Consumers who struggle to pay their debts are already at risk. Ohioans who have yet to recover from the Great Recession surely don’t need their state government to make them more vulnerable to exploitation, in the guise of debt relief.

Higher fees for a service that more often than not doesn’t work? Ohio doesn’t need that, or a law that would permit that. This bill should go away.

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