Sunday, Jun 17, 2018
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Settling for less

State lawmakers have no business gutting consumer protections against predatory debt-settlement companies

Even in an election year, Ohio’s General Assembly keeps its focus on what matters: working to protect corporate special interests (and preserve their campaign contributions) at the expense of consumers. The latest example is bipartisan legislation that would give unscrupulous “debt settlement” companies even greater freedom to prey on poor, elderly, and desperate Ohioans.

Such companies, mostly based out of state, offer — for a fee — to help consumers resolve credit-card debt without having to declare bankruptcy. Reputable firms do what they say they will do.

Too often, though, predatory companies use high-pressure telemarketing to enroll customers in programs that charge monthly fees they can’t afford. After failing to get their debt settled in the promised few months — or at all — the consumers are left even poorer and more at risk of bankruptcy than before.

A decade-old state law called the Ohio Debt Adjusters Act limits and specifies the fees that debt settlement companies can charge, and requires them to maintain insurance against customers’ losses. It subjects the companies to annual outside audits and regulation by the state attorney general.

Debt settlement companies also are subject to federal regulation. Federal Trade Commission rules that took effect in 2010 prevent settlement companies from charging fees up front. The regulations also require disclosure of all fees, and provide a process for consumers to withdraw from settlement programs without financial penalty.

A bill that has passed the Ohio House and is before the Senate would weaken both sets of protections, in the guise of strengthening them. It should not become law.

In testimony last month before a Senate committee, the bill’s cosponsor, state Rep. Louis Terhar (R., Green Township), recited the sometimes-misleading talking points of the debt settlement industry. He described the important safeguards in the FTC rules, which are enforced nationwide, as mere “recommendations” that his bill would “codify.”

Representative Terhar’s bill would explicitly exempt debt settlement companies from the state debt adjuster law, including its fee and oversight provisions. In his testimony, he suggested that debt settlement companies are not now bound by the law’s fee limits — an interpretation at odds with the conclusions of that law’s chief sponsor, past and present state attorneys general, and legislative analysts.

Debt settlement companies often advise their customers to stop paying debts, and instead to set up escrow accounts that presumably can finance settlements with creditors. The companies can take hefty fees out of these accounts.

But defaulting on debts can destroy credit records, and place consumers at risk of even higher debt from jacked-up interest rates, late fees, and lawsuits. Many creditors refuse to deal with debt settlement companies. An estimated 40 percent of the companies’ customers get no debt forgiven.

Surely there are better ways to help recession-battered Ohioans get out of debt — such as expanded credit counseling — than exposing them to economic exploitation. State lawmakers should engage in the search for such solutions, instead of simply waving through an industry-friendly bill that would let abusive debt-settlement companies charge struggling consumers whatever they want.

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