California Bill AB350 Aims To Regulate Debt Settlement

There are various bills across the country that aim to regulate the Debt Settlement industry. One of those bills that is getting closer to passage is in California.

California bill AB350 is supported by the two main trade groups of the debt settlement industry who claim they want to weed out the “bad firms” who are giving the industry a bad name. AB350 is sponsored by  Assemblyman Ted Lieu, D-Torrance (Los Angeles County).

At least two prominent consumer groups oppose the bill. “We think it’s too soft,” says Gail Hillebrand, a senior attorney with Consumers Union.

According to a story at SFGate.com:

Lieu, who is running for state attorney general, has been trying to regulate the industry in California for more than two years. His bill would require firms to be licensed and regulated by the Department of Corporations, provide extensive disclosures and cap fees at 5 percent of the consumer’s debts up front and a total of 20 percent during the first half of the contract.

If consumers complete the program, and the amount they pay in settlements plus fees exceeds the debt brought into the program, the company must refund the difference. Consumers who don’t complete the program are not eligible for any refund.

Consumers Union and the Center for Responsible Lending object mainly to the bill’s fee structure and consumer-suitability requirements. They would like fees to be based on the debt waived, not the total. Lieu says that approach would discourage companies from working with smaller debtors.

The bill requires companies to make sure clients are “qualified” for the program by enrolling them. “We think that is too weak of a standard,” Hillebrand says. “It could be like saying if you have a pulse you are qualified.” Her group wants companies to make sure a consumer is “suitable,” or able to benefit from the program.

Lieu’s bill passed the Assembly 56-22. It passed the Senate banking committee 10-1 on Thursday and moves this week to the Senate judiciary committee. The full Senate could vote in August or September. If passed, the bill would not take effect until January 2012, although Lieu says he would consider moving that up to help today’s stressed borrowers.