What Financial Reform Would Mean to Debt Relief

In an attempt to crack down on abuses in the debt negotiation industry, Senator Charles Schumer (D-NY) introduced the Debt Settlement Consumer Protection Act (DSCPA). The amendment would regulate in two key ways:

Disclosure

Designed to flush out misleading marketing and sales pitches, the bill contains some strong disclosure requirements for debt negotiation companies to itemize the services to be provided and to list put the consumer’s debts. They will have to provide a clear and conspicuous list of all fees and compensation to be paid by the consumer to the debt settlement company, and inform consumers of their right to cancel the debt settlement contract and get fees refunded. Debt negotiation agencies will be prevented from advertising “success rates” unless a majority of clients actually get successful results.

Fee Structures

High upfront fees are one of the worst problems plaguing the settlement industry. These fees drive overly aggressive marketing, poor screening of whether settlement is appropriate for potential clients, and create disincentives to help clients successfully settle their debts. It also undermines success because some of the best settlement offers today are coming in before a credit card is charged off. If all the consumer’s available funds have gone to pay fees, there will be little, if any, money with which to settle.

This proposed amendment would cap upfront fees at $50, and the only other fees allowed would be contingent fees limited to 10 percent of savings. So, for example, let’s say a consumer has $30,000 in credit card debt. If he or she were able to settle that debt for 50 percent of that amount, the savings would be $15,000 and the total permissible fee would be $1,550 (10 percent of savings, or $1,500, and $50 upfront).

What This Means

In the amendment the concept of tying fees to success is supported, but it proposes that debt negotiation firms collect the same kind of monthly maintenance fees as credit counseling agencies, which most states cap at $50 per month. The goal should be to flush out firms that do not have the consumer’s best interest in mind, while leaving the door open for a viable option for those consumers who are trying to do the best they can in difficult circumstances.

One of the primary arguments against debt settlement programs is that consumers can do all of the same things on their own, so regulators often recommend that consumers simply try to negotiate directly with their creditors. Most creditors won’t work with debtors, and instead they put consumers under enormous financial and emotional stress. Most are juggling multiple debts, so they have several creditors clamoring to get paid first, threatening them with dire consequences if they don't reach an agreement immediately. They may be offered a short-term reduction, but they rarely provide a real long-term solution.

Who You Can Trust

Located north of Dallas, Greenshield Financial Services has certified debt arbitrators who follow the highest standard of professional conduct as designated by the International Association of Professional Debt Arbitrators (IAPDA). Greenshield’s mission is to guide their clients toward a debt-free life by helping relieve concerns, resolve debt, and rebuild strong financial health, both now and in the future. Part of the company’s world-class customer service includes providing financial education and savings guidelines for consumers to deploy immediately and in the future when professional debt settlement is no longer needed.

Many people who have gotten into trouble with credit card companies have turned to Greenshield for debt relief. Green Shield Financial Services is a Financial Health Management Company that specializes in a debt settlement program as alternatives to debt relief, debt help, and bankruptcy to help you learn how to get out of debt.