Indebted consumers often look to debt settlement firms to help them lower the amount they owe to creditors; but many end up in even worse financial condition, writes Markita Morris-Louis, general counsel with Philadelphia-based Clarifi. She describes how one client of the nonprofit had paid a third party $1,000 to settle $18,000 in debt, but the company never made progress in negotiating with the creditors. This is one of the reasons, according to Morris-Louis, that it is time to end such practices in Pennsylvania.
On June 17 in the state legislature, the House Commerce Committee is expected to move Senate Bill 622 to appropriations. However, Morris-Louis says the Debt Settlement Services Act has flaws that could keep consumers vulnerable to unscrupulous debt settlers and should be altered to fix these problems. She recommends that the bill set a meaningful limit on fees that settlement companies can charge in the state, based on the amount a consumer is able to save or reduce on their debt. It also should require debt settlement firms to consider the consumer's financial well-being, and his or her whole financial situation, to determine if debt settlement will really benefit; and they should have to review whether creditors are likely to actually settle.
The bill also should prohibit practices that include telling a consumer to stop making payments to creditors and enrolling consumers that debt firms know will not benefit. Legal services also should be included in the definition of debt-settlement services and should not be exempt from these consumer protections.