Nearly 10 years ago, lawmakers passed the Ohio Debt Adjusters Act, intended to protect state residents from debt adjusters that imposed excessive fees and gave false hope to consumers mired in debt. Under the statute, fees are limited to no more than $75 for initial consultation, up to $100 annually for consultation fees, and no more than 8.5 percent of the debt or $30 -- whichever is greater -- for monthly fees.
These reforms were modest, writes Kalitha E. Williams, policy liaison for Policy Matters Ohio, and the debt adjustment industry remains profitable in Ohio as a result. Many indebted consumers seek financial relief, only to find their situation exacerbated after working with for-profit debt adjusters. These firms insist that clients stop making debt payments and fund an escrow account to be used to negotiate with lenders. As the debts grow, consumers are hit with late fees and higher interest rates; and they often have to file for bankruptcy.
Williams writes that these conditions would worsen if House Bill 173 is passed. The proposal would lift the fee caps, on the grounds that federal protections have removed “bad actors” from the debt-adjustment industry. However, the last year alone has seen regulators such as the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Attorney office in New York taking legal action against such companies.
The Center for Responsible Lending found that consumers only benefit from debt adjustment if they can complete the settlement of at least two-thirds of their debt. Consumers cannot know this before enrolling. A survey from the iA Institute found that nearly half of debt creditor and collector companies refuse to work with debt-settlement companies.