Debt-settlement bill shelved for now in Georgia

Debt settlement companies — for-profit firms that offer to help consumers get out of debts for less than they owe — are trying to get a foothold in Georgia.

But members of the state House banking committee on Monday shot down a version of a bill that would permit the companies to operate. Some consumer groups had asked lawmakers to take more time to weigh the measure.

The bill, HB 465, could be revived and presented in the state Senate or be attached to another piece of legislation.

“Debt settlement does not work,” said Michelle Jones, a senior vice president with Atlanta-based CredAbility, a nonprofit credit counseling service. “I have no doubt that this proposed bill will hurt many more Georgians and their families than it will help. It’s bad for consumers, it’s bad for business and it’s bad for Georgia.”

State Rep. Chuck Martin, R-Alpharetta, the lead sponsor of the bill, said allowing debt settlement firms would help consumers and give struggling Georgians alternatives to bankruptcy.

In debt settlement, a consumer enters an agreement with a firm to negotiate a payoff of debt for less than what’s owed over a defined period of months or a few years. The companies typically have consumers stop paying their bills and pony up a lump sum of cash or save up money to pay into an account that is later used to pay off the settled debt.

Critics charge debt settlement groups charge high fees and do not protect consumers from creditor lawsuits, wage garnishment or harassing collection calls. Such protections would be afforded under bankruptcy.

But Martin said HB 465 has significant consumer protections, including requirements that companies disclose alternative forms of assistance, and a requirement that fees not be charged for settlement services until after a first payment toward debt is made under the plan.

“We’ve tried to do it with an eye on consumer protection,” Martin said.

Brian Tawney with the American Fair Credit Council, a trade group for debt settlement firms, said such debt resolution companies work for consumers, not credit card companies.

Illegitimate debt assistance groups are operating in Georgia without regulation, Tawney said.

“Passing this bill will let the legitimate companies in. … You are basically weeding out the bad actors,” he said.

But critics said there is no cap on the fees charged. And some lawmakers raised concerns about a provision that would allow the firms to charge up to $100 for borrower education services.

State lawmakers capped fees in 2003 on other types of debt relief, and allowing HB 465 would fly in the face of that consumer protection, said Jimmy Hurt, a consumer attorney from Athens.

Bankruptcy, though difficult, permits a debtor to start over with a clean slate, he said. He cited data from the National Association of Consumer Bankruptcy Attorneys that only one in 10 borrowers complete their debt settlement agreements on time and debt free.

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