Uniform State Rule for Debt Managers on Horizon

States may see coordinated regulations covering debt management firms in the wake of a meeting called for this November that will include credit counselors, debt-payment firms, debt-settlement companies, bankers, and consumer advocates.

The Uniform Law Commissioners will hold a conference in Chicago November 16th to the 18th to address inconsistencies among the states in the regulations of the firms that assist consumers seeking to get out from under debt. Four states have passed the law commissioners’ Uniform Debt Management Act—Colorado, Delaware, Rhode Island and Utah—that sets requirements for registration, bond, and disclosure for debt management firms.

Changes arising from the federal bankruptcy law that was enacted in 2005 slowed other states from passing the act, says Michael Kerr, legislative director of the National Conference of Commissioners on Uniform State Laws, the Chicago-based parent of the law commissioners.

The debt-management industry was thrown into disarray with the bankruptcy law provision that required credit counselors to be not-for profits. Additionally, many consumer advocates argued against the debt-settlement firms, for-profit companies that charge fees for negotiating deals between creditors and debtors.

But much of the dust has settled from the battle over the bankruptcy bill and the timing may be better now to rethink the uniform act, says Kerr. Some are looking to the amendments that Colorado added to the bill, that put a cap on certain fees and the deposits that firms must make to do business in individual states.

“Our goal is a bill that everyone can live with,” says Kerr.

The debt settlement firms’ opposition to the bill may have softened recently too. “The industry seems to have calculated it wants reasonable regulations that are the same from state to state,” says Kerr. “That wasn’t there three years ago.”

The uniform law includes provisions that all counselors must be certified, that any fees that are charged debtors are set by law, and that a debtor’s money for payments be safeguarded in a trust account. The law requires a debt management business to register in the state, provide information about its functions, finances, business history, and agreements with debtors. The business must have an insurance policy of at least $250,000 and security bond of at least $50,000.