The State Senate approved comprehensive legislation sponsored by Senator Doug Overbey on May 4 that would benefit Tennessee consumers who utilize the services of debt management specialists. The legislation, named the “Uniform Debt Management Services Act,” provides guidance and regulation to the consumer debt management industry while also providing fairer services to debtors.
“As the recession has deepened, we are finding more and more consumers turning to debt management companies, which have tripled in number over the past few years,” Overbey said. “There have been frequent instances or accusations of abuse by consumers who utilize these services. This legislation regulates the industry in uniformity with other states, while protecting consumers.”
Congress passed bankruptcy reform legislation in 2005 mandating counseling by a private agency before an individual may enter into bankruptcy. Debt settlement is the option that lies on the continuum between credit counseling and bankruptcy.
It is most often used by consumers who may not qualify for credit counseling or who do not qualify under the new rules of bankruptcy or prefer to honor their debts to the best of their ability rather than declare bankruptcy. Debt management services primarily include negotiating a reduction of the consumer’s non-secured consumer debts in exchange for a faster repayment plan.
The legislation, SB 812, requires a debt management company operating in Tennessee to obtain a license and supply information about their practices, fees, educational materials and employee qualifications. A company must also post a surety bond or another security to safeguard any money that it receives from individuals for payment of creditors.
In addition, the debt management company must provide a disclosure to consumers that this may not be the best option for them and that it may affect their credit rating.
“We need credible counseling services for those facing massive debt,” Overbey said. “However, we don’t need an unregulated industry that might prey on those who are already in deep financial trouble.”
The new act gives the Department of Commerce the right to take enforcement action against anyone who violates the act. It also creates a consumer right of action and treble damages for certain circumstances involving abuse.
“When consumers turn to these companies for help, they need greater assurance that they will receive the appropriate debt counseling and assistance. I am pleased that our State Senate has approved this legislation and hope that we will have full reciprocal participation from all states in the near future,” Overbey said.