With these things in mind, Illinois State Treasurer Alexi Giannoulias has proposed new state legislation to try to help consumers from predatory debt companies that typically fail to deliver on their promises.
“Debt settlement companies claim to be a lifeboat for people drowning in debt. But their deceptive practices put consumers on a sinking ship toward bankruptcy,” said Giannoulias, who noted that many of these companies have been heavily advertising on television and elsewhere.
The treasurer noted that debt settlement companies will often tell consumers to stop paying creditors and instead deposit money into an account set up by the company. When a certain amount is accumulated, the companies will then try to negotiate a debt settlement with the creditors for pennies on the dollar. However, while the payments are not being made, creditors are still free to pursue collection activities, and the consumer’s credit score will suffer significantly in most cases.
Such tactics also tend to drive consumers deeper into debt because of the late fees and interest that accumulates from not making regular payments. Giannoulias noted that some debt settlement cases can take years to resolve, and consumers can find their wages garnished in the meantime as a result of collection activities.
The proposed state legislation would require debt settlement companies to be licensed in the state and the fees they charge would be capped at $50 upfront and $30 per month. Additional fees could only be based on how much consumer the consumer actually saved. Other steps would also require the companies to provide monthly statements and would also bar them from the credit score damaging process of advising people to stop making their regular payments.
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