Legal Services of New Jersey urges regulations on debt settlement fees and practices

During a recent meeting of the New Jersey Assembly's Regulated Professions Committee, significant discussions emerged regarding the regulation of debt settlement practices. Advocates, including attorney David McMillan from Legal Services of New Jersey, emphasized the need for stricter oversight to protect consumers from potentially exploitative practices in the debt settlement industry.

One of the primary concerns raised was the structure of fees charged by debt settlement companies. Advocates urged that any fees should be based on the amount saved for consumers rather than a percentage of the total enrolled debt. They proposed a cap on these fees, suggesting they should not exceed 10% of the saved amount. This recommendation aims to ensure that consumers are not further burdened by high costs while attempting to resolve their debts.

Additionally, the committee heard calls for a complete ban on referral fees. Proponents argued that such fees could incentivize practices that lead consumers into debt settlement unnecessarily, potentially worsening their financial situations. The discussion highlighted the importance of consumer protection, particularly for those who may not fully understand the implications of entering debt settlement agreements.

Another critical point raised was the need for partial indemnification for consumers who qualify for Chapter 7 bankruptcy but are placed into debt settlement programs. This provision would help ensure that individuals who could have had their debts discharged are not misled into less favorable arrangements.

The right to terminate debt settlement contracts without penalty was also emphasized as a necessary consumer protection measure. Advocates argued that consumers should have the freedom to exit agreements that may not serve their best interests.

Lastly, the committee discussed the role of the Department of Banking and Insurance (DOBI) in regulating the debt settlement industry. Advocates expressed that the current requirement for an annual report from DOBI is insufficient. They called for the legislature to either impose regulations directly or mandate DOBI to establish comprehensive regulations before any new legislation takes effect.

The discussions at this meeting reflect a growing concern for consumer rights in New Jersey, particularly among low-income residents facing financial challenges. As the committee continues to deliberate on these issues, the outcomes could significantly impact how debt settlement practices are conducted in the state, aiming to create a safer environment for consumers navigating their financial obligations.