Washington appears to be going for the throat of the the debt settlement industry. On Wednesday, U.S. Senators Chuck Schumer, D-N.Y., and Claire McCaskill, D-Mo., introduced the “Debt Settlement Consumer Protection Act,” which would limit the fees that debt settlement firms can charge and mandate written disclosures before services are performed, including the right to cancel for a full refund. Enrollment in a debt settlement program usually involves making payments into an account administered by the firm, which uses some of the money for fees but also to negotiate with creditors and settle credit card debt when the account has enough funds for an offer. Meanwhile, many debt relief companies advise consumers to stop paying their creditors to make the lenders desperate even for a partial payment. They do this because that is what the credit card companies need to even consider a debt negotiation.
Bank Rate Debt Adviser Steve Bucci mentioned in his column, that consumers will hurt their credit score. While that is true, he may be overlooking the fact that most of these people do not have the ability to pay back their credit card companies with their present income. It is also important to note that credit counseling and bankruptcy also damage the consumer’s credit scores. According to debt relief advisor, Jeff Morris, “Getting more credit is not the top priority for a struggling American who are buried in credit card debt.” Morris continued, “There is plenty of time to implement some credit repair programs after the person eliminates their credit card debt.”
