Illinois law prohibits upfront fees to settle debts
Consumer Ally took note earlier this week of potential pitfalls in the debt settlement process. This new law, however, would address the behavior of debt-settlers.
"The legislation provides Illinois consumers with essentially the strongest protection in the country by prohibiting debt settlement operators from getting paid upfront without providing a legitimate service," said Natalie Bauer, spokeswoman for the Illinois Attorney General. "It will only enable debt settlement operators who collect a fee after they settle the debt."
The bill originated in the state Attorney General's office in response to what Bauer called a "sharp rise" in complaints. From those, the Attorney General filed seven lawsuits in the past year against debt settlement operators. The bill requires the governor's signature before it goes into effect.
The majority of complaints said the companies did not follow through on their advertising, which guaranteed "debt free status." Consumers have wound up with high interest rates and fees from the credit card the debt settlement company advised them not to make payments on, diminished credit scores and potential lawsuits from banks.
"As the economic downturn continues, it remains critical to protect people struggling to pay their bills from companies that will only make their situation worse," said sponsor Rep. Marlow H. Colvin, (D-Chicago) in a public statement from the Attorney General's office. "This legislation will serve as a model of consumer protection."