A troubling debt management bill has been fast-tracked through the House in recent weeks; passing out of Financial Services, through House Ways & Means, and is on the calendar for consideration on the floor.
Of particular concern is the fact that HB 3569 would legalize for-profit debt settlement operations, despite the fact that a national banking regulator has deemed debt settlement “not a legitimate method of satisfying debts” and evidence that most consumers are in worse shape after enrolling in a for-profit debt settlement scheme. The Consumer Financial Protection Bureau has recently begun to crack down on abusive debt settlement practices and companies, and other states have declined similar attempts to authorize for-profit debt relief schemes. See more detail here.
Debt settlement companies aggressively promise outright debt forgiveness while promoting a process whereby consumers stop paying their debts all together and instead pay into an escrow account controlled by the company. For most participants, this process pushes households into default, with their creditors sinking them with creditors’ fees, higher interest rates, and collection lawsuits – not to mention hefty fees owed to the debt settler.
In Massachusetts, we have strong protections against payday lenders. Let’s not unravel our tradition of consumer protections in financial services by allowing these practices in Massachusetts. Almost half of our residents have subprime credit scores, so we are particularly exposed.