SPRINGFIELD | Unscrupulous debt settlement companies seeking to take advantage of Illinois consumers will have to start cleaning up their act.
A new law inked by Gov. Pat Quinn on Tuesday would mandate all debt settlement companies to apply for a state license and subject the companies to legally enforced contracts with debtors. The new law would also limit the initial fee of debt settlers to $50 and cap how much the settlers could charge for their services.
Quinn said the law would put a halt to a troubling trend.
"Debt settlement companies in Illinois have abounded in recent years and have used their devices to entice consumers into many arrangements that end up costing the average person thousands and thousands of dollars ... we cannot allow that to happen," he said.
Illinois Attorney General Lisa Madigan helped spearhead the legislation after her office received hundreds of complaints concerning entities that promised to help reduce or eliminate debt but did not.
"We have not found a legitimate debt settlement operator, we haven't heard of one, that's come to our office. We have gotten literally over 600 complaints. Normally, it's people who have ended up in bankruptcy, people who have been sued, people who have lost thousands of dollars, and been provided with no services," she said.
Madigan explained that these debt settlement companies will target individuals with significant debt -- upwards of $10,000 -- and provide financially unsound advice.
Some companies will tell debtors not to pay their creditors on time and to transfer funds to the companies to help with legal disputes. The supposed "advice" only exacerbates financial troubles.
The settlement companies will also charge high fees upfront to siphon the remaining money from debt-ridden individuals.
Brent Adams, head of the Illinois Department of Financial and Professional Regulation, said his agency would file a draft of potential regulations focused on curbing unscrupulous debt settlement companies with the office of Illinois Secretary of State Jesse White.
Adams said his agency also would post a new website that provides information on the new law as well as online applications for a debt settlers' license.
"A consumer who is reaching out for a lifeline extended by a debt settlement company should not be exploited by the very company that they hope will save them," Adams said.
Madigan advised that those with debt stay disciplined and look to nonprofit advisers for help.
"It is hard work, it is setting aside your money and paying off your bills, but it is a much better option than giving your money away to somebody who is providing you with absolutely no services," she said.
