Stumbo Issues Draft Regulations on Debt Adjusters, Urges Consumers To Be Careful When Choosing Debt Adjustment Services

FRANKFORT, KY (April 15, 2005) - Attorney General Greg Stumbo today announced the filing of draft regulations implementing Kentucky’s new Debt Adjuster law, KRS Chapter 380, passed by the 2005 General Assembly. “Debt adjusters” are persons or companies which offer services to consumers in credit counseling, managing budgets, or consolidating and paying bills to consumers’ creditors.

The law was enacted with the support of the Attorney General’s Office to improve protection from unscrupulous debt adjustment firms that charge high fees and provide little if any benefit to financially strapped consumers attempting to cope with high levels of debt. “This law and these regulations will give us the ability to stop the worst abuses in the debt adjustment business,” Stumbo said. “Too often consumers have paid high fees and received little if any benefit from their contracts with debt adjustment firms. They think they’re paying their creditors and only get deeper in debt. There are many good debt adjustment businesses and non-profits that offer real help to consumers trying to get out from under a mountain of debt. We think this law will help consumers shop for the best services by requiring that the debt adjusters register with the Attorney General’s Office.”

This law, which goes into effect June 20, will require persons acting as debt adjusters to register with the Attorney General’s Consumer Protection Division and to comply with specific provisions, including:

  • Maintaining a separate trust account in a federally-insured financial institution for the receipt and disbursement of consumer funds
  • Disbursing consumer funds to appropriate creditors within thirty days of receipt of the funds by the debt adjuster
  • Limiting fees charged or contributions solicited for services, such as a $75 limit for an initial set-up and a $50 limit for a consultation, and periodic service charges to no more than the greater of 8.5% of the amount paid by debtor for distribution or $30 monthly
  • Maintaining minimum insurance coverage of $100,000 from an A- rated insurer, with requirements for specific types of coverage, such as errors and omissions, employee dishonesty and others


CONSUMER TIPS

The Attorney General encourages Kentucky residents to protect themselves from unscrupulous debt management companies by checking with the Attorney General’s Consumer Protection Division for proper registration in Kentucky. Consumers may also check with their local Better Business Bureau regarding any complaints about the company. Other important steps to take include carefully reviewing the services offered and all fees charged. Counseling services should include actual counseling and education by counselors trained in consumer credit, money and debt management. Consumers should get a detailed written quote of all fees charged. Some organizations offer free counseling and others will waive or reduce fees. For additional information on selecting a debt management company, visit the Federal Trade Commission’s website at www.ftc.gov.