The state of Connecticut has officially changed the rules by which debt relief companies can legally operate. The new law would apply to those firms and individuals who offer debt relief services and who negotiate with a consumer’s creditors. It would require licensing and would also prohibit upfront fees.
This new legislation was drafted to provide a solution to the increasing instances of scam that have been perpetrated by supposed debt negotiators who make fraudulent claims to clients. Instead of helping customers repay household debt, mortgage debt, or credit card debt, as promised they charge hefty fees upfront by never produce results. Many are nothing more than fly-by-night schemes that disappear with the consumer’s money, leaving them in far worse shape.
The consumer-based legislation, proposed by Attorney General Richard Blumenthal, was based on numerous complaints he received about the activities of debt negotiators over the last several years. Blumenthal has been involved in several investigations of fraudulent services.
Most of the time, according to Blumenthal, the scams involve a customer paying big fees—sometimes in the $1,000 to $3,000 range—to a company or service that promises they will negotiate for lower debt. Rather than applying the money to the debt, the service may simply disappear.
The new legislation would be added to its existent regulations. Connecticut already requires licensing for those termed “debt adjusters,” who are individuals or firms that receive or submit funds to a creditor without performing the actual debt negotiations.
The expanded regulations would prohibit negotiators from charge initial fees and require them to perform all services outlined in the contract before payment is made. Additionally, before any contracts are signed, the negotiator must have a registered license as well as provide an estimate about the potential success rate for individual clients. The state banking commissioner is also working to institute a schedule of maximum fee that negotiators will be allowed to charge.
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