A bill that would license and regulate for-profit debt settlement companies doing business in Massachusetts is gaining momentum in the Legislature, yet some consumer groups say much tougher restrictions are needed for the industry.
With television, radio, and online advertising, debt settlement companies are already attracting business from residents overwhelmed by credit card bills. Unlike debt collection companies, these businesses negotiate with credit card companies to settle a client’s account for a reduced lump sum payment instead of the full balance.
But their success rates are lower than advertised and their promises sometimes come with a hefty price tag to consumers — including deeper debt, because of the fees involved, and deteriorated credit ratings, according to state regulators and a 2010 report from the federal Government Accountability Office.
Governor Deval Patrick’s administration has proposed regulating debt settlement companies twice before. A new version of the bill, filed this summer, won initial approval from two House committees last month and has the support of the debt companies. The bill is also being pushed by the state’s Office of Consumer Affairs and Business Regulation.
“The longer Massachusetts waits, choosing not to oversee this industry, the more consumers will be taken advantage of by these companies,” said Barbara Anthony, undersecretary of the Office of Consumer Affairs and Business Regulation, in a statement earlier this summer to a legislative committee. Anthony was unavailable to comment for this story.
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