• Credit Counseling and Debt Settlement Alert - From the State Legislatures
  • June 3, 2009 | Authors: Jonathan L. Pompan; Jeffrey S. Tenenbaum
  • Law Firm: Venable LLP - Washington Office
  • This article is part of the May 2009 Credit Counseling and Debt Settlement Alert, which provides a broad survey of some recent notable legislative initiatives, federal and state regulatory actions, and other developments affecting providers of debt relief services—including financial counseling and education, debt management plans, and debt settlement.

    From the State Legislatures

    For 2009 we are tracking over seventy state legislative proposals on various issues that concern credit counseling agencies, debt management plan providers and debt settlement companies. While there is activity on any number of bills being considered daily, here is just a sampling of some of the recent developments we are following:


    Newly enacted amendments to the Iowa Debt Management Act, Iowa Code § 533A, take effect on July 1, 2009. [1] The amended statute, among many changes, redefines the term “debt management” to include any attempt “to settle the amount of a debtor’s debts with creditors for less than the amount owed on the debts.”  The statute will also include a new definition of “debt settlement.” The changes also include revisions to the statutory fee caps (with language targeting fees paid by debtors to lead generators, marketing and selling services), and the length of a permissible contract for services. The law also includes a new requirement of specific verbal and written pre-enrollment disclosures to consumers. The Iowa Debt Management Act requires persons engaged in “debt management,” unless exempt, to be licensed.


    A newly enacted amendment to the Maryland Commercial Law will provides generally that “a person is in violation of a specified provision of law prohibiting false advertising if the person causes an advertisement that misrepresents the location of the person to be published in a specified directory, or causes a telephone listing that misrepresents the location of the person to be listed in a specified directory; etc.” [2] This new law takes effect on October 1, 2009.


    On April 29, 2009, Montana Governor Brian Schweitzer signed H.B. 318, “An Act Regulating Debt Settlement Providers,” the first legislation passed in Montana to explicitly regulate the debt settlement industry.  H.B. 318 amends the Montana Consumer Debt Management Services Act and requires debt settlement providers to maintain insurance, file an annual report with the state attorney general, and make certain written disclosures to consumers. The amendment also imposes fee caps and prohibits “false, misleading or deceptive statements or representations.” The new requirements take effect on October 1, 2009. 

    New Jersey

    The New Jersey legislature is considering S.B. 2765, a new measure that would exempt counseling agencies from the licensing and regulatory requirements of the New Jersey Debt Adjusters Act if they are (1) certified by the U.S. Department of Housing and Urban Development as a housing counseling organization or agency, (2) participating in a housing counseling program approved by the New Jersey Housing and Mortgage Finance Agency, and (3) not holding or disbursing the debtor’s funds. [3] The bill will also update the criminal statute governing unlicensed debt adjusting by making reference to the licensing requirements and exemptions in the Debt Adjusters Act, rather than maintaining a separate but identical definition in the criminal code.

    UDMSA on the March

    The Uniform Debt-Management Services Act (“UDMSA”) represents the first national effort at developing uniform rules to govern both consumer credit counseling and debt settlement services. The National Conference of Commissioners on Uniform State Laws approved the UDMSA in July 2005; amendments made to the UDMSA in March 2008 have prompted several state legislatures to introduce the UDMSA (or mimic aspects of the model law in original legislation) for adoption in their own jurisdictions. The UDMSA has been adopted in Colorado, Delaware, Rhode Island, and Utah. States where the UDMSA is under consideration include Maine, Missouri, Nevada, New Mexico, New York, North Dakota, Tennessee, Texas and Washington.


    Earlier this year, the Utah Uniform Debt-Management Services Act was amended by Utah S.B. 167. [4] The amendment takes effect on May 12, 2009. S.B. 167 amends the insurance requirements and content of advertising and disclosure requirements for debt management service providers.

    [1] “A Bill for an Act Relating to the Regulation of the Business of Debt Management and Making Penalties Applicable,” S.F. 311 (Iowa 2009).

    [2] “Consumer Protection – False Advertising – Misrepresentations in Advertisement and Telephone Directory Listings,” S.B. 10 (Md. 2009).  

    [3] “An Act Concerning Certain Debt Adjusting Activities and Amending P.L.1979, c.16 and N.J.S.2C:21-19,” S.B. 2785 (N.J. 2009).

    [4] “Amendments to Uniform Debt-Management Services Act,” S.B. 167 (Utah 2009).