SENATE CONCURRENT RESOLUTION No. 103

STATE OF NEW JERSEY

219th LEGISLATURE

 

INTRODUCED MARCH 16, 2020

 


 

Sponsored by:

Senator  RONALD L. RICE

District 28 (Essex)

 

Co-Sponsored by:

Senators Addiego and Cruz-Perez

 

 

 

 

SYNOPSIS

     Urges efforts at state and federal levels to protect minority communities from certain practices of debt settlement companies.

 

CURRENT VERSION OF TEXT

     As introduced.

  


A Concurrent Resolution urging efforts at the state and federal levels to protect minority communities from certain practices of debt settlement companies.

 

Whereas, The General Assembly recognizes that debt settlement companies, which claim to settle, renegotiate, or in some way change the terms of a person’s debt to a creditor, cause significant problems for borrowers, often increasing debt while complicating the process of becoming debt free; and

Whereas, Debt settlement companies suggest that they are “negotiating with creditors to settle debt for less than what is owed” and can require that consumers stop making payment, usually for two to three years, while they negotiate a settlement; and

Whereas, Stopping payments causes accounts to default, resulting in additional late payments, late fees, and other penalties that will be added to the amount already owed; and

Whereas, Debt settlement will have a negative impact on consumers’ credit scores and make it more difficult to access affordable credit, since debt settlement remains on a credit report for seven years and not paying the full amount owed or missing payments while negotiating a settlement lowers credit scores; and

Whereas, A fee is normally charged by debt settlement companies to negotiate on a consumer’s behalf and can be as much as 20 to 25 percent of the final settlement owed, which means a consumer with a $5,000 settlement may have an additional $1,000 to $1,250 in fees to pay; and

Whereas, Lenders are under no obligation to accept settlement offers and in fact, some lenders refuse to work with debt settlement companies; and

Whereas, There can be negative tax consequences from using a debt settlement company, as whatever amount of debt is forgiven may be considered as income and require that the consumer list this amount as income on their tax returns; and

Whereas, These companies often disproportionately operate in minority communities, where individuals and families often have fewer resources to draw on when they come under financial pressure; now, therefore,

 

     Be It Resolved by the Sente of the State of New Jersey (the General Assembly concurring):

 

     1.    The Legislature supports efforts at the state and federal levels that ensure debt settlement companies are subject to basic consumer protections, including licensing, regular examination, and prominent mandatory disclosure.

 

     2.    The Legislature recognizes that these services do not release a consumer from existing debt, and that ceasing to make payments without the consent of the creditor may damage the consumer’s credit score and may subject the borrower to collections activities, additional fees, and interest.

 

     3.    The Legislature urges states, including New Jersey, to consider legislation restricting debt settlement companies’ unsafe or unsustainable loans directly or indirectly to consumers.

 

     4.    The Legislature encourages the federal government to conduct a comprehensive review of its oversight of debt servicing companies, to include a review of federal bankruptcy rules; how debt settlement companies act as credit counseling services; the status of these companies as money servicing businesses; and a review of the enforcement of current laws and regulations by the Consumer Financial Protection Bureau and Federal Trade Commission.

 

     5.    Copies of this resolution, as filed with the Secretary of State, shall be transmitted by the Clerk of the General Assembly or the Secretary of the Senate to the President of the United States, the Vice President of the United States, members of the United States House of Representatives and United States Senate, the United States Secretary of the Treasury, and to other federal and State government officials as appropriate.

 

 

STATEMENT

 

     This resolution urges efforts at the state and federal levels to provide protection to minority communities from certain practices of debt settlement companies.

     Debt settlement companies can settle, renegotiate, or in some way change terms of a person’s debt to a creditor, which can cause significant problems for the borrower and result in increasing the debt while complicating the process to become debt free. These companies also suggest that they negotiate “with creditors to settle debts for less than what is owed” and may require consumers to stop making payments, for up to two to three years, while the company is in negotiations.  Stopped payments can lead to a default on an account and the consumer will have to make late payments with additional fees and other penalties attached.

     Debt settlement negatively impacts a consumer’s credit score and remains on a consumer’s credit report for seven years, which makes it more difficult for that consumer to access and afford credit. Additionally, debt settlement companies typically charge the consumer a fee that can be up to 20 to 25 percent of the final settlement amount. There is also no guarantee that lenders will accept a settlement from a debt settlement company or even work with such a company. In addition, any forgiven amount of debt may be considered as income and require consumers to list that amount as income on their tax returns.  Debt settlement companies have also been known to target minority communities, where individuals and families can have fewer resources to draw on when under financial pressure.

     This resolution urges support for efforts at the state and federal levels to subject debt settlement companies to consumer protection laws, including licensing, regular examination, and prominent mandatory disclosure. The resolution also states that the Legislature acknowledges that debt settlement services do not release a consumer from their debt obligations and that ceasing to make payments without the consent of the creditor can damage a consumer’s credit score and lead to collection activities, additional fees, and interest payments. The resolution urges the consideration of legislation that restricts a debt settlement company’s unsafe or unsustainable loan practices that are either directly or indirectly provided to consumers. Lastly, the resolution encourages the federal government to conduct a comprehensive review of its oversight of debt servicing companies, which would include a review of federal bankruptcy rules; how debt settlement companies act as credit counseling services; the status of these companies as money servicing businesses; and a review of the enforcement of current law and regulations by the Consumer Financial Protection Bureau and Federal Trade Commission.