In 2004, state lawmakers enacted the Ohio Debt Adjusters Act, designed to protect Ohioans from unscrupulous debt-settlement companies. The law has worked well, most notably, in limiting the fees the companies collect and empowering the state attorney general to ensure compliance. That success hasn’t prevented debt-settlement firms from trying to roll back the law. Now they’re back in the current lame-duck session seeking legislative approval of House Bill 182.
One concern is that the legislation somehow will get attached to another measure amid the flurry of activity this time of year at the Statehouse. That would be a shame. Passage would open the way to removing the fee limitations. It would leave many Ohioans vulnerable to deceptive and predatory practices.
Debt-settlement companies insist they fill a crucial role in helping struggling, even desperate, consumers deal with heavy amounts of debt. The firms pitch services to reduce debt burdens and spare clients from worries about creditors, debt collectors and the possibility of bankruptcy. All of that sounds fine. In practice, things have been problematic, complaints in droves about companies charging high fees while settling few debts, many clients landing, ultimately, in a worse financial position.
In 2010, the Federal Trade Commission responded with industrywide regulations to curb the abuses, including restrictions on upfront fees, or before consumers benefit as promised. Supporters of H.B. 182 point to these steps as seemingly protection enough, and thus an argument for enacting the legislation. What they are unlikely to add is that the FTC did not apply an overall regulatory framework or limits on other fees.
That has been the responsibility of states, as Ohio showed 14 years ago, the federal effort serving a complementary role. Enact H.B. 182, and state protections would be reduced substantially, debt-settlement companies with a free hand, practically, to set fees at whatever level they choose.
Another argument for the legislation goes that consumers would have more tools to deal with their debt loads. Yet, as critics of the bill rightly point out, consumers already have alternatives. For instance, they can work directly with creditors. They can enlist the assistance of the National Foundation of Credit Counseling, a network of nonprofit groups that aids with debt management. They can tap the debt-settlement companies now operating in Ohio under the current regulations.
This is a matter that doesn’t require legislative action, let alone making it easier for bad actors. Ohio consumers have protections and options for help. More, inaction means staying clear of the understandable concerns voiced by the staff of the Ohio Supreme Court and the Ohio State Bar Association. They warn that H.B. 182 would permit the unauthorized practice of law.
How? The legislation sets up a process in which the companies, among other things, would negotiate the terms of contracts, enter into new contracts, establish new payment plans and perhaps discharge debt, which can carry tax implications. The staff and the bar stress the high court has ruled that such aspects of debt settlement agreements amount to practicing law without the necessary license.
In addition, the Supreme Court holds exclusive authority over what is the practice of law in the state. Take this fight to court to see which side would prevail? Better to keep House Bill 182 from passage. It doesn’t solve problems. It creates them.