New rules for handling debt boost consumers' power
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The groups also say the act allows for-profit firms to offer debt management and debt settlement services, which goes against attempts by the IRS and the states to cut down on abuse.

But Kerr argues that the NCCUSL thinks it's better to have some regulation on debt settlement companies rather than none. He also says the majority of states allow operations of for-profits.

"If the state allows it, our act provides for them to regulate it," he explains.

The rules
Kerr explains that the bill focuses on three categories of debt management services: credit counseling, debt managers and debt settlement services. It provides regulations that see to it that debtors receive more information about risks and benefits, and gives debtors more ways to fight back against corrupt businesses.

The bill's proposals include:

• Counselors must be certified, and the content of the agreement with the debtor and the fees charged are set by law. For instance, the business must let a debtor know how long they will need to make payments to their creditors and the interest rate set by the creditors. • The debtor can cancel the contract within the first three days without penalty. • A debtor's money for payments will be safeguarded in a trust account for their funds only. Strict accounting and periodic reporting standards are required. • A business has to register in the state and provide detailed information about its function, financial condition, where services will be offered, a form for agreements with debtors, a business history in other jurisdictions and identify key employees. • The businesses have to get an insurance policy of at least $250,000 against the risks of fraud, dishonesty and theft, and provide a security bond of at least $50,000.

"The act, by requiring companies to register with the state and show proof of insurance and a bond, will give consumers reassurance that if they happen to work with someone who's not a reputable provider, and that provider fails to make a payment or otherwise harms them then they will have a remedy enforceable in their state," says Kerr.

A debtor can sue and get money for damages resulting from loss, injury or harm. They can get more money if a service obtains payments not allowed in the law because the damages would triple.

The consumer can also collect attorney's fees and seek punitive damages, which is separate and more severe than the compensatory damages.

The law professionals created these rules because they were alarmed by the rise in consumer debt.

Consumer debt, which includes credit cards, most types of loans and mortgages, has more than doubled to $13 trillion over the past decade, according to a quarterly report by the Federal Reserve.

The group was also concerned about the credit counseling requirement in the new federal bankruptcy law. Members realized more debt management services would be used and more companies created, and believe uniformed standards for debt management services would make the new bankruptcy law more effective.