New rules for handling debt boost consumers' power
By Brigitte Yuille • Bankrate.com

Saving your home from foreclosure, getting rid of huge credit card bills or facing a bankruptcy may lead you to seek credit counseling. But proceed with caution. The risks and benefits of getting debt help vary depending on where you live.

According to the American Association of Debt Organizations, or AADMO, which keeps a database of debt-related laws, Iowa requires debtors to receive a written budget analysis. Kansas requires not only a written initial budget plan but also a financial analysis, and doesn't let businesses charge extra for obtaining a credit report. In Mississippi, debtors pay at most $15 for a credit report and no more than $25 for a joint report.

A national group is trying to level this playing field, lobbying for uniform state laws for credit counseling and debt management firms throughout the country.

"In many states there is not adequate disclosure of rates, who owns the company or who's making money off the company. There are no adequate consumer remedies, all of which make it pretty hard for consumers (or state attorney generals) to go after bad actors -- especially when they are out-of-state companies," says Michael Kerr, acting legislative director and legal counsel for the nonpartisan National Conference of Commissioners on Uniform State Laws, or NCCUSL. 

The group of law professionals making up the National Conference developed the Uniform Debt-Management Services Act, which it recommends that state governments adopt. The idea is to provide consistent guidance and oversight for credit counseling agencies and debt settlement companies.

So far, the act has been adopted in Utah, Rhode Island, Delaware and Colorado, and is under review in Hawaii and Wisconsin.

New law's opponents
Some debt managers are concerned about the legislation. Mark Guimond, executive director of AADMO, which is also the credit counseling and debt management industry's largest trade association, says the law is not flexible enough.

"It needs to give more discretion and latitude to the regulators. After all, the regulators are the law enforcement officers," he says.

Both the National Consumer Law Center and Consumer Federation of America dislike the way the act regulates debt settlement companies. In a joint comment last year, they argued the legislation validates the debt settlement businesses.

The consumer groups believe these services can be a reasonable tool for consumers who have the money to participate, but they believe for-profit businesses target consumers who don't have the money to settle their debt. They say the new requirements do not stop the most serious abuses such as charging large fees to settle debts.