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North Dakota bill tightens debt-settlement regulations

BISMARCK - North Dakota lawmakers are considering a 25-page bill that would tighten regulations on companies promising to settle consumer debt. Debt-settlement companies are a serious problem for North Dakota consumers, and more regulations are n...

BISMARCK - North Dakota lawmakers are considering a 25-page bill that would tighten regulations on companies promising to settle consumer debt.

Debt-settlement companies are a serious problem for North Dakota consumers, and more regulations are needed, said Parrell Grossman, director of the state's consumer protection division.

In the past year, the division received about 40 complaints against companies that sold debt-adjusting services, Grossman said. He believes this is "the tip of the iceberg" of the extent of the problem.

House Bill 1038 would require these companies to be licensed to do business in North Dakota. The state Department of Financial Institutions would investigate the company before issuing a license. Licenses would need to be renewed each year and could be revoked.

The proposed law also targets advertising done by these companies and prohibits unfair or deceptive representations.

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All money received by the company from the debtor would need to be accounted for to ensure money is going to pay that person's debts.

At least once every month, the debt-settlement provider would need to provide a report to the debtor itemizing the total amount received from the debtor and the amount paid to each creditor. It would also include the amount of charges deducted and the status of each of the debtor's enrolled accounts.

Before the consumer signs a contract, the debt-settlement provider would need to provide oral and written notice to the consumer that "clearly and conspicuously" states consumer disclosures and warnings.

A debt-settlement provider could not provide debt-settlement service to a consumer without a written contract signed by both the consumer and the provider. The bill also addresses cancellation of contracts and the right to fee and settlement fund refunds.

A debt-settlement provider could not charge any enrollment fee, setup fee, upfront fee or maintenance fee. The provider could not charge a settlement fee greater than 30 percent of the consumer's savings.

Anyone who violated the proposed law would be guilty of a Class C felony.

The bill is aimed at for-profit companies, with about 35 expected to apply for licensure, said Bob Entringer, commissioner of the state Department of Financial Institutions. He was not aware of any debt-settlement companies located in North Dakota.

The Association of Settlement Companies supports the consumer protection provisions in the bill, said Wesley Young, a lobbyist for the Florida-based association. However, he opposed the cap for the settlement fee that companies could collect.

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Fees are disclosed in contracts, so consumers know what they will be, he said. Consumers do shop around, and the market will help determine what the fee amounts should be, he said.

"The consumer can afford to pay a little bit more in fees and still have benefited significantly from our programs," Young said.

People hear about the negative aspects of these companies, but don't hear about the positive they do, he said. He read several positive comments from people he said appreciated the services offered.

"We're not causing the problem (of debt)," Young said. "We're trying to work out a solution for them to pay back their debts."

The North Dakota House has already unanimously passed the bill. The Senate Industry, Business and Labor Committee did not take immediate action on the bill on Tuesday.

Finneman is a multimedia reporter for Forum Communications Co.

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