The recently passed Bankruptcy Abuse and Consumer Protection
Act requires anyone considering a bankruptcy filing to undergo
credit counseling first. That's a great idea; it is an attempt
to prevent future problems by educating consumers now. The
problem is that there are a lot of dishonest agencies out there
that would rather line their pockets than actually help their
customers. With that in mind, many states have now established
strict guidelines regarding who may and who may not call
themselves a credit counselor. The latest state to jump in is
South Carolina, which has recently passed legislation aimed at
hte credit counseling industry that takes effect in December
2005.
Typical of those established in other states, the new
regulations in South Carolina require the following:
*Applicants must first undergo criminal background checks. This
seems like a great idea; if you're worried about an industry
that is rampant with fraud, why not weed out those with a
history of criminal activity at the application process? We
aren't sure what the state will consider when looking at
criminal background checks, but anyone with a history of any
sort of financial legerdemain will probably not be issued a
license.
*Licenses must be issued by the state, and a fee will be
required. The fees, presumably, will be used to fund the
background check and other associated items.
*Applicants will be required to fully disclose their own
personal financial status. The state will then have an accurate
picture of exactly who is handling the money of the customers.
It stands to reason that anyone who has a history of financial
problems of their own will probably not be in a good position to
handle the finances of others.
*Put a cap on fees and establish fee guidelines. Counseling
agencies will no longer be able to randomly set fees; they will
be established by the state. This will provide a more evenhanded
set of fees for all agencies, rather than the current situation,
which has some companies charging modest amounts while others
charge exorbitant setup charges.
While the legislation will regulate those businesses that have a
physical presence in the state, it will not affect those that do
business form out of state, via the telephone or the Internet.
The very nature of doing business that way precludes the state
doing anything about it.
Still, this is a step in the right direction and we hope that it
will mark the beginning of the end of predatory companies that
charge huge upfront an monthly fees and keep the money, rather
than forwarding it to creditors. After all, if visiting a debt
management agency makes your problems worse, rather than better,
then you might as well not have bothered.
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