A bill permitting an exception to the current law banning for-profit debt adjusters to operate in New Jersey passed the Assembly Regulated Professions Committee last week. The New Jersey State Bar Association opposes A4598 (Lopez)/S1310 (Singer) because of its impact on consumers, urging amendments consistent with the recommendations of the New Jersey Law Revision Commission report issued in 2012.
“Why legitimize an industry that is preying on the most financially vulnerable people in the state?” said Yongmoon Kim, chair of the NJSBA’s Consumer Protection Law Committee. “We should concentrate on enforcement. We should not provide less restrictions on for-profit debt settlement companies than for nonprofits.” Kim recounted a typical scenario where a client in debt goes through the debt settlement process, is advised not to make payments to the credit card companies, and makes payments to debt settlement companies with no or partial results. “They usually end up in my office with no other options besides bankruptcy, which could have been prevented. They would have been better off by not signing up for these programs.”
Currently, only nonprofit social service agencies and nonprofit consumer credit counseling agencies are permitted to offer these services and are statutorily capped at fees it may charge, which are much less than for-profit debt collectors under the proposed bill.
The proponents of the bill – American Association of Debt Resolution – argued that opponents compared apples to oranges. “How many complaints are there against the companies that would be captured by this bill?” said Sal Anderton of Porzio Government Affairs, lobbyist for AADR. He testified that the bill would resolve issues raised by opponents of the bill “if they feel the federal government is not doing a good enough job regulating the industry.” Steve Boms of AADR testified that more options are better for a consumer, pointing out that many consumers do not meet the qualifications for a bankruptcy.
New Jersey Citizen Action’s Beverly Brown Ruggia pointed out flaws in the bill in testimony before the committee, urging several amendments including partial indemnification for consumers have gone through the plan and still end up in bankruptcy or debt judgments for reimbursement of fees, taxes and other costs. “We ask the sponsors to go back to the drawing board and put in strong safeguards so that if this industry enters the state, it is properly regulated and that there is proper oversight so that consumers don’t fall into the risks that come with working with this particular model, which is debt settlement. Not debt management. Not bankruptcy. It’s debt settlement.”
Renee Steinhagen from New Jersey Appleseed testified about the abuses recorded in other states, including the attorney exemption, which would exempt any person engaged in the practice of law from regulations outlined in the bill. The “attorney-model” used in states that have this exemption allows for-profit debt adjusters to associate with attorneys who allow the adjusters to use their name in order to conduct debt adjustment services. The attorneys do not work directly with consumers.
One of these firms, Anchor Law Firm, has challenged a Department of Banking and Insurance regulation that criminalizes attorneys who principally engage in debt adjuster services. The NJSBA submitted an amicus brief in the matter, focused solely on the issue of DOBI’s authority to regulate attorneys. Anchor Law Firm, PLLC v. State of New Jersey is currently under consideration by the Appellate Division.
Legal Services of New Jersey also testified in opposition to the bill, outlining an ongoing case in the Second Circuit where a debtor paid over $10,000 to an account set up by a debt adjuster where just over $1,000 was actually paid toward the outstanding debt.
The bill passed the Senate 32-3 and remains pending before the full Assembly.