✅ Cracking down on debt settlement firms

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By Erika Paz

WHAT THE BILL WOULD DO

The federal government regulates debt settlement companies only if they service customers across state lines. AB 1405 by Democratic Assemblymember Buffy Wicks of Oakland would give California consumers greater protections, including a three-day cooling off period so they could review the newly required disclosures before committing to a debt settlement service.

WHO SUPPORTS IT

The bill is sponsored by the California Low-Income Consumer Coalition. Backers include the Consumer Justice Clinic at the East Bay Community Law Center, whose focus is on low-income consumers facing issues like debt collection and predatory lending, AARP California, the California Association of Collectors, OneMain Financial, and a number of legal aid clinics and consumer advocacy organizations.

WHO’S OPPOSED

The American Fair Credit Council and the Consumer Debt Relief Initiative, both representatives of debt settlement companies, dropped their opposition after a provision prohibiting referral fees — a main source of income for debt settlement companies — was removed from the bill. Thurman Legal objected late in the game, wanting exemptions for lawyers providing the same services. 

WHY IT MATTERS

Consumers reach out to debt settlement companies when they are most vulnerable, not always fully understanding that it exposes them to legal action from their creditors. If this bill achieves its goal, it would help Californians better assess the risks and costs of debt settlement services. 

GOVERNOR’S CALL: ✅ The governor signed the bill Oct. 4.