For-profit advisers on debt rejected

Assembly conferees delete provision to end limitation to nonprofits

April 13, 2005|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

An effort to allow for-profit companies to provide debt management services to Marylanders failed during the last hours of the General Assembly when the legislature passed a bill to increase consumer protections for those seeking help from credit counselors.

Now, only nonprofits can provide credit counseling and debt management in Maryland. But state regulators are expected to study whether for-profits can do the same job, and the issue may come up again next year.

Two years ago, scandals erupted in the credit counseling industry with some nonprofits accused of overcharging consumers and channeling money to for-profit affiliates. The highest-profiled case involved AmeriDebt, a Maryland nonprofit sued by four states and the Federal Trade Commission for deceptive practices. AmeriDebt now is liquidating under bankruptcy laws.

In this environment, Maryland passed one of the nation's strongest laws on debt management in 2003. It required that nonprofit credit counselors be licensed by the state and set limits on how much the groups could charge.

As part of the law, the state Department of Financial Regulation this year filed an update with legislators. It suggested there was no reason for-profits should be banned from debt management if they are licensed and comply with fee limits.

For-profit supporters noted that the recent scandals involved nonprofits. Consumer advocates countered that permitting for-profits into the business would weaken state law.

"Our experience ... has found that having a profit motive doesn't quite work in this industry," said Steve Sakamoto-Wengel, assistant attorney general in the Consumer Protection Division.

The Senate introduced a bill permitting for-profits into the debt management business, but later struck the provision. The reverse occurred in the House bill, where an amendment added the for-profit language.

Yet during a conference committee Monday, where differences between House and Senate bills are ironed out, the for-profit measure was stripped, regulators said. What's left is legislation giving further muscle to state consumer laws, said Joseph E. Rooney, deputy commissioner of financial regulation.

For example, the legislation prohibits false advertising by debt managers and bars them from giving bonuses to employees who sign up consumers for repayment plans that generate fees, Rooney said. The bill also would prohibit officers of a credit counseling agency from hiring a for-profit company owned by relatives or other insiders.

The bill has not been signed by Gov. Robert L. Ehrlich Jr. He hasn't indicated if he would do so, a spokeswoman said.

If it becomes law, the attorney general's office and the financial regulation department must file a joint report on debt management, for-profit debt settlement companies and how other states regulate them. The report would be due by the end of 2006, but Rooney said he hopes to have it in time for the next General Assembly.

If so, the for-profit issue is likely to resurface. That's what Michael F. Croxson hopes. The president of Columbia-based Amerix Corp. and of a for-profit credit counseling agency that operates in other states, Croxson argues he should be allowed to compete with nonprofits to provide the best and most affordable counseling to Marylanders. "This isn't an issue of tax status," he said.

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