Once again, Maryland legislators may allow for-profit companies to offer debt management services to consumers here.
Once again, it's a bad idea - at least until we know more. And it couldn't come at a worse time, with a growing number of Marylanders financially struggling and foreclosures setting a record. They certainly don't need a credit counselor trying to sell them other products, as consumer advocates fear would be the result.
Debt management is when a credit-counseling agency negotiates with creditors on a consumer's behalf to come up with a repayment plan. That job under Maryland law has been left to nonprofits. Some sham nonprofits - think AmeriDebt - have skirted that law in the past, although Maryland has since adopted stronger regulations.
Proponents of opening the door to for-profits argue that these companies would operate under the same strict standards as nonprofits. They must be licensed by the state and there's a cap on how much they can charge customers.
But are regulators up to the task of overseeing more players?
An audit last year, for example, found that the Department of Financial Regulation had fallen far behind in its examinations of mortgage lenders and potentially allowed unqualified brokers to get licenses. That doesn't inspire confidence.
Nevertheless, the for-profit legislation is making its way through the General Assembly.
Last week, the Senate approved the legislation. Today, a similar bill is being taken up by a House committee.
Sen. John C. Astle sponsors the for-profit legislation, as he has in past years. The Anne Arundel County Democrat says the number of nonprofits available to offer debt management is dropping in Maryland as the IRS revokes the nonprofit status of the bad players.
"What we will see is a declining number of not-for-profits for debt management services," he says. "There is a need for them."
And he points out, if the legislation does have a potential negative impact on consumers, why hasn't the attorney general's office or the commissioner of financial regulation opposed it?
The attorney general's office previously argued against for-profit debt managers operating here. The Department of Financial Regulation supported the for-profits. Yet both have been silent this year.
Steven A. Silverman, chief of the Consumer Protection Division in the attorney general's office, says his agency is focused this year on regulating the debt settlement industry here. A debt settler negotiates with creditors to forgive debt by accepting less than what's owed.
Sarah Bloom Raskin, who became commissioner of financial regulation last summer, says she needs to know more before backing the for-profits as did her predecessor.
"The current economic downturn, which is being highlighted by the subprime loan and foreclosure crisis, has put new and severe stresses on consumers," she says.
"Given this unfortunate fact, I would like to know more about both the demand for debt management services in our state and the impact on consumers of permitting for-profit organizations to provide debt management services."
Consumer advocates say a single company is behind the legislation - Ascend One in Columbia. Ascend has multiple businesses and has wanted to offer for-profit debt management in Maryland for years. Ascend also was one of the subjects of a congressional report several years ago on abusive practices in credit counseling, and its chairman testified at a Senate hearing on the matter.
Stephen D. Hannan, executive director of the Maryland Consumer Rights Coalition, worries about cross-selling by for-profits. "It's the sale of items that provide the profit," he says.
Ascend's big marketing budget could drive smaller nonprofits out of business, advocates say.
"Our job is not to sell anything," says Mike Croxson, chief operating officer of Ascend and president of its debt management arm, CareOne Services. Trained and certified counselors listen to troubled consumers and help them figure their best options, he said. The company operates in 35 states and has a long track record of satisfied clients, he says.
"We are in favor of giving Maryland consumers more choices," he says. (As far as the congressional report, Croxson says, it's old and full of errors.)
There are enough uncertainties, though, that legislators should consider another option offered up by Del. Elizabeth Bobo. The Howard County Democrat proposes creating a task force that would spend a year looking at the performance record of for-profits and nonprofits. It can also see if there is a need for more debt managers here.
Maybe the task force will find that for-profits do a great job and we need more of them. Maybe it won't. But at least, legislators will have done their homework before opening the door to for-profits. Because once opened, it won't be easy to close if problems arise. And consumers will be the big losers.
Don't forget AmeriDebt.
AmeriDebt was smart: It didn't charge fees in its home base, Maryland, so residents here didn't lodge many complaints. But the nonprofit milked consumers in plenty of other states. It took attorneys general in other states - Illinois, Missouri, Minnesota and Texas - and the Federal Trade Commission to sue AmeriDebt in 2003.
Two years ago, the FTC reached a settlement with AmeriDebt and its founder to return millions of dollars to consumers. Those consumers are still waiting for their money.
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