If you're experiencing financial trouble, debt settlement may be one of your best options. California recently enacted the Federal Debt Settlement Practices Act to protect consumers like you from debt settlement providers.
Debt settlement can get you on the path to financial freedom. Continue reading to understand what protections the FDSPA now affords you. A California debt attorney can help you with legal assistance regarding debt resolution.
Debt Settlement Overview
Debt settlement involves settling a debt with a creditor by paying an amount that is less than the total you owe. Individuals often seek assistance from debt settlement companies, third parties acting as intermediaries to negotiate settlements on consumers' behalf. Often, these companies charge high fees for their services and may not successfully help decrease your debt. Many consumers end up in more debt than when they started.
What is California’s new Fair Debt Settlement Practices Act?
CA Governor Gavin Newsome signed the Fair Debt Settlement Practices Act (FDSPA) into effect on October 4, 2021. Starting January 1, 2022, the Act dictates specific requirements and prohibitions of debt settlement services.
Protection for Consumers
Because of some of the practices of debt settlement services, the FDSPA now provides certain consumer protections. Some of the most important protections are detailed below.
Debt Settlement Providers Cannot Engage Certain Acts and Practices
For years, debt settlement companies could engage in questionable practices without repercussions. The Act is now putting a stop to this.
Under the Act, debt settlement providers or those working on behalf of providers cannot make statements or engage in fraudulent, deceptive, or misleading acts. Additionally, debt settlement providers cannot omit material information to consumers.
Debt Settlement Companies Must Provide Certain Disclosures
Under the Act, debt settlement companies must provide consumers with a written contract containing certain disclosures. They must also give consumers a copy of the contract no less than three days before the consumer is expected to sign the contract. Once the consumer signs it, the provider will also provide a signed copy. The disclosures that debt settlement companies must include in their contracts are as follow:
- The company doesn't guarantee that any debt will be avoided or all debts will be reduced, eliminated, or settled.
- The deposits a consumer makes will not be given to the creditor until a settlement is obtained, which could take months.
- If the consumer stops paying the creditor, the creditor may attempt to collect the debt or sue the consumer. The creditor can garnish wages and levy bank accounts if they successfully obtain a judgment.
- If the consumer fails to pay debts, it may affect their credit score.
- The debt settlement company cannot predict or guarantee specific results, and the company cannot require creditors to negotiate or settle a debt.
- The consumer can cancel the contract with the company at any time without penalty.
- Debt settlement services may not suit every individual's needs.
- Bankruptcy is an alternative to debt settlement.
- Canceled debt may be deemed as income under federal tax law.
- Certain sources of income may be protected from debt collection, including disability and life insurance benefits.
- The number of months the company estimates it will take to enter into settlement agreements to completely resolve debts.
- Conditions the consumer must satisfy before the company makes a debt settlement offer to creditors.
- Whether the company receives referral fees.
If a debt settlement company does not include these disclosures in their contract, they have violated the FDSPA.
Debt Settlement Providers Are Not Entitled To Payment Before Certain Actions
For a debt settlement provider to request payment for their services, certain details must be true, including:
- The provider has renegotiated, settled, reduced, or altered the terms of at least one debt according to a settlement agreement which the consumer must first approve.
- The consumer has made at least one payment to a creditor after establishing a settlement agreement.
- The fee the provider is requesting must either have some proportional relationship to the amount of the debt the provider negotiated, settled, or reduced or represent a percentage of the amount the consumer has saved because of the negotiation, settlement, or reduction of the debt.
If all of these have not occurred, a debt settlement provider cannot request or receive payment from a consumer.
Consumers Are Allowed To Terminate Contracts For Debt Settlement Services
Previously, debt settlement services could penalize consumers for terminating their contracts.
Now, under the Act, consumers are allowed to terminate their contract with debt settlement providers at any time without any fees or penalties, so long as they reasonably notify the provider orally, in writing, or electronically.
Consumers Are Allowed To Sue For Violations Of Provisions Under The Act
Consumers can sue debt settlement providers for violation of the Act. In their lawsuit, consumers can pursue recovery of:
- Statutory damages of no less than $1,000 and no more than $5,000 per violation
- Any actual damages the consumer suffered due to the provider's violations
- Injunctive relief, meaning a court order compelling action or prohibiting some act
- Any other relief the court sees fit
Additionally, if the lawsuit is successful, the court can award the consumer reimbursement of fees associated with their lawsuit and attorney fees.
It is important to note that if a consumer wishes to file a lawsuit, they have four years to do so. The four years begin on either the last date of payment by a consumer or the date the consumer discovered or should have discovered the facts that resulted in a lawsuit.
A California Debt Attorney Can Help with Debt Settlement
A debt attorney can be your best ally if you're considering debt settlement. While the FDSPA now provides consumers with many valuable protections, a lawyer is well-versed in the laws about your situation and has additional resources available.
At Fitzgerald & Campbell, APLC, our firm understands the difficulties that come with financial struggle. We care for our clients and their needs, handling every case with a unique approach. For 30 years, our lawyers have assisted clients with debt resolution, and we've proudly saved clients millions of dollars.
If you're facing financial troubles, you're never alone. Our lawyers will thoroughly review your financial situation to determine whether debt settlement is your best option or another route that may best suit your needs. We're confident our knowledge, skills, and experience will get you the financial refresh you need.
For a free consultation, call us today at (844) 431-3851 or contact us online.