Debt Adjustment Companies – Required Filings
Georgia law regulates the activities of companies that offer credit counseling and renegotiation and payoff of consumer debt. Under the Debt Adjustment Act (O.C.G.A. Section 18-5-1 et seq.), a debt adjusting company may not charge a fee of more than 7.5 percent of the amount a client pays monthly for distribution to his or her creditors. In addition, this law requires that:
- All funds received from a debtor, minus authorized fees, are disbursed to creditors within 30 days of receiving them.
- A separate trust account is maintained for a client’s funds, which must be audited annually by an independent, third-party certified public accountant.
- Insurance coverage is maintained for:
- employee dishonesty,
- depositor forgery, and
- computer fraud, in an amount not less than the greater of $100,000 or ten percent of the monthly average of all debtor deposits for the immediately-preceding six months—with a deductible not exceeding ten percent of the policy face amount.
The insurance policy must be issued by a company rated at least "A-" or its equivalent by a nationally-recognized rating organization, and the Georgia Attorney General's Consumer Protection Division must be given 30 days’ advance notice of policy termination.
- Copies of the above audits and insurance policies are filed annually with the Georgia Attorney General's Consumer Protection Division. While the Georgia Attorney General's Consumer Protection Division is not responsible for oversight of debt adjustment companies, it serves as a repository for these requisite filings. [See below for required submission form.]
Severe penalties exist for a company that does not comply with these requirements. Depending upon the violation, penalties can take the form of either monetary fines or jail time and can range from a misdemeanor charge to a civil fine of not less than $50,000. If you own a debt adjustment company, it is your responsibility to review in detail all the applicable code provisions with your attorney and make sure your practices are in compliance.
A debtor who has been overcharged or whose account has been mishandled in violation of the above provisions is owed a refund of all fees, charges or contributions paid, plus $5,000, and has the right to file a private legal action to collect this reimbursement. Furthermore, the Attorney General, district attorneys and solicitors have the authority to conduct criminal prosecution of debt adjustment cases, and both the Attorney General and Georgia Attorney General's Consumer Protection Division have specific responsibilities with respect to civil enforcement of the Debt Adjustment Act.
Note that there are certain circumstances where this Act does not apply. These include services offered by institutions such as the Federal National Mortgage Association, banks, trust companies, savings and loan associations, credit unions, the Federal Reserve and the Federal Deposit Insurance Corporation. Also exempt are the practice of law, industrial loans and individuals seeking debt recovery in personal situations.
Associated Document(s):