Debt Adjustment Companies
Personal debt can easily get out of hand, and sometimes outside help seems the only answer. The services of debt adjustment companies exist to fill this need. One of the ways they help you manage your debt is through credit counseling: giving practical and legal financial advice regarding the use of credit. They can also renegotiate the terms of your credit agreements and arrange to pay off your debts.
Federal legislation requires that individuals considering filing for bankruptcy protection first undergo some form of credit counseling so that they will be aware of all their options. Sometimes, however, it’s difficult to know which are the good and truly “nonprofit” counseling agencies and which are just out to collect fees from as many people as they can sign up to their debt-repayment plans. The latter may give poor advice, charge excessive fees or steer you to loans or other financial services that are very profitable for them.
Fortunately, Georgia law regulates the activities of debt adjustment companies. (The federal bankruptcy law also assigns some oversight of their qualifications to the U.S. Trustee Program of the United States Department of Justice.) Under Georgia’s Debt Adjustment Act (O.C.G.A.Section 18-5-1 et seq.), a debt adjuster may not charge you a fee of more than 7.5 percent of the amount you pay monthly for distribution to your 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 your funds, along with certain insurance coverage, and audited annually.
- Copies of these audits and insurance policies are filed annually with the Georgia Department of Law's Consumer Protection Division.
Severe monetary penalties can result if a company does not comply with these requirements, which is a misdemeanor as well as a violation of the Georgia Fair Business Practices Act. Please report any violations to the Georgia Department of Law's Consumer Protection Division.
You, the consumer, also have the right to file a private legal action against a debt adjustment company that has overcharged you or mishandled your account in violation of the above provisions [O.C.G.A. Sections 18-5-2 and 18-5-3.2(a)]. Not only is the company obligated to refund all fees, charges or contributions you have paid, but through this action you may seek an additional restitution of $5,000 (O.C.G.A. Section 18-5-4). A private attorney can assist in filing the action on your behalf.
Note that there are certain circumstances where the Debt Adjustment 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.
Consumers should also be wary of companies that claim they can repair your credit. The practice of credit repair, which is the marketing or selling of services aimed at improving a buyer’s credit record, history or rating, with unpredictable results, is generally illegal in the state of Georgia, although some entities, including non-profit 501(c)(3) organizations, are exempt from this statute. No one can remove negative information from your credit file if the information is accurate. Read more about credit repair here.