The Uniform Debt-Management Services Act (UDMSA) was signed into law by Governor John P. deJongh Jr. of the Virgin Islands last Wednesday. The act sponsored by St. Croix senators Terrence Nelson, Neville James and Samuel Sanes was drafted and approved by the Uniform Law Commission (ULC). The UDMSA, approved by the ULC in 2005 and amended in 2008, was the result of a multi-year study into debt relief options for consumers. It is the first national effort at providing uniform rules to govern both consumer credit counseling services and debt settlement services.
“In today’s economic climate, we are finding more and more consumers turning to debt management companies, which have tripled in number over the past few years,” said Tom Bolt, Chair of the Virgin Islands Uniform Law Commission. “There have been frequent instances or accusations of abuse by consumers who utilize these services. This legislation regulates the industry in uniformity with other jurisdcitions, while protecting our Virgin Islands consumers.”
In addition to the U.S. Virgin Islands to date, the UDMSA has been adopted in Colorado, Delaware, Nevada, Rhode Island, Tenessee and Utah. It was also introduced in Connecticut, Maine, Minnesota, Missouri, New Mexico, New York, Texas, and Washington during the 2009 legislative session. This year, the act is likely to be considered in some of those states, as well as Florida, Michigan, New Jersey, Oklahoma, Pennsylvania, South Dakota, West Virginia, and the District of Columbia.
The Uniform Debt Management Services Act which will be administered by the Virgin Islands Division of Banking and Insurance, requires a debt management company operating in the U.S. Virgin Islands to obtain a license and supply information about their practices, fees, educational materials and employee qualifications. A company must also post a surety bond or another security to safeguard any money that it receives from individuals for payment of creditors. In addition, the debt management company must provide a disclosure to consumers that this may not be the best option for them and that it may affect their credit rating. The act also requires certification of debt counselors, mandates pre-contract disclosure of all fees and potential consequences and sets strict limits on the fees that may be charged.
Congress passed bankruptcy reform legislation in 2005 mandating counseling by a private agency before an individual may enter into bankruptcy. Debt settlement is the option that lies on the continuum between credit counseling and bankruptcy. It is most often used by consumers who may not qualify for credit counseling or who do not qualify under the new rules of bankruptcy or prefer to honor their debts to the best of their ability rather than declare bankruptcy. Debt management services primarily include negotiating a reduction of the consumer’s non-secured consumer debts in exchange for a faster repayment plan.
The Uniform Debt Management Services Act which will be administered by the Virgin Islands Division of Banking and Insurance, requires a debt management company operating in Virgin Islands to obtain a license and supply information about their practices, fees, educational materials and employee qualifications. A company must also post a surety bond or another security to safeguard any money that it receives from individuals for payment of creditors. In addition, the debt management company must provide a disclosure to consumers that this may not be the best option for them and that it may affect their credit rating.
“We need credible counseling services for those facing overwhelming debt,” added Bolt. “However, what we don’t need is an unregulated industry that may prey upon those who are already in deep financial trouble.”
The new act gives the Banking and Insurance Division the right to take enforcement action against anyone who violates the act. It also creates a consumer right of action and treble damages for certain circumstances involving abuse.
“When consumers turn to these companies for help, they need greater assurance that they will receive the appropriate debt counseling and assistance. I am pleased that our 28th Legislature and Governor deJongh have approved this legislation,” Bolt concluded.