Committee releases bill to permit for-profit debt-adjustment companies with regulatory conditions

The Assembly Committee released Assembly Bill A4598 and its Senate counterpart S1310 (second reprint), which would allow certain for-profit debt-adjustment companies to do business in New Jersey under specified conditions, after a lengthy hearing featuring proponents and opponents.

Under current New Jersey law, only nonprofit social-service agencies and nonprofit consumer-credit counseling agencies may operate debt-adjustment services. The bills would create an exception to allow for-profit debt-settlement companies to operate provided they do not receive or hold consumer funds and are subject to the Federal Trade Commission's telemarketing-sales rule and other licensing and reporting requirements. A proposed amendment expands annual-report requirements the Commissioner of Banking and Insurance may impose and delays the act's effective date.

Opponents, including New Jersey Citizen Action, New Jersey Appleseed Public Interest Law Center and legal services and bankruptcy practitioners, urged the committee to reject the bills or adopt far stronger safeguards. Beverly Brown Ruja, financial-justice program director for New Jersey Citizen Action, said, "I urge this committee to vote no on A4598 unless it is significantly amended to incorporate strong regulatory oversight, mandatory consumer protections, and strict enforcement mechanisms." She and other critics cited high failure rates, credit-score declines and litigation risk associated with debt-settlement models.

David McMillan, an attorney with Legal Services of New Jersey, described a recent case in which consumers paid $10,039.60 into an account related to a debt-settlement program but only $1,590.28 was used to pay creditors; he used that example to illustrate allegations that many consumers pay significant sums with little debt relief.

Proponents including the American Association for Debt Resolution, National Debt Relief and Porzio Governmental Affairs argued the bill codifies federal consumer protections, prohibits advanced fees, and would add state oversight. Steve Boms of the American Association for Debt Resolution said the federal rules prohibit advanced fees and require that consumer funds remain under consumer control in insured accounts; he argued licensed, regulated companies can provide a constructive alternative for consumers who do not qualify for bankruptcy.

The committee chairman and several members urged both sides to meet with the bill sponsor and with the executive branch during the interim before second reading. On a motion in committee, the Assembly recorded affirmative votes and released A4598 and S1310 for further legislative consideration.

The hearing produced concrete recommendations from critics — including required regulations before the law takes effect, caps or indemnification for consumer fees, bans on referral fees, and enforceable reporting requirements — that proponents and the committee said should be worked through before final passage.