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, which was 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, according to a press release Attorney Tom Bolt.
“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 V.I. ULC. “There have been frequent instances or accusations of abuse by consumers who utilize these services. This legislation regulates the industry in uniformity with other jurisdictions, while protecting our Virgin Islands consumers.”
To date, the UDMSA has been adopted in Colorado, Delaware, Nevada, Rhode Island, Tennessee and Utah. It was also introduced in Connecticut, Maine, Minnesota, Missouri, New Mexico, New York, Texas and Washington during the 2009 legislative session. In 2010, the act is likely to be considered again in some of those states, as well as in 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.V.I. 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 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, 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 UDMSA, which will be administered by the V.I. Division of Banking and Insurance, requires a debt management company operating in the territory 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, according to the press release from Attorney Tom Bolt
“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 said.
The UDMSA is available for introduction and adoption by all the states. Information on each of these acts is available at the ULC’s Web site at www.nccusl.org.
About Uniform Law Commission The Uniform Law Commission is comprised of more than 350 practicing lawyers, governmental lawyers, judges, law professors and lawyer-legislators, who are appointed by each state, the District of Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and promote enactment of uniform state laws in areas of state laws where uniformity is desirable and practical. Now in its 117th year, the ULC has provided states with over 250 uniform acts that help bring clarity and stability to critical areas of state statutory law. After receiving the ULC’s seal of approval, a uniform act is officially promulgated for consideration by the states, and legislatures are urged to adopt it. Since its inception in 1892, the ULC has been responsible for more than 200 acts, among them such bulwarks of state statutory law as the Uniform Commercial Code, the Uniform Probate Code and the Uniform Partnership Act and more.
