Illinois Governor Pat Quinn signed a law this week imposing strict new limits on debt settlement companies working in the state, with the aim of protecting residents trying to get out of debt from the more predatory practices of these firms. The Illinois law follows a Federal Trade Commission ruling that bans many of the practices of debt relief firms that use telemarketing.
Illinois’ new law limits total upfront fees to $50 and caps settlement fees at just 15 percent of the total savings that the firm delivered to a customer.
"Turning to a debt settlement operator to help you pay off your credit cards is like turning to a cinderblock to help you learn how to swim," said Attorney General Lisa Madigan. "Debt settlement operators take money from consumers and usually provide them with no services."
Debt settlement firms and debt management firms differ from each other; the former seek to close out customers’ debts for a single lump sum, while the latter try to reduce payments over the long term.
Illinois’ attorney general can now investigate and punish debt settlement companies that are found to be in violation of the law.