Office of the Attorney General
Governor Beshear Signs Consumer Protection Measure
Gov. Steve Beshear was joined today by Kentucky Attorney General Jack Conway as he signed into law HB 166, a consumer protection bill that addresses debt-adjusting contracts that are often entered into by desperate homeowners who have fallen behind on their mortgage payments and are seeking a quick, easy solution to their financial problems.
Sponsored by Rep. Susan Westrom, of Lexington and co-sponsored by Rep. Robert Damron, of Nicholasville, and Rep. Tommy Thompson, of Owensboro, HB 166 now forces debt-adjusting companies to have written and signed contracts; prohibits a debt adjuster from accepting a fee, contribution or other consideration in advance of complete performance of promised services; and gives the debtor legal recourse if they have suffered a loss of money or property, including the right to punitive damages and attorney's fees and costs.
"Many Kentuckians are still battling the effects of the financial recession our state and country have endured for nearly two years," said Gov. Beshear. "Unfortunately, a number of homeowners are looking for easy ways to restructure their mortgage in order to avoid foreclosure, falling prey to unscrupulous debt-adjustors that promise to get them lower monthly payments in return for exorbitant up-front fees. By signing this legislation today, I am sending a message to these debt-adjustors that Kentuckians will not allow their future to be taken from them as a result of scams that take their money and deliver nothing in return."
HB 166 allows civil penalties to be sought by the Attorney General for willful violations in the amount of $5,000 per violation of the Consumer Protection Act. It also adds a $50,000 bond requirement, both enhancements of the current debt-adjustor legislation already on the books. The legislation also requires debt-adjustors to take reasonable precautions to ensure the security and confidentiality of a debtor's personal information. The law takes effect 90 days after the General Assembly adjourns sine die.
Attorney General Jack Conway today hailed the enactment of House Bill 166 as an important consumer protection law. The Kentucky General Assembly unanimously passed the measure to better protect struggling Kentuckians from 'foreclosure relief' or 'loan modification' scams.
"This new law will better protect Kentucky families who are struggling to pay their home mortgages from scams that prey on their sense of desperation and hopelessness," General Conway said. "There will now be strict limits on upfront fees charged by these companies, tougher civil penalties against debt adjusters who violate the Consumer Protection Act and consumers will have a clear right to sue on their own."
"Our biggest challenge is to first steer people away from unscrupulous foreclosure relief companies," said Rep. Westrom. "Our second challenge is to be diligent in tracking down the bad actors who will always prey upon those who feel they have limited options."
House Bill 166
HB 166 contains the following provisions:
- Strict limits on upfront fees that many foreclosure relief companies charge for their services. Maximum of $75 for one-time set-up fees, and up to $50 each year for consultation fees.
- Can charge $30 a month or 8.5% of amount of debt the company is servicing as a handling charge.
- Debt adjusters dealing with debts secured by a mortgage on a consumer's residence must obtain more insurance coverage ($250,000 more than the $100,000 to $250,000 required for all debt adjusters).
- All debt adjusters must post a surety bond of $25,000, but the bond is $75,000 for debt adjusters dealing with debts secured by a mortgage on a consumer's residence.
- All debt adjuster contracts must be written, have a 14-day right to cancel, fully disclose all fees and services, and can be terminated by the consumer at any time.
- Debt adjusters cannot make certain representations about their services or their effectiveness. For instance, they cannot claim that they can prevent litigation, foreclosure, or collection efforts against the consumer, or that the debt adjuster will provide money to pay bills or prevent liens, or that the fees paid to the debt adjuster for its services will be used to pay creditors. Debt adjusters also cannot misrepresent their ability or competence to give legal advice or legal services.
- Debt adjuster contracts must include similar disclosures. For example, contracts must disclose that failure to make required payments to creditors may breach agreements and lead to adverse effects, and must tell the earliest date or amount of money the consumer must save before the debt adjuster will contact creditors.
- Debt adjusters must continue to register with the Attorney General's Office, and renew the registration each year.
- Enforcement capabilities will be increased. For instance, the Attorney General's Office can investigate and take enforcement action using Kentucky's Consumer Protection Act, and civil penalties are increased to $5,000 (the penalty was $500). Additionally, consumers will have a clear right to sue on their own.
- Consumers' private information cannot be sold without authorization, and the information must be properly protected by the debt adjuster.
General Conway says the passage of HB 166 is the result of the hard work of numerous agencies and members of the Kentucky General Assembly working together to better protect Kentucky families during these tough economic times. "I appreciate the hard work of Representatives Westrom, Damron and Thompson as well as my Office of Consumer Protection, the Kentucky Housing Corporation, Kentucky's Department of Financial Institutions and Legislative Research Commission," General Conway said. "I would also like to give special thanks to Bill Harned, Johnny Cantrell and the other members of the Consumers Advisory Council, who helped craft this legislation and advocated passage of the bill."
The following links will provide Kentucky consumers with important information about HB 166 as well as debt adjusters and general credit information: