DN Editorial: Pest control: Banning debt-settlement companies would be the better way to go

IT'S JUNE IN Pennsylvania, and that has come to mean the return of a perennial pest. We're not talking about cicadas or gypsy moths, but financial predators that usually spring to life as Harrisburg scrambles to finalize the state budget by the June 30 deadline. This year, a couple of threats are aiming to expand their tentacles into the state.

The first battle is over new regulations for debt-settlement companies, and a Senate bill is likely up for consideration this week. It should be stepped on.

Debt-settlement companies are in the realm of predatory lenders - like payday lenders - who promise strapped customers in the midst of financial crisis a way out. But there is no easy way out, and often these promises lead to even more trouble for consumers.

Debt-settlement companies typically convince people in debt that they will negotiate on their behalf with their creditors. They often instruct debtors to stop paying all their bills while they negotiate a settlement. Instead, consumers send the debt-settlement company a monthly payment. The company collects its fee, but usually resolves very few of the consumer's debts. Meanwhile, their high fees and other practices usually leave consumers in worst shape than ever.

Senate bill 622 is supposed to correct a flaw in an earlier bill allowing such companies into the state - many states have banned such businesses - by providing a way to license and regulate such companies. The bill lays out a series of those regulations, but consumer groups say that those regs are weak and should be strengthened. For example, instead of being able to charge fees no matter how much of a consumer's debt is settled, advocates want debt-settlement companies to have limits on fees, more disclosure about debtors that aren't likely to negotiate and to stop settlement companies from advising customers to stop paying their bills, which can further damage a consumer's credit rating.

If lawmakers were truly interested in protecting consumers with such regulations, it's hard to understand why they wouldn't want those advocating on behalf of consumers, like Clarifi or Community Legal Services, to draft the most protective measures possible. But that would be in a different universe, where campaign contributions don't drive policy and legislation.

Meanwhile, Sen. Jake Corman has indicated he wants to introduce a bill allowing a new 90-day loan program that he says is based on a Better Choice program, designed to provide an alternative to payday loans. But consumer advocates say this sounds like a cover for a new payday loan. The Better Choice program is already available in Pennsylvania. Corman says that only a few Pennsylvanians can take advantage of it, although the website for the Pennsylvania Treasury department says that consumers have taken out 71,000 Better Choice loans totaling $34 million.

Financial predators - and the legislators who support them - always draw a halo around their heads, claiming they provide help for those who can't get it elsewhere. That help often comes at a high price, and at the expense of people already in trouble. These companies are not angels. Lawmakers should stop treating them like anything but pests.