Consumer Credit Counseling Act

The Consumer Credit Counseling Act became law in South Carolina on June 2, 2005. Sponsored by Sen. Joel Lourie, this law aims to protect consumers from the unscrupulous business practices of some companies offering credit counseling and debt management services. It applies to all businesses that provide these services to South Carolina residents, whether the business is located in South Carolina or in another state.

Regulated Businesses

The law regulates three types of businesses: debt settlement firms, credit repair companies and debt management firms. Debt settlement firms negotiate with creditors on behalf of their clients. If a client owes $1,000 to a creditor, a representative of the debt settlement firm will try to convince the creditor to accept less than that amount as a full and final payment. Credit repair companies help their clients improve their credit scores or correct inaccurate information on their credit reports. Debt management companies contact creditors and try to negotiate lower interest rates or reduced penalties for their clients. If a creditor agrees, the debt management company places the creditor on the client's debt management plan. Instead of paying creditors separately, each client pays one lump sum to the debt management company, which uses the money to pay creditors and cover any fees for services.

Provisions

The provisions of the act aim to limit the fees charged by debt management companies and educate consumers about basic financial management. Carri Grube, a staff attorney for the South Carolina Department of Consumer Affairs, reports that the law allows debt management companies to charge no more than $50 for an initial consultation fee, $40 per month to maintain client accounts, $30 to set up a debt management plan and $25 as a reinstatement fee. Because a lack of financial literacy contributes to poor financial management, this act requires credit counseling companies to educate their clients about managing debt, saving money, handling credit accounts and budgeting. This law also gives consumers the right to cancel a contract at any time, provided they give the business 10 days' notice of the cancellation. Debt management companies cannot charge cancellation fees and must return any money not paid to creditors.

Licensing

The Consumer Credit Counseling Act also requires regulated businesses to complete a rigorous application process and follow specific practices designed to protect consumers. Each company must maintain a bond of $25,000, which the South Carolina Department of Consumer Affairs can take if a company violates the provisions of this law. The law also requires credit counselors to acquire a license and complete 12 hours of continuing education every two years. The Department of Consumer Affairs enforces these provisions.

Benefits

The Department of Consumer Affairs collects money from companies who do not follow the Consumer Credit Counseling Act and returns it to consumers. Grube's report shows that the Department of Consumer Affairs returned approximately $123,000 to consumers as of December 31, 2006, with an average refund of $680. The department also files lawsuits against companies that do not follow the law, resulting in additional refunds to consumers.