If you live in Ohio and use a debt settlement company, credit counselor, or credit repair company to help settle your debts, Ohio law provides you with some protection. Ohio's Debt Adjusters Act (DAA) regulates individuals and businesses that charge you a fee for settling or paying off your debts. It supplements the protection against abusive debt settlement practices under the federal Telemarketing Sales Rule.
Read on to learn what Ohio laws require and prohibit, who is covered by the laws, and what you can do if your rights are violated under the DAA.
The Telemarketing Sales Rule
The Federal Trade Commission (FTC) modified its Telemarketing Sales Rule (TSR) in 2010 to reach debt relief companies that engage in abusive practices. It is a federal law that regulates some businesses that offer debt settlement services. Debt relief services include:
- credit counseling
- debt settlement, and
- debt negotiation.
The TSR is enforced by the FTC, who modified the TSR to protect consumers against debt relief companies that charged excessive fees to settle debts, but do little or nothing in return for those fees. Typically, an unscrupulous debt relief company would advise consumers to stop paying creditors and instead deposit the money with the company, promising to use the money to negotiate with creditors. However, in many cases, the debts were never settled, and debt balances increased with accrued interest and finance charges. This often pushed consumers deeper into debt, and even bankruptcy. For more information, read Nolo's Debt Negotiation Firms.
The TSR attempts to curb these practices by:
- prohibiting a debt relief company from collecting an advance fee from you
- requiring a debt relief company to make certain written disclosures to you, including the consequences if you stop paying your creditors, and
- giving you a seven-day right to cancel your agreement with a debt settlement company.
The TSR is limited in its application. It does not apply to:
- non-profit debt relief companies
- secured debts like mortgages, car loans, and liens, or
- debt settlement agreements that are not handled through the telephone, such as on the Internet or in person.
For more information, read Nolo's Regulation of Debt Relief Services .
Ohio has enacted additional laws that supplement the TSR and may provide you more protection if you live in this state. Read on to learn what Ohio laws prohibit, who is covered by the laws, and what you can do if a debt settlement company has violated your rights.
Ohio's Debt Adjusters Act (DAA)
In 2004, Ohio enacted the Debt Adjusters Act (DAA). Like the TSR, Ohio's DAA was enacted to curb unfair and abusive practices by debt settlement companies who collected fees but failed to negotiate with creditors, settle debts, or pay creditors as promised.
The DAA is broader than the TSR, covering more types of businesses and restricting the amount of fees these businesses can charge.
What Is a “Debt Adjuster”?
The DAA covers more types of debt relief services than does the TSR. It applies to any debt relief service -- individual or business, profit or non-profit -- that engages in “debt adjusting,” which is defined as:
- adjusting, compromising, or discharging a balance owed on a debt, or
- taking money from a debtor and using it to pay a creditor on that person's behalf.
Who Is Not Covered by the DAA
Some individuals and entities are exempt from the DAA, including:
- banks, credit unions, and certain other financial institutions
- federal mortgage lenders, and
What Debt Adjusters Must Do
The DAA requires debt adjusters to:
- keep all funds it receives and disburses on a debtor's behalf in a separate trust account
- make disbursements to creditors within 30 days of receiving the funds from the debtor
- have a policy of waiving or discontinuing fees if a debtor cannot afford them
- undergo an annual audit of their trust fund transactions and file it with the state attorney general's office, and
- maintain insurance of at least $100,000.
Fees Must Be Reasonable
One of the most important aspects of the DAA is its regulation of fees. A debt adjuster's fee must be reasonable. To be “reasonable,” the fee must not exceed:
- $75 for the initial consultation or set-up of a debt plan
- $100 per year for continuing consultation fees or contributions, and
- 8 1/2% of the amount of distributions to creditors paid by the debtor each month, or $30, whichever is greater.
If the Debt Adjuster Violates the DAA – Lawsuits and Remedies
You have a private cause of action if a debt adjuster harms you in violation of the DAA. This means that you can file a lawsuit in Ohio against the debt adjuster for damages. If you win, the court may award to you:
- cancellation of the debt adjustment agreement (called “rescission”), if done within a reasonable time after you discovered the violation, or up to three times the amount of your actual damages or $200 (whichever is greater) plus additional statutory damages of up to $5,000
- potential punitive damages, and
- attorney’s fees and court costs.
The debt adjuster may also be subject to criminal sanctions, enforceable by the Ohio attorney general.
You can find more information on the Ohio Attorney General’s website at www.ohioattorneygeneral.gov/consumerlaws.
You may file a complaint with the FTC for any violations of the TSR. For more information, read the FTC's webpage: www.ftccomplaintassistant.gov
For more details on what Ohio's DAA does and does not cover, you can read Ohio's Debt Adjusters Act, General Statutes §4710.01 to 4710.99. To learn how to find state statutes, visit Nolo’s Legal Research Center.