The Credit Counseling Act was enacted to protect consumers using credit counseling services and debt management services from paying exorbitant fees or becoming victims of fraud or unfair business practices. The act severely limits the fees that these services can charge and allows customers to recover damages if the law is violated. The law applies to companies engaging in transactions with Florida residents without regard to the location of the counseling service or the debt management business.
(For more articles on consumer protection laws in Florida, visit our Florida Debt Management Center.)
Businesses Covered by the Act
The act covers businesses that fit the definition of a credit counseling organization. There are exceptions but generally two types of businesses fall into this category.
Credit counseling services provide confidential counseling regarding money management, debt reduction, and financial education. (For tips on avoiding credit counseling scams, see Choosing a Credit Counseling Agency.)
Debt management services work with debtors and their creditors to develop plans to pay unsecured debts. Typically the debtor pays money to the debt management service each month, and the service disburses it to creditors. The service charges a fee to the debtor, and may get a creditor to reduce the interest rate, waive fees, or accept less than what is due. (Unfortunately, many debt management services are scams. To learn more, see Debt Management Plans.)
The act imposes limits on the amounts that can be charged by credit counseling organizations that provide services to Florida residents.
Limits on credit counseling fees. Credit counseling services can charge up to $50 for the original set up and may charge for additional consultation sessions up to a total of $120 per year.
Limits on debt management fees. Charges for debt management services may not exceed the greater of $35 or 7.5% of the debt per month. A reasonable and separate charge or fee for insufficient funds is also allowed.
Financial Reporting Requirements
Debt management services are also required to undergo an annual audit and maintain insurance coverage. Both the audit report and the insurance policy must be available for public inspection.
Disbursement Rules for Debt Management
Under the law, debt management services must:
- disburse all money collected, less allowable fees, within 30 days of collection, and
- maintain a trust account for collection and disbursement of debtor funds, separate from the company's operating account.
Businesses That Are Not Covered by the Act
Certain businesses which provide debt or credit related services limited to debts owed to that particular business or which are highly regulated by other state or federal agencies are not covered by the act. These include:
- attorneys providing credit counseling or debt management services as part of their law practice
- persons negotiating the settlement of debt due to themselves
- the Federal National Mortgage Association
- the Federal Home Loan Mortgage Corporation
- the Florida Housing Finance Corporation
- banking entities supervised by federal or state banking regulators
- consumer reporting agencies, and
- subsidiaries or affiliates of bank holding companies.
Penalties and Civil Remedies
A business that violates the act may face criminal penalties, civil fines, and lawsuits by consumers.
Criminal penalties. Violations of the Credit Counseling Act are third degree felonies, punishable by imprisonment up to five years and fines of up to $5,000 per violation.
State fines. The state can assess civil penalties up to $10,000 per each wilfull violation.
Consumers can bring lawsuits. Consumers have an independent right of to sue the violator directly. Violations are deemed to be unfair and deceptive trade practices. Consumers can sue for actual damages incurred but not less than the amount paid to the credit counseling agency plus attorneys' fees and costs.