Kentucky’s debt adjusting law (K.R.S. 380.010 et. seq.) has been amended to include additional limitations affecting debt settlement providers that operate within the state. Under the revised law, which became effective on July 15, 2010, “debt settlement” services are now expressly included within the state’s definition of “debt adjusting.”

The new law means that debt settlement companies operating in Kentucky must register with the state’s Attorney General, and they must file annual renewal papers. The amendments also have the effect of subjecting debt settlement services to the state’s strict fee limitations as well as mandatory contractual disclosure requirements and prohibitions.

Fee Limitations

Debt settlement companies must comply with the following limitations on fees that may be charged to consumers:

  • A one-time maximum set-up fee of no more than $75
  • An annual consultation fee up to $50
  • A monthly fee of no more than $30 a month or 8.5% of the amount of the debt the company is servicing as a handling charge.

The amendments also impose various financial requirements on debt settlement companies. Debt adjusters must post a $25,000 surety bond and obtain a minimum of $100,000 in insurance coverage.

Contractual Requirements

All debt adjustment contracts must be in writing and must include a 14-day right to cancel. Such contracts must fully disclose all fees and services, and are subject to termination by consumers at any time. The agreements must also disclose that failure to make required payments to creditors may breach the consumer’s agreement with the creditor and could lead to adverse effects. Debt settlement contracts must indicate the earliest date or the amount of money the consumer must save before the debt adjuster will contact creditors.

Prohibited Representations

The amendments prohibit debt adjusters from making certain representations about their services or their effectiveness. Debt adjusters are prohibited from stating that:

  • They can prevent litigation, foreclosure, or collection efforts against the consumer
  • They will provide money to consumers to pay bills or prevent liens
  • The fees they collect will be used to pay creditors.

Debt adjusters are also prohibited from misrepresenting their ability or competence to give legal advice or legal services.

Enhanced Enforcement Powers

The amended statute increases the state’s enforcement, including that the Attorney General's Office can investigate and take enforcement action using Kentucky's Consumer Protection Act. The new law increases the amount of civil penalties that can be awarded against violators from $500 to $5,000. The amendments also allow consumers to bring their own private actions against debt adjusters that fail to comply with the statute. Kentucky’s amended law also prohibits the sale of consumer private information, and requires that such information be properly protected by debt adjusters.

The amended law can be reviewed at http://www.lrc.ky.gov/KRS/380-00/CHAPTER.HTM. Additional information about the new law, including information about registering in the state, can be found at the Kentucky Attorney General’s website at http://ag.ky.gov/civil/consumerprotection/debt/foradjusters.htm#laws.