Understanding the Laws That Regulate Bill Consolidation

There are several laws that have been put into effect that help to regulate the practice of debt consolidation as well as to protect consumers and the lenders who issue loans on their behalf. The laws that are in place are a combination of federal regulations, some of which are processed through the Federal Trade Commission (FTC), and others that are presented through local and regional legislation that regulates the larger banking processes that are involved in consolidation. When all of the laws and regulations are followed properly, the result is usually a successful consolidation that does not hold surprises for the consumer, or costly problems for the lending institutions.

One of the first regulations has to do with the types of bills that can be effectively placed into consolidation. Most household bills, credit card debt, and other loans like mortgages can potentially be included in consolidation. Some types of debt do not qualify for bill consolidation loan. Primarily, this refers to student loans that are federally backed and have specific collection guidelines outside of more commonly regulated practices.

When bills have been totaled together, the next step is for a lending institution to issue the debtor a large loan in order to pay off the existing debt. There are bill consolidation laws that regulate exactly how these loans are issued and what type of interest can be charged. The first law is the Truth in Lending Act, and the second is called the Fair Lending Act. These two regulations instruct lenders to lay out the terms of a loan in clear language before the borrower enters into the agreement. This means the total cost of the loan over its lifespan needs to be clearly shown. Additionally, the amount of interest that is charged on bill consolidation loans is strictly regulated by regional laws as well as some federal laws in order to prevent situations that could be considered usury.

Once consolidation services have been chosen and the process started, the Fair Debt Collection Practices Act comes into effect. This states that once a person who is in debt has entered into consolidation services, the companies who own the debt must stop attempting to contact the debtor when requested. This prevents collectors from harassing consumers who are taking action to resolve the debt, as well as protecting the bill consolidation company from phone calls from aggressive collectors who are trying to dissuade the company from helping the consumer.