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Pennsylvania Court Upholds Law Regulating Private Debt Settlement Companies - US Org. for Bankruptcy Alternatives v. Dept. of Banking

September 1, 2011

We've written many times as Claremont debt settlement attorneys about the dangers of private debt settlement companies. Some debt management organizations can help people with serious debt, but others take advantage of their clients' stress and bad financial situations to exploit them further, taking money without providing any help. The state of Pennsylvania responded with the Pennsylvania Debt Management Services Act (Act 117), which licenses and regulates debt management services. One such company filed a lawsuit, giving rise to the Pennsylvania Supreme Court's decision in United States Organization for Bankruptcy Alternatives v. Pennsylvania Department of Banking. USOBA alleged that the law was unconstitutional, and the trial court agreed in part and disagreed in part. Following an appeal by both USOBA and the state, the Pennsylvania Supreme Court found the lower court's order was not appealable.

Act 117, adopted in 2008, required all debt settlement services to apply for licenses with the state and comply with regulations including restrictions on fees. USOBA is an industry group representing debt settlement services, and it sued for a declaratory judgment invalidating the law in 2009. USOBA claimed Act 117 violates state and federal constitutional rights to due process, equal protection and non-delegation, and requested an injunction as well as attorney fees and the declaratory judgment. The Department moved for summary judgment for failure to state a claim, which was denied. Ultimately, the trial court found that Act 117 violates the Pennsylvania constitution's non-delegation clause by granting authority to the Department to make regulations for debt settlement services, and to regulate fees charged to consumers. The court declined to find other areas of the law unconstitutional or find the entire law inseverable.

Both parties appealed, and the Pennsylvania Supreme Court requested briefs on whether the trial court's order was a final, appealable order, in light of its recent decision in Pennsylvania Bankers Association v. Department of Banking. Before the high court, the Department argued that the order was final and appealable because it is a final declaration of the parties' rights on the particular issues it addresses. The Department noted that the parties cannot pursue their rights on those issues in the lower courts. It agreed that this order is normally appealable, but under the Declaratory Judgment Act,the state legislature had authorized this type of appeal to keep government working. By contrast, USOBA argued that the trial court's order was interlocutory and not appealable. It said it had filed the case to strike down all of Act 117, not just the two provisions struck down, and that the DJA did not intend to alter rules of appealability. The high court ultimately sided with USOBA. Under Pennsylvania Bankers, it held that an order in a declaratory judgment case is not appealable when it merely dismisses one or more of several theories of relief. Similarly, in this case, the lower court never ruled on USOBA's full request -- thus, it had no authority to decide either the appeal or the cross-appeal, and remanded both to trial court.

Our Costa Mesa debt settlement lawyers would be disappointed if the Pennsylvania court ultimately decided not to enforce regulations of the debt settlement industry. As we said, not every debt settlement company is honest; debtors are best off with a non-profit organization. Unfortunately, the field is full of dishonest companies, some of which have misleading names designed to fool a casual reader into thinking they are connected to the federal government. And no matter what kind of debt settlement you use, debt settlement is an alternative to bankruptcy that only works if you have the finances to climb back out of debt. If you aren't sure, or you know you cannot pay your debts back within a few years of responsible money management, you should consider calling our Gardena consumer bankruptcy attorneys for a free consultation.

Howard Law, P.C., represents people all over California who are pursuing bankruptcy as a way to wipe out overwhelming debt and start over. If you'd like to talk to us about your options, call us today at 1-800-872-5925 or send us a message online.

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