Magazine article American Banker

Support Seen for N.Y. Bill to Curb Counseling Abuse

Magazine article American Banker

Support Seen for N.Y. Bill to Curb Counseling Abuse

Article excerpt

New York is poised to clamp down on lawyers who run lucrative budget counseling organizations.

A bill in the state Senate would require lawyers who sell credit counseling services to be licensed by the New York State Banking Department if 50% or more of their revenue comes from financial counseling. Though the legislation was thwarted this year by scheduling, it is likely to be reintroduced in January and is said to enjoy broad support.

The proposal was prompted, in part, by the story of a New York lawyer, Andrew Cappocia, whose reported abuses of the system were widely publicized. He has been fined nearly $1 million by several judges, who said he filed unnecessary lawsuits against numerous lenders, including Citigroup Inc., to further the negotiation of repayment plans for his clients.

Mr. Cappocia reportedly told his clients to stop making loan payments, which allowed him to pressure lenders into repayment deals that in many cases cheated them of money they were due.

Though Mr. Cappocia's story may be an extreme case, it was used by the industry to illustrate the need for a stricter law governing credit counseling. "Mr. Cappocia really brings to light some of the problems that can happen when someone makes a profit from someone else's financial difficulties," said Sharon Patchett, president of the nonprofit Consumer Credit Counseling Service of Central New York. "There is a potential to have other attorneys follow Mr. Cappocia's" example, she said.

The problem in New York is that no law governs lawyers who sell credit counseling services, creating a dangerous opening for abuse, lenders say. …

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