Debt Relief Industry

The Debt Settlement Consumer Protection Act of 2010

As I said, a bill would be coming to control debt settlement companies and here it is.

Of particular interest are the consumer groups that are part of the release.

  • Consumers Union
  • National Foundation for Credit Counseling
  • Consumer Federation of America
  • National Consumer Law Center
Hot, Hot, Hot
Things are heating up in Debt Settlement.
Illustration Credit: Steve Rhode


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Debt Settlement Companies Offer ‘Quick and Easy’ Solutions to Consumer Credit Problems, But Instead Leave Consumers Deeper in Debt With Further Damaged Credit Ratings

Schumer-McCaskill ‘Debt Settlement Consumer Protection Act’ Would Provide Greater Disclosure, Limit Fees to Consumers, and Provide Additional Enforcement Power to State and Federal Agencies to Protect Consumers from Scams

Senators: Deceptive and Abusive Debt Settlement Scams Are Rampant and Need to be Shut Down

WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) and Claire McCaskill (D-MO) introduced new legislation Wednesday to protect millions of working families that are struggling with substantial personal debt but are being preyed upon by scammers that claim to provide debt-settlement assistance. The “Debt Settlement Consumer Protection Act” would provide greater disclosure to consumers, limit fees that debt settlement firms can charge, and provide additional enforcement power to state and federal official to crack down on these abusive and predatory companies.

There has been an exponential growth in the number of debt settlement companies offering so-called “quick and easy” solutions to consumer credit problems. On radio and television, consumers have been bombarded with an onslaught of advertisements with false and deceptive claims about debt settlement companies’ ability to negotiate deals with creditors to reduce or cancel consumer debts. Many consumers facing challenges in meeting their financial obligations have increasingly turned to these companies for debt settlement assistance – with disastrous results. In reality, these for-profit companies take consumers’ money and leave them even deeper in debt. Consumers’ credit scores also take a big hit.

“When consumers are working to get their financial house in order, the last thing they need is for debt settlement scams to bury them deeper into debt,” said Schumer. “This legislation will crack down on predatory companies that are preying on those already in dire financial situations. We need to make sure that working families who are digging themselves out of debt and trying to recover from financial ruin are protected from companies that are out to increase their profit. This legislation will help keep the wolves at bay while families try to regain their financial strength.”

Debt settlement companies prey on people who are desperate and vulnerable, often through misleading and fraudulent promises of help,” McCaskill said. “This bill would rightfully crack down on these predatory practices and help protect hard-working families who are struggling to pay off their bills.”

The premise of debt settlement is simple: the consumer is advised to stop paying their creditors and instead make monthly payments into an escrow account to accumulate money. The debt settlement company promises to use the account to strike a bargain with creditors. The company claims it will negotiate with the consumer’s creditors and convince them to accept partial payment in full satisfaction of the amount owed by the consumer.

In reality, the vast majority of debts do not settle. In fact, many credit card companies refuse to work with debt settlement firms. Not only are consumers out the hefty fees charged by debt settlement companies, including up-front fees (often a percentage of the total debt), fees to set up escrow accounts, and monthly maintenance fees. They also often are sued by their creditors for the balance due – which, perversely, has grown larger as a result of the debt settlement companies’ advice to consumers to stop paying their debts.

In these economically troubled times, financially vulnerable consumers should be shielded from these kinds of predatory anti-consumer practices. The Debt Settlement Consumer Protection Act would do just that by requiring debt settlement companies to provide meaningful written disclosures to consumers before services are rendered, limiting the types of fees that debt settlement companies can charge, and providing federal and state enforcement authorities with the tools necessary to protect consumers from abuses.

The Schumer-McCaskill Debt Settlement Consumer Protection Act does three main things:

  1. provides for meaningful written disclosures;
  2. limits and caps the types of fees on consumers;
  3. and provides additional enforcement powers for state and federal agencies.

Specifically it requires debt settlement companies to itemize the services to be provided, list the consumer’s debts, provide a clear and conspicuous list of all fees and compensation to be paid by the consumer to the debt settlement company, and inform consumers of their right to cancel the debt settlement contract and get fees refunded. It prohibits a debt settlement company from requesting or receiving any debt settlement fee from a consumer until the company has provided the consumer with documentation that a debt has, in fact, been settled, ensures settlement fees are reasonable and commensurate to the actual services provided, and that they cannot exceed specified amounts.

It also provides consumers with the right to cancel a debt settlement contract and receive a full refund of unearned fees. Lastly, the legislation provides for enforcement through the Federal Trade Commission, state Attorneys General, and private rights of action as well as giving the FTC the ability to regulate the advertising and marketing practices of debt settlement companies.

The Debt Settlement Consumer Protection Act will provide much-needed, fundamental consumer protection to millions of working families. Consumer groups and non-profit credit counseling organizations that have endorsed the bill include: Consumers Union, the Consumer Federation of America, the National Consumer Law Center on behalf of its low income clients, and the National Foundation for Credit Counseling.

Gail Hillebrand, Senior Attorney & Financial Services Campaign Manager, Consumers Union, said: “Senator Schumer’s bill will address the serious problems for consumers in debt settlement and end the incentive for debt settlement companies to sign up consumers who they have no realistic likelihood of helping.”

Susan C. Keating, President & CEO, National Foundation for Credit Counseling, said: “In a business where the norm seems to be to mislead consumers in advertising, to fail to make meaningful disclosures, and to collect excessive fees in advance of providing services, Senator Schumer’s legislation is the first comprehensive bill in Congress to protect consumers struggling to pay their bills from these and other deceptive and predatory practices that are rampant in the debt settlement industry. We congratulate Senator Schumer for his leadership on this important consumer issue.”

Travis Plunkett, Legislative Director of the Consumer Federation of America, said: “The Consumer Federation of America applauds Senators Schumer and McCaskill for introducing important legislation to crack down on debt settlement predators. These firms often charge outrageous fees by falsely claiming that they can slash the amount consumers owe their credit card companies. However, the sad reality for many debt settlement clients is the opposite of what they are promised: more debt, a ruined credit rating, and a bleak financial future.”

The National Consumer Law Center has also endorsed the bill: “Senator Schumer’s bill will give consumers long-needed protection from those who prey on the desperate by offering false hope of relief from crushing debts at an exorbitant price.”

READ  The Latest Delivery of TASC and USOBA Debt Settlement Horseshit to the FTC.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • Interesting. Let’s discuss a specific example where I “bashed” a company and examine if any criticism I wrote was deserved. Give me the link to a specific article and a point I raised that you disagreed with and let’s talk about it.


  • yo stop bashing companies and get a life dude ive had a debt firm handle my case and it was great experience……..i hate people like u got nothing else better to do with you life than bash companies.

  • Hi, Steve (and Sean),

    Forgive me, Gentlemen, I’m not normally one who engages in blogs; this is why I’m only responding now. Forgive me, too, if I repeat myself from the earlier post.

    First, I only posted my prior piece once, so if it appeared anywhere else, it wasn’t me.

    Anyway, yes, Steve, you’re correct, there is nothing illegal about operating a Christian company, unless one is in China or some similar oppressive political system.

    I can certainly understand your responses with regard to companies that claim to be Christian. There are any number of companies describing themselves as such in a vast number of industries, and many of them don’t know the first thing about what it means to be a true Christian. Many of them use the word “christian” as some sort of dodge which, of course, gives true Christianity a bad name. Contractors, lawyers, you name it, they’re out there.

    But that doesn’t mean that there aren’t Christian companies in existence that operate ethically and do what they say they’re going to do. The company I represent most certainly operates under the laws of our state and FTC rules. More important, we operate according to God’s Law as found in the Bible.

    If you’re still reading, and you don’t believe in the Bible, then you’re probably rolling your eyes right now, and that’s OK. It doesn’t change the truth. And don’t misunderstand: This country is crying out for honesty, for ethical behavior and people who do what they say they will do. Everything the majority of the United States was founded on and craves today can be found in Biblical teaching.

    By the way, Sean, based on your “personally and ethically” comment, I would respectfully suggest that you, like millions of others, might have a view of Christianity that has been clouded and misrepresented by non-Christians, the media and the aforementioned “bad apple” businesses. You might wish consider going to the Source, pick up a good study Bible and really understand what is in that Book.

    Look, Guys, this stream is about debt settlement and the merits, or lack of them, therein. Ronald Reagan said it pretty well: “Trust but verify.” This is about personal responsibility and not depending only on the government–God save us!–to help us. Virtually every area in which the government meddles ends in a 5-star cluster–well, you know.

    I’ll repeat what I said earlier: The people who have gotten “taken” by less-than-reputable debt settlement companies had responsibility in what happened to them, and more than likely didn’t do their homework on the companies in question. Did they ever ask themselves how they got into debt in the first place? Only they know that. They were very likely anxious for a quick fix to their problem to get out of debt, when they didn’t get into debt overnight. I say this because of people who call in and are disappointed that we’re not going to be on the phones with their creditors the day after they enroll.

    In a culture where instant gratification isn’t fast enough anymore, we have a saying: “Everybody wants to go to heaven, but nobody wants to die.”

    It’s unrealistic thinking. We’re all human, Christians and non-Christians alike, and therefore not perfect. No program is going to be perfect. We tell this to people who call in all the time. We tell them what we can do, as well as what could happen. But we tend to under-promise, and then over-deliver.

    I’ve noticed that in the GAO/Good Morning America/ABC reports that I’ve seen that there was only one side presented. There were no interviews of people who have gotten and are continuing to get out of debt through settlement. There were lots of credit counseling interviews but, again, those companies are owned and operated by credit card companies.

    I’m amazed that so many of the very same people who rail against the government and truly corrupt, fraudulent and abusive banks, not to mention an agenda-driven media, are the same ones who are so quick to believe these same entities.

    God gave us free wills, but make no mistake: There are people in power, i.e., the government, backed by the biggest corporations, who seek to rob us of our free wills and personal freedoms. The financial “stability” act being voted on almost as we speak will do just that. If the Schumer-McCaskill bill is sneakily folded into that, then you get your wish: An ethical, viable bankruptcy alternative destroyed. One more way to control the American people.

    (Oh, and by the way, the same bill is apparently tacking on the earlier failed McCain supplement bill as well, further robbing us of making adult decisions regarding our health. I mention this partly to illustrate that again that we can’t trust either side to do what’s right.)

    All in the name of “protecting” the American people. Good luck with that. In the end, it really doesn’t matter. It’s all going to play out the way it’s supposed to. After all, God’s on the throne, and it’s His Plan, whether we understand it or not.

    Love you both, and God Bless you.


      • Yes- That is certain then- It is, in the exact same post, in a thread elsewhere on your site- Personally, and ethically (although I do NOT KNOW their marketing strategy) when I see anyone touting themselves as a “christian” company it puts up a red flag. Correct me if I’m wrong but I believe their are Federal Laws that make that representation illegal unless, as a business, you are a non-profit and funded by a church.
        Any comment Rick?

  • Hi, Steve,
    I stumbled upon this stream a few minutes ago and read with interest each posting. The reason I’m interested–and concerned–is that I’m in the debt settlement industry as well.

    Every industry has its share of scammers. They come out of the woodwork because they smell a payday and prey on the misery of others. Take them out and deal with them according to existing FTC rules. I get your point about DS not keeping its house in order. (It’s at least arguable.) But there is no need to pile legislation upon legislation. Let’s enforce the laws we have and not (further) cripple yet another industry. Government has gotten very good about doing that lately.

    The company I represent is one who gives full disclosure–the good, the bad the ugly–including a negative effect on credit, possible summonses, etc. We can and do get people out of debt ethically, typically within 36 months or less and for about half of what they owe, including our fee. We don’t take all our fees on the front end, we don’t charge a monthly admin fee. There is nothing hidden or false. We don’t tell people not to pay their creditors. If they could afford that, they wouldn’t need a program.

    As far as the credit score aspect, no matter what the consumer does–debt settlement, consumer credit counseling, BK, continuing to do what one is doing–his score will be affected. However, it will be affected least through an effective, reputable debt settlement program.

    BK should always be considered as a last resort, because, while the consumer might walk away from his debt free and clear, BK, like entitlement programs, puts a greater burden on the rest of society. Credit card companies will take no loss on; they will only pass along the burden to other consumers.

    The recent credit card act that took effect a couple months ago will do nothing to give relief to consumers. The companies had 9 months to come up with new ways to charge fees to consumers, including charging fees for those who have NEVER had a late payment.

    Controlling-type people who call in to find out about the program ask me on a daily basis why they should pay us to negotiate for them when they can “negotiate” with the card companies on their own. I always tell them that they’re perfectly entitled to do so, but to bear in mind that the card company still has all the control. I illustrate it this way: We’re within our consitutional rights to represent ourselves in court, but it’s never recommended, because we’d be going up against people who are professionally trained to bury the opposition.

    Card companies don’t want to help. They’re only interested in hooking people in with slick advertising and then keeping those people on an interest treadmill literally for the rest of their lives if they can do it. The card companies will not negotiate unless the consumer is behind on his payments, and then will refer the consumer to a “good credit counseling company”–because the card company most likely owns that CCC. The CCC will not tell the consumer up front that it is owned by the card company, will not tell the consumer that the CCC will show up as a 3rd-party intervention mark against his credit–similar to a court trustee–and in the end, resembles a Chapter 13 BK.

    My wife and I were in a CCC–more specifically, Christian Credit Counselors, a “non-profit”; the type of company that further gives legitimate Christian companies a bad name–who very faithfully took over $500/mo out of our account and handed it over to Visa. After nearly a year, one would have thought our balance would have lowered by about $6500. In fact, it moved about $1000. Once I went to work for a debt settlement company and found out the difference, we cut them loose. No money back.

    Interestingly, I work for a genuine Christian debt settlement company. We do business according to not only government regulation, but according to what the Bible says about money, debt and being good stewards. It’s my considered opinion that the government and most people’s cynicism in this day and age runs so deep that they have a difficult if not impossible time believing that there are companies out there who act in a genuine Christian fashion.

    We don’t take responsibility away from people, Steve. It’s their debt. They incurred it. Many of them made bad decisions–including the people who were videoed whining in front of Jay Rockefeller’s (don’t get me started)–committee. They got taken by scammers, but did they do their homework on their respective companies? Doubtful. We tell people that no program is going to be perfect, since they’re all man-made. There is a saying: Everybody wants to go to heaven, but nobody wants to die.

    But they were taken, just like people get taken by the aforementioned slick advertising.

    All that said, it’s my opinion that the economy went off the rails due in large part to collusion and bad decisions by the banks in partnership with government.

    We’re dealing with a corrupt banking system, and we can’t trust government to do anything right. Government Accountability Office? An oxymoron if ever there was one.

    If you’re still with me, I apologize for taking up so much time. I appreciate your consideration and the discussion. But more Draconian government we don’t need.

    God Bless you,


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