Debt Relief Industry Regulation / Legislation

CareOne Sends Notice to NFCC That They Should Comply With FTC Rules

Here is a copy of the letter that CareOne sent to the National Foundation for Credit Counseling yesterday asking them to comply with the new FTC telemarketing sales rules. Apparently both ACCPros and AICCCA received the same letter.

August 31, 2010

Susan C. Keating
President and CEO
National Foundation for Credit Counseling
801 Roeder Road,
Suite 900
Silver Spring, MD 20910

Dear Susan:

As leaders in the debt relief industry, both of our organizations were early supporters of the efforts by the Federal Trade Commission (FTC) to raise standards in the industry. Over the next two months, tough new rules issued by the FTC will go into effect, including the ban on upfront fees for debt settlement and increased consumer disclosures for all aspects of the debt relief industry. These are significant rules that will greatly change how the debt relief industry operates and ensure greater consumer protection.

Unfortunately, because of limits to the FTC’s authority, the new rules will not ensure that all debt relief companies are held to these high standards. There are two specific issues which need the support of the National Foundation for Credit Counseling to ensure that millions of American consumers are adequately protected.

The first issue concerns the applicability of the new rules. As you know, the FTC does not have oversight of any nonprofit, tax-exempt credit counseling or debt relief agencies. Given the fact that nonprofits constitute more than 85 percent of the debt relief industry, a tremendous loophole has been created.

The NFCC has stated publicly that it is working with its members and creditors to offer debt settlement products and “less than full balance” programs. My understanding is that some of your member agencies have already begun pilot settlement initiatives with several large credit card issuers. I fully support your efforts on this front because we agree that there is a critical need for these kinds of programs and that the FTC has created a clear path for companies to appropriately provide that service.

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However, there is deep concern that nonprofit, tax-exempt providers will increasingly offer debt settlement products while not being held to the same strict standards or complying with the same rules that for-profit companies must follow. As history has shown us, some of the most notable examples of predatory and unscrupulous practices in our industry have come from tax-exempt providers.

To help ensure that these types of abuses do not reoccur, I am asking that the NFCC, as the nation’s largest tax-exempt credit counseling association, adopt a resolution requiring all of its member agencies to comply with the revised Telephone Sales Rules (TSR) as it relates to debt relief services.

The second issue that must also be addressed is the inherent conflicts of interest that exist when debt relief agencies are compensated by both the consumer and the creditor. While this is the primary revenue model for the debt management plans that are offered by the majority of your membership, this model is a clear conflict of interest when offering “less than full balance” programs or other settlement programs.

The role of a legitimate debt relief agency is to represent the best interests of a consumer in helping
them regain economic self-sufficiency. When debt settlement is the best option for that consumer, it is the role of the debt relief agency to negotiate and advocate solely in the best interests of that individual without being compensated by the creditor with whom it is negotiating. All debt relief agencies – regardless of tax status – should be held to this standard.

To that end, I would ask that the NFCC require its members who provide “less than full balance” programs or other settlement products to not accept payments, grants or other forms of compensation from creditors.

I am making these same two requests of the Association of Independent Consumer Credit Counseling Agencies and the Association of Credit Counseling Professionals.

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Adopting these standards will strengthen the transparency of our entire industry. It will also ensure that consumers who seek help are fully informed about their choices, that there is no conflict of interest in representing consumers and that all consumers are protected from predatory providers to the greatest extent possible. I hope you will support me in seeking these changes.

Yours Sincerely,
Mike Croxson
President, CareOne Services

Allison Brown, Division of Financial Practices, FTC
Dave Jones, President, Association of Independent Consumer Credit Counseling Agencies
Russell Graves, President, Association of Credit Counseling Professionals

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.


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