The following letter was sent to the Federal Trade Commission:
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December 13, 2010
Federal Trade Commission
Office of the Secretary
Room H-135 (Annex T)
600 Pennsylvania Ave, NW
Washington, DC 20580
Re: Debt Settlement Company Evasion of Amendments to TSR
Dear Commissioners,
We are writing to speak out against the deceptive tactics employed by a growing number of debt settlement companies intent on evading the Federal Trade Commission’s recent amendments to the Telemarketing Sales Rule (TSR) that you issued to protect consumers. We are also urging that immediate action be taken to curb the activities of these companies.
We all applaud the amendments made to the TSR, as well as the enforcement actions announced on December 6th. We also recognize that some debt settlement companies have made an effort to comply with the revised rules. It must be noted, however, that many more companies have chosen to ignore the new rules and the authority of the FTC itself. We strongly believe that more aggressive monitoring of the settlement industry and enforcement of the TSR rules are needed to halt the continuing abuses of settlement companies that are preying on vulnerable consumers looking to resolve their financial problems.
The professional non-profit credit counseling agencies we represent speak with thousands of financially stressed consumers every day, providing free education and meaningful solutions to their problems. We know the kinds of challenges people are facing as they try to make ends meet. Being scammed out of the little money they have available to pay their debts must stop.
A few schemes used to avoid the new TSR rules appear to be gaining in popularity. Here’s how they work to deceive unsuspecting consumers:
- The Attorney Model: We have seen a number of debt settlement companies employ an “attorney-model,” in which the settlement agency fronts as a law firm. The reality is that many consumers never even speak to a lawyer, and if they do, it is likely not a lawyer licensed to practice in their state. These companies claim they are not governed by the FTC and that the fees they charge are a “retainer.” Under this guise, the typical settlement model continues, complete with exorbitant up-front and monthly fees, and with little chance of settlement for the average consumer.
- Text-Messaging: More recently, consumers have started receiving text messages from someone posing as a representative of a “survey” company, asking if they want to “reduce their unsecured debt.” If the consumer makes contact with the fraudster, they are quickly asked if their debts total $10,000 or more and are told they can be put in touch with a “consumer advocate.” That “advocate” turns out to be a debt settlement company representative. In one version of this scam, the company doesn’t even use the words “debt settlement.” Instead, they try to convince the consumer to sign up for a plan involving a complex legal strategy that can supposedly reduce their debt. In that version, up-front “retainer” fees are required, usually 10% of the total debt owed.
- Other Tactics: Some settlement companies are using Internet “chat” to arrange settlement plans, while others are setting up off-shore call centers, strategies employed in the illegal sports betting industry until the U.S. Department of Justice brought enforcement actions. The selling of “debt settlement kits,” books, and software at vastly inflated prices has also been seen.
We recognize that the burden of protecting consumers rests not only on the FTC, but also on state regulatory bodies and law enforcement agencies. Without a focused, committed, and coordinated response by authorities, the flaunting of the FTC’s regulations will continue and consumers will suffer.
Accordingly, we, the undersigned, call for the following:
- That the FTC launch a new investigation into the on-going fraudulent conduct of the debt settlement industry in order to expose the worst offenders and compile evidence of the full range of regulatory evasion tactics.
- That the FTC obtain injunctions against the offending settlement companies in order to protect consumers.
- That the FTC coordinate with attorneys general to ensure enforcement at the state level.
We are hopeful that prompt action can be taken. Consumers facing financial hardship cannot afford – emotionally or monetarily – to be abused by those who pretend to offer relief.
Respectfully,
Christopher Viale
President & CEO
Cambridge Credit Counseling
Diane Chen
President & CEO
Consumer Education Services, Inc.
Tom Coates
Executive Director
Consumer Credit of Des Moines
Russell Graves
Executive Director
Consumer Credit and Budget Counseling
Kevin Porter
President
Alliance Credit Counseling, Inc.
Hank Keaton
President & CEO
American Financial Solutions
Sam Hohman
President & CEO
Credit Advisors Foundation
Alan Franklin
President
American Credit Alliance, Inc.
Michael McAuliffe
President
Family Credit Management
Barry Coleman
Compliance and Project Manager
ClearPoint Financial Services
Geri Napolitano
President
Debt Counseling Corporation
CC:
- Allison Brown, Bureau of Consumer Protection, Federal Trade Commission
- Alice Hrdy, Bureau of Consumer Protection, Federal Trade Commission
- Evan Zullow, Bureau of Consumer Protection, Federal Trade Commission
- Mitchell Katz, Office of Public Affairs, Federal Trade Commission
- Senator Christopher Dodd, Chairman, Senate Committee on Banking, Housing, and Urban Affairs
- Senator Richard C. Shelby, Ranking Member, Senate Committee on Banking, Housing, and Urban Affairs
- Senator Chuck Schumer, Sponsor, S.3264: Debt Settlement Consumer Protection Act of 2010
- Senator Claire McCaskill, Cosponsor, S.3264: Debt Settlement Consumer Protection Act of 2010
- Representative Barney Frank, Chairman, House Committee on Financial Services
- Representative Luis Gutierrez, Chairman, House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit & Sponsor, H.R.5387: Debt Settlement Consumer Protection Act of 2010
- Representative Jeb Hensarling, Ranking Member, House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit
- Representative Keith Ellison, Cosponsor, H.R.5387: Debt Settlement Consumer Protection Act of 2010
- Representative Gwen Moore, Cosponsor, H.R.5387: Debt Settlement Consumer Protection Act of 2010
- North Carolina Attorney General Roy Cooper, President, National Association of Attorneys General
- Elizabeth Warren, White House’s Consumer Financial Protection Bureau
- Gail Hillebrand, Senior Attorney & Manager, Financial Services Campaign, Consumer Union
- Susan C. Keating, President & CEO, National Foundation for Credit Counseling
- Travis Plunkett, Legislative Director, The Consumer Federation of America
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Check this move out that is related to this article. CareOne Jumps on Bandwagon with Credit Counseling Request for FTC to Take Action Against Rogue Debt Settlement Companies.
Well said Bobby, I absolutely agree !! Compliant Debt Settlement companies should not be endorsing this at all. We can bring enough attention to the attorney model without killing the entire industry.
Andy, I think we all agree that compliant debt settlement companies’ and credit counselors’ interests should be aligned with this message to the FTC, but they made no effort to include you or other debt settlement companies in compliance with the new rule on the letter for a reason…..it’s the same reason why they CC’d 5 out of 5 sponsors of the Debt Settlement Consumer Protection but only 20 out of 50 Attorney Generals…this letter was less about “enforcing the new rule” and more about drawing negative attention to our entire industry with people who can get new federal legislation passed…..i.e. politicians, lobbying groups, etc.
I couldn’t have written it any better myself, if I had the opportunity I would have signed it.
This isn’t a question of credit counseling vs. debt settlement, this is the ugly truth. Attorney model law firms still think that the law doesn’t apply to them and continue to rip people off. We all need them out of the picture, credit counselors and compliant debt settlement companies alike. Our interests should be aligned on this discussion.
I couldn’t have written it any better myself, if I had the opportunity I would have signed it.
This isn’t a question of credit counseling vs. debt settlement, this is the ugly truth. Attorney model law firms still think that the law doesn’t apply to them and continue to rip people off. We all need them out of the picture, credit counselors and compliant debt settlement companies alike. Our interests should be aligned on this discussion.
Andy, I think we all agree that compliant debt settlement companies’ and credit counselors’ interests should be aligned with this message to the FTC, but they made no effort to include you or other debt settlement companies in compliance with the new rule on the letter for a reason…..it’s the same reason why they CC’d 5 out of 5 sponsors of the Debt Settlement Consumer Protection but only 20 out of 50 Attorney Generals…this letter was less about “enforcing the new rule” and more about drawing negative attention to our entire industry with people who can get new federal legislation passed…..i.e. politicians, lobbying groups, etc.
Well said Bobby, I absolutely agree !! Compliant Debt Settlement companies should not be endorsing this at all. We can bring enough attention to the attorney model without killing the entire industry.
Check this move out that is related to this article. CareOne Jumps on Bandwagon with Credit Counseling Request for FTC to Take Action Against Rogue Debt Settlement Companies.
Steve
I truly hope to see some actions taking place As Soon As Possible. The consumers continue to be confused by many actors that have flown the coup and have looked for an “attorney” model to work with.
Not ever considering the results part of what we are hired to do, but rather to go see how they can fleece consumers out of their money.
I am concerned for the consumers, because unless some actions are taken against the bad actors, the industry may be at jeopardy and the ones hurt in the long run may be the consumers who are left without many choices.
Alex Viecco
Steve
I truly hope to see some actions taking place As Soon As Possible. The consumers continue to be confused by many actors that have flown the coup and have looked for an “attorney” model to work with.
Not ever considering the results part of what we are hired to do, but rather to go see how they can fleece consumers out of their money.
I am concerned for the consumers, because unless some actions are taken against the bad actors, the industry may be at jeopardy and the ones hurt in the long run may be the consumers who are left without many choices.
Alex Viecco
hi jason, Yes continued efforts to police our industry need to happen and it would be nice if the 60/60 plan were available for credit counselors to offer. That process is set to be tested early next year with 4 agencies and a handful of creditors. I have no problem with a well run debt settlement company that has true suitability test in place to make sure the the service is appropriate for the consumer as credit counselors can only serve a slice of the public. I have sent this letter to at least 20 different attorney generals offices and all of the state regulators that are charged to oversee the debt relief space. Its my hopes that this effort shed some light on some of the new tactics that are being implemented to avoid the rules. Christopher Viale
If they were serious about “enforcement” of the new rule instead of getting new legislation passed, they would have sent this letter to more than one AG and not 5 Congressman and 4 Senators like they did
If they were serious about “enforcement” of the new rule instead of getting new legislation passed, they would have sent this letter to more than one AG and not 5 Congressman and 4 Senators like they did
P.S. Please investigate the affiliates charging upfront fees at our companies as well as our salaries and that of our wives as we are non-profits. Also check our success and completion rates and fee schedules. Many of us own debt settlement companies too but we will gladly give them up if we can somehow convince creditors to go with our 60-60 plan.
P.S. Please investigate the affiliates charging upfront fees at our companies as well as our salaries and that of our wives as we are non-profits. Also check our success and completion rates and fee schedules. Many of us own debt settlement companies too but we will gladly give them up if we can somehow convince creditors to go with our 60-60 plan.
While they may be right about a lot of this for a percentage of the industry, one needs to keep in mind they have A LOT to gain by continuing to attack the DS industry. The credit counseling comment letters to the FTC were scathing to say the least about debt settlement companies while they all thought a “debt settlement type product” was appropriate, but they clearly did not want debt settlement companies offering it.
These guys need to spend some time to police their own industry too- just look at the non-profit revoks
While they may be right about a lot of this for a percentage of the industry, one needs to keep in mind they have A LOT to gain by continuing to attack the DS industry. The credit counseling comment letters to the FTC were scathing to say the least about debt settlement companies while they all thought a “debt settlement type product” was appropriate, but they clearly did not want debt settlement companies offering it.
These guys need to spend some time to police their own industry too- just look at the non-profit revoks
hi jason, Yes continued efforts to police our industry need to happen and it would be nice if the 60/60 plan were available for credit counselors to offer. That process is set to be tested early next year with 4 agencies and a handful of creditors. I have no problem with a well run debt settlement company that has true suitability test in place to make sure the the service is appropriate for the consumer as credit counselors can only serve a slice of the public. I have sent this letter to at least 20 different attorney generals offices and all of the state regulators that are charged to oversee the debt relief space. Its my hopes that this effort shed some light on some of the new tactics that are being implemented to avoid the rules. Christopher Viale