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Published: November 2009

Protect debt-strapped consumers from unscrupulous industry practices

Coalition: Fraud

Consumer Action filed joint comments, along with 18 other consumer organizations, with the Federal Trade Commission (FTC) supporting amendments to the Telemarketing Sales Rule that would protect debt-strapped consumers from unscrupulous practices by companies that offer to arrange payment plans with their creditors, get their interest rates or fees reduced, or settle their debts for pennies on the dollar.

Download a copy of the letter 

Below is an excerpt from the letter:

We applaud the Federal Trade Commission (FTC) for its thorough analysis of the debt relief industry and for the essential amendments that it has proposed to the Telemarketing Sales Rule (TSR) to protect consumers from abusive practices in debt relief, including for-profit debt settlement services, debt counseling services, and debt negotiation services.  These amendments are crucial to protecting consumers from deception and ensuring that they do not pay for false promises rather than real results.  

We strongly support the proposed rule, and in particular these crucial elements: 

• A strong, effective ban on requesting or taking fees in advance of achieving final, documented results for consumers.  We recommend that the results must be based on the consumer’s acceptance of the creditor’s offer, as documented in writing. 
• Coverage of calls that consumers make in response to advertisements for debt relief services in the general media.  Since for-profit debt counseling, debt settlement, and debt negotiation services are commonly advertised on the Internet, on television, or by other means which are designed to induce consumers to make inbound calls, not covering those calls would create a huge loophole.
• Prohibitions on specific material misrepresentations.  This provides greater clarity to debt relief service providers regarding the types of claims that the FTC will consider to be deceptive.  
• Specific required disclosures about how the service works and other important information.  We recommend that these disclosures be made before the consumer enrolls for the service, whether they have to pay or not at that point. 

In addition, we recommend that the TSR should prohibit debt relief services from these other abusive practices:

• Changing the addresses on the consumer’s accounts so that the debt relief company receives the bills and notices, not the consumer. 
• Instructing or advising consumers to have no further contact with their creditors. 
• Instructing or advising consumers not to make any payments to their creditors directly.  
• Making any representations about the percentage or dollar amount by which debts or interest rates may be reduced, or in the alternative, requiring that any representations about results be based on those which are documented by actual customer experience over the prior two years for all of the debt those consumers brought into the program.
• Failing to provide a “money-back” cancellation period of at least 90 days in the contract, plus more time if there has been a material breach of the contract or a material violation of law.

We further recommend that the exemption in TSR for telephone calls in which the sale of goods or services is not completed, and payment or authorization of payment is not required, until after a face-to-face sales presentation should not apply with respect to telemarketing of debt relief services.  This exemption could swallow the rule, as well as favor some debt relief providers over others.

Lead Organization

Consumer Federation of America

Other Organizations

Consumer Federation of America | Consumers Union | The National Consumer Law Center on behalf of its low income clients | The Center for Responsible Lending | The National Association of Consumer Advocates | The National Consumers League | U.S. PIRG | The Privacy Rights Clearinghouse | The Arizona Consumers Council | The Chicago Consumer Coalition | The Consumer Assistance Council | The Community Reinvestment Association of North Carolina | The Consumer Federation of the Southeast | Grassroots Organizing | Jacksonville Area Legal Aid, Inc. | The Maryland Consumer Rights Coalition | Mid-Minnesota Legal Assistance | The Virginia Citizens Consumer Council

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