By Brendan B. Read, Senior Contributing Editor
Human foibles and tragedies bring out the jackals that prey on the injured and weak and the economic crisis has proven no different with debt relief scams.
In response, the Federal Trade Commission has issued proposed amendments to the Telemarketing Sales Rule aimed at addressing this matter that in turn will benefit legitimate, law-abiding for-and-non-profit debt relief agencies. The FTC (News – Alert) is also inviting interested persons to participate in a public forum on these regulation changes to be held in Washington, D.C Nov. 4, 2009.
The TSR (News – Alert) changes seek to combat deceptive and abusive telemarketing of debt relief services that purportedly can reduce consumer credit card debt and other unsecured debt. The added regulations, contained in a Notice of Proposed Rulemaking include and would:
* Prohibit companies from charging fees until they have provided the debt relief services
* Require disclosures about the debt relief services being offered, including how long it will take to obtain promised debt relief and how much it will cost
* Prohibit specific misrepresentations about material aspects of debt relief services, including success rates and whether a debt relief company is nonprofit
* Extend the TSR to cover calls consumers make to debt relief services in response to their advertisements
* Define the term “debt relief service” to cover any service to renegotiate, settle, or in any way alter the payment terms or other terms of the debt between a consumer and one or more unsecured creditors or debt collectors, including a reduction in the balance, interest rate, or fees owed.
The NPRM provides an overview of the debt relief services industry, including three major categories of debt relief – credit counseling, debt settlement and debt negotiation – and the abuses observed in each area. It also describes FTC and state law enforcement efforts to combat deceptive and abusive practices in this industry. Deadline for responding to the NPRM is Oct.9, 2009. Information and response means can be found at http://www.ftc.gov/os/2009/07/R411001tsrnprm.pdf
Parties interested in participating as panelists must a request to participate and a comment in response to the NPRM. Requests to participate as panelists in the public forum must be filed separately from public comments, either on paper or via e-mail to tsrdebtrelief@ftc.gov. The e-mail should refer to “Telemarketing Sales Rule – Debt Relief Rulemaking Forum – Request to Participate, R411001.” Full instructions for submitting comments are in the supplementary information section of the NPRM. The forum is open to the public; however, seating is limited and will be provided on a first come, first served basis.
FTC has taken action citing, in its NPRM, the rise of new credit counseling agencies in response to growing consumer debt and resulting increases in defaults. While CCAs have traditionally been nonprofits, many of these new firms operated on a for-profit basis, and which “appeared to increase the options for indebted consumers.
At the same time consumer protection concerns have emerged. Research by consumer advocates and congressional scrutiny highlighted troubling trends in the credit counseling industry. These include deceptive and unfair practices, excessive fees; and the abuse of nonprofit status.
While the TSR covers outbound and any non-exempt inbound calls – such as those that do not disclose that they are being made in response to general media advertisements – it does not cover all inbound calls. The proposed amendments would bring all inbound debt relief calls in response to direct mail or general media advertisements. The new provisions are also aimed at addressing specific concerns about deceptive and abusive practices prevalent in the marketing of such offers.
Yet new rules and regulations are only part of the answer. The FTC plans to continue enforcement as well as its consumer education efforts.
“While the Commission believes that the proposed amendments are an important step in the effort to prevent harm to consumers considering debt relief options, it believes that a comprehensive approach is needed to address the important consumer protection concerns at issue,” it wrote in the NPRM.