On December 15, 2010, 11 non-profit debt settlement agencies filed a joint complaint with the Federal Trade Commission (FTC), alleging that certain for-profit “debt settlement companies … have brazenly evaded” FTC rules governing debt management agreements established over the phone, according to a press release.
In October, the FTC put new rules in place that made it illegal for debt relief agencies to charge customers before actually providing tangible results (i.e. lowering a consumer’s debt). They also restricted the use of required bank accounts for debt-related payments unless consumers had full control of them and they were held at FDIC-insured banks.
These changes were implemented in order to protect an extremely vulnerable consumer demographic from being taken advantage of by predatory companies playing on their desperation.
And at the time, these regulations were met with enthusiasm.
“The rule change … is a major victory for consumers struggling to control and manage their debt without inadvertently digging themselves in deeper,” Jon Leibowitz, chairman of the FTC, was quoted as saying in an FTC press release. “Debt relief telemarketers are on notice – if you charge consumers before actually helping them, you will find the FTC and state enforcers knocking at your door to enforce the Rule.”
However, some financial insiders were wary of the new restrictions.
Odysseas Papadimitriou, CEO of WalletHub.com, said at the time, “It’s a really good step in the right direction, but it needs to be applied across the board so consumers know they have the same protection whether they are talking on the phone, online or in person.”
In light of the non-profit debt settlement agency complaint, optimism appears misguided and concern seems sage because the complaining parties say that many predatory debt relievers have simply ignored the law.
“The worst offenders are continuing to pillage the dwindling bank accounts of desperate consumers in broad daylight, daring the FTC and state attorneys general to take action,” Christopher Viale, CEO of Cambridge Credit Consulting is quoted as saying in the press release announcing the complaint letter. “We are encouraging greater vigilance and enforcement, specifically against those debt settlement companies that have obviously chosen to evade the new rules, rather than abide by them.”
The non-profit debt relief agencies making these allegations also sent their letter—which is signed by the CEOs of the 11 complaining parties—to members of Congress as well as the National Association of Attorneys General.
What effect this letter will have remains to be seen, but industry experts believe that it will serve as a wakeup call to predatory agencies and the FTC alike.
“This letter will probably lead to a short-term crackdown on debt relievers currently operating outside the law,” said Mr. Papadimitriou. “However, more than a letter is needed to stop predatory debt relief practices in the long term. What I would really like to see is more comprehensive regulation that lays out stiff penalties for debt relievers who harm their customers.”
Whether Mr. Papadimitriou gets his wish is as of yet unknown.
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