Federal Government Lawyers and the FTC Get It Wrong on Debt Settlement and Telemarketing

As political robocalls get flak from the FTC lawyers, who claim they’re in violation of the Telemarketing Sales Rule, I’m reminded of when TASC sent an open letter to the FTC last fall after FTC lawyers gave testimony before the U.S. Senate on abusive telemarketing.

According to the FTC lawyers, consumers who signed up for the debt settlement services were charged money up front and promised it back if the callers failed to deliver at least $2,500 in interest rate savings. Instead of arranging reduced interest rates, the complaint states, the defendants sent consumers instructions to pay down their credit card debts early, thus saving money on interest. Consumers who complained and demanded refunds allegedly were denied outright, got the run-around, or had a $199 “nonrefundable fee” deducted from their refund.”

At the request of  FTC’s  government lawyers, a federal judge shut down the three debt settlement companies in question. Then the FTC lawyers went on to argue for stricter telemarketing laws, specifically for the marketing debt relief services.

The Joshua Just take? Joshua Just, an attorney and debt settlement specialist points out that those companies definitely weren’t acting on the up and up, and deserved to be shut down. But debt settlement telemarketing helps reach those who need help getting out of debt – it’s a viable way to let people know about services that are helping thousands of citizens with financial struggles. According to TASC’s letter, a recent survey by the organization yielded results that show that:

“The aggregate debt reduction in settlements is almost two times the fees paid by consumers for the debt settlement services, and that the aggregate debt settled is approximately 3.5 times such fees, in each case considering all consumers, whether they dropped out of the program or continued to completion.”

Government lawyers also went on to argue for industry-wide restructuring of fees based on the percentage of debt actually settled, rather than total debt. The lawyers cited the aforementioned cases as examples of abusive practices within the industry that a restructuring could prevent. However, I don’t believe that the federal government’s lawyers realize the complexity of how debt settlement works, or else they would realize that restructuring fees isn’t the way to go.  Debt settlement companies agree to settle your total debt for a percentage based on the amount you have. However, this is usually comprised of several debts, small and large. What the federal government lawyers failed to understand is that by restructuring fees to only include debt actually settled, you’re removing incentives for debt settlement companies to tackle anything but the large debts. It’s work smarter, instead of work harder argument. Smaller debts won’t pay the same dividends, ergo they’ll be overlooked in order to use the time and energy to spend on higher-yield, large debts. As it is now, the reputable debt settlement companies have reason to settle ALL debts they are charged with.  The government lawyers are actually doing a disservice to the consumer by trying to enact these restructuring and telemarketing laws.

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