FTC Lawyers Succeed In Push For Stringent Fee Regulations Of Settlement Companies

TASC Supports New Mandates on Debt Restructuring Firms

Lawyers for the FTC have succeeded in arguing for several new restrictions on debt settlement companies, culminating in a new policy making legislation coming from the government.

Starting on October 27, 2010, for-profit companies that sell debt relief services over the telephone may no longer charge a fee before they settle or reduce a customer’s credit card or other unsecured debt.

In addition, the lawyers have successfully argued for mandated enhanced disclosure requirements. These are modeled on current and proposed standards from the industry’s leading trade association, TASC (The Association of Settlement Companies). TASC already offered guidance and regulations for debt restructuring companies, something I talked about in my earlier post: What to Look for in a Trustworthy Debt Settlement Company. before FTC lawyers and legislators got involved.

TASC originally opposed one key part of the proposed legislation: the prohibition of debt settlement companies from accepting fees from a consumer for debt settlement services prior to the actual settlement of the consumer’s debt.

As TASC argued (and I reiterated in my post, Federal Government Lawyers and the FTC Get It Wrong on Debt Settlement and Telemarketing, this kind of thinking ignores the large amount of preparatory research and client management that goes on within a debt settlement case before any liability or balance is discharged. The flipside of this argument, from the lawyers standpoint, was that customers were being unfairly charged before the agreed upon service was actually being executed.

The Outcome of the FTC Ruling

In the end, the lawyers were able to successfully argue to the FTC that the pros outweighed the cons. In a great letter of support for the intents (if not all the tactics) of the FTC ruling, and a bolstering round of optimism for the industry and its members, TASC issued the following statement last week:

“We recognize that the Federal Trade Commission attempted to strike an appropriate balance between improving consumer protections and ensuring continued viability for the majority of ethical, well-managed debt settlement companies….The only significant difference between TASC and the FTC was the proposal that the collection of fees be delayed until debts are actually settled, a position that, we believe, ignores the fact that services are provided throughout the customer life cycle, not just at the time of settlement. ”

The Joshua Just Take? The Lawyers Still Got It Wrong But Let’s Move On

Basically, I agree with TASC’s position: that the Federal Government Lawyers still got the tactics wrong but that overall their intention was good. The end result, regulation and support by the government adds validation to settlement companies claim to be a legitimate, transparent industry that is providing a valuable public service. Consumer protection laws can and should be a part of our conversations. And though it remains to be seen how debt restructuring firms will need to restructure their own businesses in order to “keep the lights on” while they attempt to settle balances for their clients, as an industry we’ll emerge stronger from this. Now it’s time to get back to work.

About Joshua Just

As a managing partner of DebtLogic USA, a debt restructuring firm in New York City, Joshua Just is attuned to the legislation happening around the industry. If you’re looking to help settle your debts, you can visit www.debtlogicusa.com.

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