FTC Seeks Public Comment on Proposed Rules to Protect Consumers of Debt Relief Services

In an ongoing effort to better protect financially distressed consumers, the Federal Trade Commission is seeking public comment on proposed rules to combat deceptive and abusive telemarketing of debt relief services – services that purportedly can reduce consumers’ credit card and other unsecured debt.

In the Noticed of Proposed Rulemaking (NPRM) announced today, the Commission proposes amendments to the Telemarketing Sales Rule (TSR) that 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; and
• 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. Additionally, the NPRM summarizes
the Commission’s September 2008 public workshop, “Consumer Protection and the Debt Settlement Industry.”

The FTC adopted the TSR on August 16, 1995. It requires certain disclosures and prohibits misrepresentations during telemarketing calls. It also bars abusive practices, including
charging up-front fees for certain services such as credit repair, recovery services, and offers of a loan or other extension of credit when granting it is “guaranteed” or is represented as having a
high likelihood of success. The TSR was amended in 2003 to create the National Do Not Call Registry and again in 2008 to curtail telemarketing calls that deliver prerecorded messages.

Comments should include the reference “Telemarketing Sales Rule – Debt Relief Amendments – R411001.” Full instructions for submitting comments are found in the Addresses section of the Notice. The NPRM has a 60-day public comment period, which ends on October 9, 2009. Additionally, the NPRM announces that the Commission will hold a public forum on this rulemaking, and it provides instructions for individuals wishing to participate. The date of the public forum will be announced separately.

The Commission vote approving the NPRM was 4-0. It can be found now on the FTC’s Web site at http://www.ftc.gov/os/2009/07/R411001tsrnprm.pdf and as a link to this press release.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.