Cambridge Cautions Consumers Against Debt Settlement until FTC Rules Take Effect
Lack of publicity leaves public vulnerable to deceptive debt practices in interim.
Agawam, MA (Vocus) August 6, 2010
Significant changes in the Telemarketing Sales Rule recently introduced by the Federal Trade Commission will soon alter the way debt settlement companies are allowed to operate. The need for the new rules, which were specifically designed to protect vulnerable consumers, became evident last week when the FTC released a stunning 229-page report detailing the egregious behavior of many debt relief agencies. Unfortunately, because accounts of the government’s efforts were hardly front-page news, many consumers may be unaware that the new protections won’t take effect right away. In the interim, it is expected that the settlement industry will spend millions more on its misleading television, radio and Internet advertising, luring unsuspecting consumers to enroll before the first wave of new regulations takes effect on September 27th.
The Federal Trade Commission’s report (http://www. ftc. gov/os/2010/07/R411001finalrule. pdf (http://www. ftc. gov/os/2010/07/R411001finalrule. pdf)) clearly illustrates the deplorable actions of settlement companies that put profit-taking before their claimed purpose of providing debt relief to financially desperate individuals. Instead, the FTC found that settlement agencies frequently misrepresent their services, eventually resulting in significant financial harm to their trusting clients. The ads are tempting, and nearly unavoidable. Last year alone, nearly 9 million Americans responded to sensational advertisements featuring video clips of President Obama, seemingly suggesting that debt settlement is a form of government-sanctioned bailout for individual consumers – it’s not. But as with any other advertising claim that appears too good to be true, repeated exposure to the industry’s messages leads millions of consumers to believe that the service is legitimate.
“When you see our president cleverly associated with a message promising immediate debt relief, you’d like to believe it’s true - especially during today’s difficult financial times, but it’s just a case of misleading advertising,” noted Christopher Viale, CEO of Cambridge Credit Counseling. “We all hope that the changes instituted by the FTC will change the face of debt relief and protect the public from agencies looking to profit from the financial hardships of vulnerable individuals.”
Before it released its new rules, the FTC performed a review of some common settlement industry claims, and it also asked the Government Accountability Office to conduct an undercover investigation of the industry. The results were disturbing. Clients of debt settlement firms saved approximately $58.1 million, a statistic frequently boasted by industry defenders; however, those consumers paid at least $55.6 million in agency fees, virtually canceling out the savings in many cases, particularly when late fees and other charges are factored in. Another industry claim was based on a study of just 12 clients, a sampling too small to be a reliable representation of the millions of consumers who’ve enrolled with settlement firms over the last few years. “The non-profit credit counseling industry has committed a significant amount of educational resources over the years to help the public understand the predatory nature of many debt settlement firms, and that the typical client doesn’t save money,” remarked Cambridge’s Viale, “I was hoping to wake up after the FTC announcement to see extensive media coverage detailing the changes, and why they are necessary. Unfortunately, very little time or space was dedicated to this serious issue.”
Many of the FTC’s new protections go into place on September 27, 2010, with the exception of the advance fee ban, which will take effect on October 27th. That small window of opportunity isn’t likely to go unnoticed. The settlement industry already spends millions of dollars on advertising, and it’s expected that companies will increase their efforts before they’re forced to change their business model. “Until these measures are in place, the debt settlement industry will use its vast resources to enroll as many unwitting consumers as they can,” continued Viale. “While we applaud the new rules, which are vital for the protection of American consumers, much more needs to be done to educate and inform people about the hazards of settlement, payday lending, foreclosure rescue scams, and other schemes that seem too good to be true.”
“The personal debt problem in this country is significant, and people naturally want to believe the settlement company claims that they hear again and again in the media. It’s the responsibility of agencies like Cambridge Credit Counseling to educate the public and provide the information people really need to make informed decisions,” concluded Viale, who encouraged other agencies, consumer groups, and the media to increase their educational efforts over the next few months until appropriate state and federal protections are in place.
ABOUT CAMBRIDGE CREDIT COUNSELING CORP.
Cambridge Credit Counseling Corp. is a professional housing and debt counseling agency dedicated to educating young adults on the importance of sound financial management, and to providing financially distressed Americans with education and debt management services appropriate to their needs. Visit Cambridge Credit Counseling Corp. online at www. cambridgecredit. org. To learn more about Cambridge Credit Counseling’s community initiatives, please visit www. youtube. com/CambridgeCredit (http://www. youtube. com/CambridgeCredit).
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