Will the Debt Relief Vertical Survive?
On November 4, 2009, the Federal Trade Commission (the “FTC” or “Commission”) held a public forum to discuss proposed amendments to the Commission’s Telemarketing Sales Rule (“TSR”) to address the sale of debt relief services. The proposed rules would reshape the availability of alternatives to bankruptcy and the advertising and marketing landscape for debt relief services.
The proposed changes to the TSR are the FTC’s latest step to combat what it views as deceptive and abusive marketing of debt relief services. Covered services and entities include for-profit debt management plan providers, debt consolidators, and debt settlement service providers. The use of the TSR also represents a dramatic and unprecedented use of the TSR to enact rules for a specific industry. This type of rulemaking would not be possible under the FTC’s limited authority granted under Section 5 of the Federal Trade Commission Act.
The proposal would require specific disclosures and prohibit certain misrepresentations in the sale of debt relief services. Industry representatives, consumer advocates, and state regulators generally all viewed these changes as acceptable. With a history of enduring enforcement actions and little guidance from the government in what constitutes acceptable advertising and marketing of debt settlement services, the debt settlement industry groups that participated in the panels signaled that they welcomed guidance from the Commission. Although some industry groups noted that they already go to great lengths to ensure that disclosures are provided to consumers by their members.
The amended rules, however, also would prohibit charging or collecting fees from customers in advance of services being provided (e.g., settlement letters, accepted debt management plan proposals, etc.). The biggest losers under such a rule would be a number of for-profit debt settlement companies and their marketing and advertising vendors that charge the providers fees when advertising is run. As a result, the business plans of providers and their advertising models
