16 CFR Part 310 Telemarketing Sales Rule- Debt Relief Amendments #543670-00107

Submission Number:
543670-00107
Commenter:
Robinson
State:
CO
Initiative Name:
16 CFR Part 310 Telemarketing Sales Rule- Debt Relief Amendments
The following comment is written by Charles J. Phelan. I am quoting it because I believe that it is 100% accurate and if you pass these proposed regulations, consumers will suffer. The full letter is available at http://www.zipdebt.com/blog/debt-settlement-changes#more-130 "This writer remains deeply concerned about the FTC’s proposal to fully eliminate the ability of debt settlement firms to charge any fee whatsoever in advance of having achieved settlements on behalf of clients. While I have personally coached many consumers to handle their own settlement negotiations, I recognize there will always be some continued need for third-party representation in the debt settlement arena. Some consumers are overly fearful of the process, some are truly incapacitated or disabled and require outside assistance, while still others simply do not wish to tackle the process of negotiating on their own. So while I do believe that one thousand or more debt settlement firms is far too many for the true size of the market for this type of program, that does not mean the FTC should take action that will effectively eliminate the entire industry. By forcing debt settlement (as conducted by third-party representatives) into the non-profit sector, and eliminating any potential for for-profit service companies to work in this industry, the FTC is effectively handing this entire segment of the debt industry over to the existing network of non-profit companies currently delivering credit counseling services to consumers. This, in my opinion, is a disaster in the making. Why? Simply because it will automatically mean that the essential core basis for third-party leverage is effectively removed. I refer to the well-known fact that consumer credit counseling organizations already receive a significant portion of their income directly from the creditors who sponsor their services in the form of the “fair share” agreement. Such organizations who choose to also operate in the debt settlement arena will automatically be operating with a major conflict of interest, making them subject to pressure from lenders – pressure to accept higher settlement percentages than would otherwise be the case. Some may challenge this prediction – but a little common sense will indicate otherwise. Why should a bank accept a 40% settlement offer from one of the counseling organizations it routinely accepts debt management proposals from, when a little pressure from the top to “hold the line” at 60% will result in higher collection recoveries (in theory)? The original intention of the debt settlement approach was to provide consumers with access to a service organization that had no direct ties with the clients’ creditors – freeing the organization to truly place consumers’ best interests as top priority. Take away this core feature by only allowing non-profit companies to work in this sector (i.e., companies that are already beholden to the major creditors), and the results will automatically be inferior to what clients can currently achieve – either through third-party settlement programs (properly implemented) or on their own with training and coaching. If the FTC rule on “no fees in advance” is implemented as proposed, it will be the consumer who suffers the most – and the FTC will therefore be achieving the exact opposite of its intended effect. This writer recommends that the FTC consider adopting the fee structure proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) model legislation for regulation of debt settlement firms – a project which has already been under way for several years, with several states having already adopted rules based on this model. This would provide a reasonable fee structure that eliminates the worst abuses within the industry, while avoiding the unintentional forcing of the industry toward non-profit companies who simply will not deliver the best results for those consumers who most need it."