16 CFR Part 310 Telemarketing Sales Rule- Debt Relief Amendments
I would like to comment on the difference between Debt Settlement and Credit Counseling and the favorable rules to be imposed on the for profit debt settlement industry. Credit Counseling is usually conducted by a non for profit entity and as such non for profits all information regarding management salaries and executive pay is available for review and scrutiny. This is not the case with for profit debt settlement. Credit counseling is already governed in almost every state, debt settlement is not. This could be significant in the future as client complaints of practices and do not have a unified authority with which to address complaints and therefore no accountability. Debt settlement does not provide education or the appropriate financial counseling or referral service to local assistance programs as credit counseling does. The fact that the debt settlement is paid for “up-front” does not inure a for profit debt settlement company to incur the cost of advice, education or referral. Payment of “up-front” fees similar to the mortgage brokerage industry does not foster education and thus the focus of the underlying problem will not be addressed. The fact that settlement is a commission based on the amount of debt will eventually lead to this industry to move clients into arrangements that they could not possibly complete leaving the client and the creditor out of the money and all of the taxpayers paying the cost of a problem economy through tougher credit constraints. Non for profit credit counseling conducts education. The concept of “something for nothing” is not prevalent in the credit counseling industry as, at present, all principal balances are paid back to the creditor. The Internal Revenue Service has given clarity to the non for profit credit counseling industry as to fees, marketing and other items such as commissions and executive compensation. If the for profit debt settlement would live under these same regulations then there would be more transparency and thus more consumer disclosure.