Many Americans struggle to pay their credit card bills. Some turn to businesses offering “debt relief services” – for-profit companies that say they can renegotiate what consumers owe or get their interest rates reduced.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, has amended the Telemarketing Sales Rule (TSR) to add specific provisions to curb deceptive and abusive practices associated with debt relief services. One key change is that many more businesses will now be subject to the TSR. Debt relief companies that use telemarketing to contact potential customers or hire someone to call people on their behalf have always been covered by the TSR. The new Rule expands the scope to cover not only outbound calls – calls you place to potential customers – but in-bound calls as well – calls they place to you in response to advertisements and other solicitations. If your business is involved in debt relief services, here are three key principles of the new Rule:
- It’s illegal to charge upfront fees. You can’t collect any fees from a customer before you have settled or otherwise resolved the consumer’s debts. If you renegotiate a customer’s debts one after the other, you can collect a fee for each debt you’ve renegotiated, but you can’t front-load payments. You can require customers to set aside money in a dedicated account for your fees and for payments to creditors and debt collectors, but the new Rule places restrictions on those accounts to make sure customers are protected.
- You have to disclose certain information before signing people up for your services. Before people sign up, you must disclose fundamental aspects of your services, including how long it will take for them to get results, how much it will cost, the negative consequences that could result from using debt relief services, and key information about dedicated accounts, if you use them.
- You can’t misrepresent your services. The new Rule prohibits you from making false or unsubstantiated claims about your services.
Is your business covered by the new Rule? Are you certain of your legal obligations? This Guide tells you how to comply with the new Rule and is designed to supplement the FTC’s publication, Complying with the Telemarketing Sales Rule. The Guide represents the views of FTC staff and is not binding on the Commission.
- Who's Covered by the New Rule?
- Types of Telemarketing Calls Covered by the New Rule
- Information You Must Disclose to Customers
- Making Truthful and Substantiated Claims
- Collecting Fees
- Requiring a Dedicated Account
- Keeping Records
- Best Practices
- Looking for More Information on Debt Relief Services and the TSR?
Who's Covered by the New Rule
The new Rule applies to for-profit sellers of debt relief services and telemarketers for debt relief companies. The new Rule defines a “debt relief service” as a program that claims directly, or implies, that it can renegotiate, settle, or in some way change the terms of a person’s debt to an unsecured creditor or debt collector. That includes reducing the balance, interest rates or fees a person owes. The TSR defines “telemarketing” as a “plan, program, or campaign . . . to induce the purchase of goods or services” involving more than one interstate telephone call. Most of the provisions of the TSR apply to sellers and telemarketers, so the terms “company” and “provider” in this Guide refer to both. In addition, certain parts of the Rule apply to those who provide substantial assistance or support to sellers or telemarketers.
Some examples of debt relief services include:
- Debt settlement – Companies that say they can settle customers’ debts for less than the full balance.
Example 1: Company A advertises a program to help people settle their credit card debts for less than what they owe. It requires customers to set aside monthly payments as savings. Company A waits until there is enough money in the account to make an offer to the creditor or debt collector. It negotiates an offer from the creditor or debt collector to settle the debt and gets the customer’s approval. The customer pays the reduced amount to settle the debt. Company A is covered by the new Rule.
- Debt negotiation – Companies that say they can reduce their customers’ monthly payments by getting creditors to reduce interest rates or agree to other concessions.
Example 2: Company B says it can reduce customers’ credit card debt or monthly payments by negotiating with credit card companies to get a lower interest rate. After a person signs up for the program, Company B calls the credit card company – sometimes with the customer on the line – and asks for concessions. Company B is covered by the new Rule.
Example 3: Company C says it can reduce customers’ credit card debt or monthly payments by negotiating with credit card companies to get a lower interest rate. When people sign up for the program, Company C gives them a payment schedule with accelerated payments, claiming it only promised to “show” customers how they could save money. Company C is covered by the new Rule.
- Credit counseling – Companies that work as a liaison between customers and their creditors to negotiate and administer a monthly payment plan (often called a “debt management plan”) that makes it more manageable for a customer to repay the debt – for example, by lowering interest rates or forgiving late fees.
Example 4: Company D says it can consolidate customers’ multiple credit card payments into a lower single monthly payment. When a person signs up for the program, Company D works with creditors and secures an agreement to a debt management plan on behalf of the customer. As part of that plan, the customer agrees to make monthly payments to each creditor, and the creditors agree to reduce the customer’s interest rates or make other concessions so that the payment is more manageable. Company D administers the customer’s monthly payments. The customer sends the payment to Company D, which then sends the payments to each of the customer’s credit card companies. Company D is covered by the new Rule.
Even if you don’t directly sell or provide debt relief services, you may have obligations under the new Rule. Specifically, it’s illegal to provide “substantial assistance” to another company if you know they’re violating the Rule or if you remain deliberately ignorant of their actions. What amounts to substantial assistance depends on the facts. In the context of debt relief services, substantial assistance may include:
- obtaining and selling leads – the contact information of potential customers – to other companies;
- helping a debt relief company with its back-room operations, for example, by reviewing customer files, processing customers’ payments or contacting customers’ creditors once they’ve signed up; or
- offering dedicated accounts to customers where they set aside the debt relief provider’s fees and funds for payments to creditors or debt collectors.
If you work with debt relief companies, review their policies, procedures and operations to make sure they’re complying with the Rule. Willful ignorance isn’t a defense.
Types of Telemarketing Calls Covered by the New Rule
The Telemarketing Sales Rule has covered a wide variety of telemarketing transactions since it was enacted in 1995, including the sale of credit repair services, products with a negative option feature, prize promotions and advance fee loans. Debt relief companies that initiate calls to potential customers or hire others to call people for them have always been covered by the TSR. The new Rule expands the scope of the TSR to cover many debt relief services in-bound calls (calls potential customers place to you or someone working on your behalf), in addition to outbound calls (calls you or someone who works for you place to potential customers). Here are some examples of the kinds of calls covered by the new Rule:
- Calls to you in response to advertising – consumer calls in response to TV or radio commercials; infomercials; home shopping programs; ads in magazines, newspapers or the phone book; online ads; billboards; or ads in other media .
- Calls to you in response to most direct mail promotions – consumer calls in response to postcards, flyers, door hangers, brochures, “certificates,” letters, email, faxes, etc., urging people to call about debt relief services.
Example 5: Company E runs ads on TV, radio, websites and billboards to market its program to settle consumers’ credit card debt for less than what they owe. The ads feature a number to call for more information. The new Rule covers those calls and any transactions resulting from them.
Example 6: Company F mails a letter saying it can get people lower interest rates from their credit card companies. The letter encourages recipients to call to learn more about the service. The new Rule covers those calls and any transactions resulting from them.
Companies selling debt relief services and people working on their behalf are subject to all of the existing restrictions of the TSR – including, for example, the Do Not Call provisions of the Rule. Additionally, all of the existing exemptions from the TSR apply. For example, businesses – including debt relief service companies – that meet with their customers face-to-face before signing them up for their services are exempt from the TSR. Read Complying with the Telemarketing Sales Rule to find out more.