FTC on Real Benefits of Debt Settlement Industry

Having been around the debt industry for a while I know that the mention of the FTC can bring chills to many in the debt industry. There has long been a perception that the FTC has a negative policy attitude towards debt settlement as a consumer service. However, recent statements by J. Thomas Rosch, FTC Commissioner, would suggest otherwise.

Real Benefits to Consumers?

More than ever consumers are finding themselves squeezed by multiple sources of debt that in a better economy they were able to service. Unfortunately, turns of fate–many out of their control–have thrust good consumers into an unlikely spot. Who is to be the trust advocate of the consumer in these confusing and desperate times?

Commissioner Rosch seems to think the Debt Settlement industry has a role to play:

“For example, a debt settlement firm can advocate on the consumer’s behalf, especially in cases where consumers are reluctant, embarrassed, or even afraid to contact their creditors directly,” Commissioner Rosch said to the conference attendees.  “A debt settlement firm also may be able to provide individualized attention to consumers, taking a holistic approach to all of the consumer’s unsecured debt owed to several creditors, rather than just the amount owed to a particular creditor.

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Managing the complete debt picture and focusing on restoring the consumer’s financial health has always been a critical value proposition of debt management professionals–nice to hear it from the FTC.

Recommendations to Debt Industry

Now of course it is our turn to listen…what should the debt industry be doing better? There is always room for improvement. Incorporating a primary regulator’s suggestions in your debt business strategy can make a lot of sense in reinforcing your “trusted advocate” position with customers.

Commissioner Rosch makes four specific best practices recommendations to the debt industry:

• “limit their performance claims to those they can adequately substantiate”;
• not “misrepresent the benefits of debt settlement”;
• “disclose, clearly and conspicuously, the negative impact that participation in a program may have on a consumer’s credit score, and how long that impact may linger.  This disclosure should not be made only in the written contract, but in the ad itself”; and
• “if a debt settlement firm promises to refund debt settlement service fees to consumers if their debt settlement negotiations are unsuccessful, the firm must honor that promise.”

I would venture that none of these are new to the more reputable firms in the audience. However, if you are missing the mark–bring up your game.

Review of Debt Industry Self-Regulatory Efforts

Now for the bitter medicine. Commissioner Rosch was not so impressed with the debt industry’s current self-regulatory efforts. Arguably, these types of efforts are always tough to get perfect. Balancing participation and enforcement is a delicate tight-rope to walk.

Despite his charge of being imperfect he did acknowledge that each have some attributes of best in class self-regulatory agencies. So, if you are looking to tighten up your compliance efforts and improve your service to consumers in the eyes of the FTC–these organizations might be a good start.

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