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Consumer Advocates Ask FTC to Police Debt Settlement Firms That Break the Law

December 29, 2010

New regulations on for-profit debt settlement companies seemed like a welcome change to our Colton consumer bankruptcy attorneys, when they took effect in October. So we were disappointed by a Dec. 21 article from, saying many of those companies have been accused of breaking or skirting those regulations. Nonprofit debt counselors, who are not covered by the new rules, wrote a letter to the Federal Trade Commission earlier this month, asking it to look into practices that seem to be attempts to find loopholes in the law, or even outright ignore it. Some are also hiring attorneys in an effort to pose as law firms, which would make them exempt from the new regulations. This is concerning because some debt settlement companies take advantage of desperate people by taking their money up front and delivering nothing.

The rules that took effect in October apply to companies that advertise their services through the telephone. They ban debt settlement companies from taking money before delivering any services. Instead, they must show agreements with creditors disclosing how much debt they can reduce. Only after the consumer agrees can the companies charge a fee. To escape the telemarketing aspect of the rules, some companies have switched to soliciting via text message or online, or setting up in-person meetings. Another way they try to create loopholes is by claiming to be law firms, or actually hiring attorneys, and calling their fees a "retainer" rather than fees. A presentation from an industry group of for-profit debt settlement firms also suggested that relocating overseas could help them escape the rules. A spokesperson for that group said the presentation was merely explaining the law, not suggesting a way for members to avoid it.

We doubt that. As Stanton personal bankruptcy lawyers, we strongly support the ban on up-front fees for the same reason we supported California's ban on up-front fees for loan modification companies. In both cases, there's a strong component in the industry of shady companies that are willing to take money from desperate people and then simply disappear, without providing actual services. In fact, we think the loopholes these companies have found are good examples of how they can be shady. Texting the customer rather than calling may technically not be telemarketing, but it's still clearly within the spirit of the law. And misleading people into believing they are represented by an attorney when they are not is actually a crime. In fact, the article mentions a successful lawsuit by North Carolina's attorney general against a Florida company posing as a law firm.

Howard Law PCis a real bankruptcy law firm; our attorneys have publicly available ethics records that we're proud of. If you're in debt so deep that you don't think you can realistically get out, you should call us for a free consultation to discuss whether bankruptcy can help. Many people resist bankruptcy for emotional reasons -- but when they dip into retirement savings and other resources to stave off their debt, they are frequently just delaying the inevitable. Worse, they may be spending money that would have been protected in a bankruptcy. Our San Juan Capistrano individual bankruptcy attorneys don't believe bankruptcy should be considered shameful or a failure. In fact, it's a chance to retake responsibility and control of your financial life by paying off debts through slow, careful repayment or liquidating your property.

If you're tired of fielding, or ignoring, phone calls from harassing creditors you know you can't pay, you should call Howard Law for a free, confidential consultation. To learn more or set up a meeting, send us an email or call toll-free at 1-800-872-5925.