[Senate Hearing 111-1034]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1034
 
                  PROTECTING CONSUMERS FROM DECEPTIVE 
                        DEBT SETTLEMENT SCHEMES

=======================================================================

                             FIELD HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            AUGUST 12, 2010

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 GEORGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri           JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota             DAVID VITTER, Louisiana
TOM UDALL, New Mexico                SAM BROWNBACK, Kansas
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                   Bruce H. Andrews, General Counsel
             Ann Begeman, Acting Republican Staff Director
             Brian M. Hendricks, Republican General Counsel
                  Nick Rossi, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on August 12, 2010..................................     1
Statement of Senator McCaskill...................................     1

                               Witnesses

Linda Robertson, Consumer, Odessa, Missouri......................     4
    Prepared statement...........................................     5
David Angle, Assistant Attorney General, Office of the Missouri 
  Attorney General...............................................     6
    Prepared statement...........................................     8
Alice Saker Hrdy, Assistant Director, Division of Financial 
  Practices, Federal Trade Commission............................     9
    Prepared statement...........................................    11


      PROTECTING CONSUMERS FROM DECEPTIVE DEBT SETTLEMENT SCHEMES

                              ----------                              


                       THURSDAY, AUGUST 12, 2010

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                   Kansas City, MO.
    The Committee met, pursuant to notice, at 9:30 a.m. in 
Kansas City Public Library, Helzberg Auditorium, 14 West 10th 
Street, Kansas City, Missouri, Hon. Claire McCaskill, 
presiding.

          OPENING STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill [presiding]. I want to thank Crosby and 
the entire team here at the library. I grew up in a family that 
my mother was so smart that when we got in trouble, our 
punishment was she would say, ``You cannot go to the library 
this week.'' So, I was brought up learning that the library was 
a reward for good behavior, and therefore we all loved going to 
the library. And what he has done and what his team have done 
with this location has really enhanced, not just the greater 
Kansas City region, but clearly downtown, and has made this a 
spot to be very proud of in the Kansas City landscape, and I 
congratulate you on that work. I told him when I got here, 
``This is a great fit for Crosby Kemper.'' He was a good 
banker, but there has always been a part of Crosby Kemper that 
was a renaissance man, as opposed to a numbers man. So, I think 
he has found a great fit for his skill set and Kansas City is 
the better for it.
    I want to welcome everyone to this hearing. This is a 
hearing of the U.S. Senate Commerce Committee, and we are 
holding this hearing here in Kansas City because I think it's 
important for us to do hearing work outside of Washington. And, 
if we were in Washington, every seat in this room would be 
full. And the reason it would be full is because they would all 
be lobbyists. There is never a hearing at the Commerce 
Committee in Washington that isn't a full house, because so 
much of the work of the Commerce Committee deals with commerce, 
and therefore it has to do with money, and therefore a lot of 
lobbyists are involved in the work of the Commerce Committee 
when we're in D.C. How refreshing it is to look out and 
realize, I bet we don't have a lobbyist in the group, at all. 
So, that's another good reason to have field hearings for the 
Commerce Committee.
    Let me briefly give an opening statement, and then I will 
introduce the witnesses that we have this morning, and we'll 
get into their testimony and questions of them on this subject 
that we're going to deal with today.
    This is a hearing that's going to examine the impact to 
consumers from the business of debt settlement companies. We're 
going to examine the debt settlement industry and the scheme it 
runs to take money from consumers, and the efforts that need to 
be made to combat these abuses.
    The Commerce Committee in Washington held a similar hearing 
on this subject back in April, and since then I've introduced 
legislation, and the FTC--who is represented today--has issued 
a rule to address abuses in the debt settlement industry. I 
believe it's a great time to have an additional hearing, 
especially in light of the rule that has now been proposed by 
the FTC.
    Consumers today in America are very vulnerable to the 
marketing techniques of debt settlement companies. People are 
having a difficult time paying their bills. Many people do not 
know where to turn for help. So when you hear that 
advertisement on the radio, or you see that advertisement on 
television that says, ``Call us, and we can take care of your 
debts,'' that is a seductive call.
    Many, many, many people in America have absolutely fallen 
victim to what these companies are doing. There are 2,000 debt 
settlement companies now operating in this country. They 
promise to get people out of debt by negotiating with the 
consumer's creditors. And there are a few companies that do it 
right. But most rarely deliver on the claims they make in their 
marketing.
    They target the most vulnerable--those with low incomes, 
high debt, unemployed, fixed incomes, and seniors. They falsely 
advertise what they can do, and they give people false hope. 
They are on the lowest level of the food chain. Their sole goal 
is to take advantage of people who are hurting.
    We have a victim, here, from Odessa who has a story to tell 
and who has bravely told her story to national news outlets, 
and what happened to her, and the fact that she was taken 
advantage of.
    A lot of these debt settlement companies, in fact, are 
ponzi schemes. They say to someone who's in debt, ``Give us 
your money up front, and we will help you.'' They promise to 
deliver a product at a later date, but they collect all of the 
money up front. They claim they're building capital to help 
with creditor negotiations. Instead, they usually sit on the 
money and do nothing for months. That's because they would 
rather have the consumers pay them, as opposed to going out 
immediately and beginning negotiating. Debts pile up, and the 
consumer is worse off than before. Credit card interest piles 
up, and one of the things that happens, that is probably most 
disillusioning, is that the consumers are told not to pay their 
credit cards. ``Quit paying your credit cards and pay us 
instead.'' What people don't realize at that point in time, is 
that that doesn't stop the credit cards from trying to collect 
their money. And we'll hear about that from our witness here 
this morning.
    The consumer often ends up owing more than they started out 
owing when this whole process began. In other words, they pay a 
company to help them, the company doesn't help them, and they 
end up more in debt than they were when they began the process.
    Debt settlement uses false claims to lure people in. They 
claim that 40 to 70 percent of the debt is retired. They claim 
that it will only take 12 to 36 months to get out of debt. In 
reality, most consumers drop out of the program, because they 
don't see results.
    The industry's own trade association states that two-thirds 
of the enrollees drop out of the program. They admit that only 
two-thirds of the people that they are signing up see enough 
benefit to even continue in the program. And most everyone ends 
up owing more than they did when they started.
    Along with Senator Chuck Schumer, I have introduced 
legislation, S. 3264, to address the abuses. It will ban the 
up-front fees, it will allow no collection of fees until the 
debt is settled, it will cap the overall amount that the 
company can collect, it will allow cancellation with full 
refund, it will increase disclosure requirements, and it gives 
the FTC and the States clear enforcement authority over these 
companies.
    We asked that--the Government Accountability Office do an 
investigation; this is the large group of auditors that work on 
behalf of the U.S. Government, looking at programs and figuring 
out whether they work, and whether or not they're wasting 
money. The GAO did an undercover investigation, looked at 20 
companies. They testified about those findings in April. They 
found that most companies charged up-front fees, most companies 
told consumers to stop paying their debts, and that most of 
them were making fraudulent claims.
    The FTC is also represented at the hearing this morning. 
They have issued a final rule that institutes many of the same 
provisions that are contained in my legislation. The rule bans 
up-front fees, it says no collection of fees until debt is 
settled, it also requires more disclosure. It is clear that the 
industry is going to challenge this rule in court. That's why 
the FTC needs the full statutory authority that the legislation 
that I have offered provides.
    In Missouri, there have been some great efforts by the 
Attorney General's Office. We have seen a tripling of the 
complaints, and the Attorney General has pending litigation 
alleging fraud by one debt settlement company, and are pursuing 
other cases. Forty-one Attorneys General across the State have 
supported the FTC rule.
    The goals we have this morning are very simple. We want to 
expose the debt settlement industry for what it is, we want to 
talk about the ways to put the bad ones out of business, we 
want to discuss the proposals that are out there to protect 
consumers, and we want to talk about the combined efforts of 
State enforcement, FTC enforcement, and the work of the U.S. 
Senate in this regard.
    Now, let me introduce the three witnesses we have today. 
First, I want to thank each of you for coming. Our first 
witness today is Linda Robertson. Linda Robertson just got off 
the night shift at her job and went home and cleaned up and 
came to the hearing. We really appreciate her making an effort 
to be here. She's a resident of Odessa, Missouri. Today, she's 
going to share her experiences that she had from a personal 
standpoint with a debt settlement company.
    She has told her story before, in fact, her story was 
featured in a front-page article in The New York Times several 
months ago. Thank you very much, Linda, for being here today.
    Dave Angle is also here. Mr. Angle is an Assistant Attorney 
General with the Missouri Attorney General's Office. He has 
been an Attorney for 20 years, and has served as a Public 
Defender, a Civil Rights Advocate, and a Consumer Protection 
Advocate. He has worked extensively on recent debt settlement 
cases; he joined the Consumer Protection Division of the 
Attorney General's Office in 2007.
    And, finally, we have Alice Hrdy. Ms. Hrdy is an Assistant 
Director of the Division of Financial Practices at the Federal 
Trade Commission in Washington, D.C. In her current position 
she supervises enforcement and policy matters relating to debt 
relief services and other financial products and services. She 
joined the FTC in 1994 as a Staff Attorney. She was in charge 
of the final rule that the FTC issued last month to crack down 
on the debt settlement industry.
    I thank you for traveling here, Ms. Hrdy, all the way from 
Washington.
    And, with that, I will ask the witnesses to begin their 
testimony. And we will begin with you, Ms. Robertson. Feel free 
to take all of the time that you need, and if there is any 
further testimony that any of you all would like to put into 
the hearing record, you certainly can submit that, anything in 
writing that you would like to be added to the record of this 
hearing.
    Ms. Robertson?

            STATEMENT OF LINDA ROBERTSON, CONSUMER, 
                        ODESSA, MISSOURI

    Ms. Robertson. Thank you, Senator McCaskill, for giving me 
the opportunity to share my experiences with debt settlement. I 
want to share my story so that others will learn about the debt 
settlement schemes that are out there. And I hope my testimony 
helps other people who are in the situation that I was in.
    In 2008, I was working as a real estate appraiser in 
Phoenix, Arizona when the slow economy forced me to give up 
that work. At the same time, there was an illness in my family, 
so I began having a hard time keeping up with bills. When my 
credit card debt became too high, I turned to a debt settlement 
company. I had seen advertisements for debt settlement on 
television, which made promises about helping people settle 
their debt without declaring bankruptcy. So, it seemed like the 
right option.
    In February of 2009, I signed up with a debt settlement 
company called Financial Freedom of America after seeing one of 
its television advertisements. I called their toll free number 
and their representative told me the company would get me out 
of debt within 3 years without taking bankruptcy. I was made to 
feel confident that they would handle my credit cards and 
settle for up to 50 percent of the original balance.
    I sent every correspondence from the credit card companies 
to FFOA, as was instructed, and felt secure in the fact that 
they were handling these accounts. Their representative also 
informed me to stop paying my credit card bills, so I thought 
FFOA was taking care of it.
    My monthly payment to Financial Freedom of America was 
$428.97 per month. It was automatically taken from my checking 
account. And that was a lot of money to me, while I was making 
around $11.00 an hour at the time, but I wanted to avoid 
bankruptcy.
    After making payments to FFOA for 10 months, I was served 
with court papers and informed that Capital One was suing me in 
court. I was surprised, because I thought FFOA was handling 
this for me. I immediately called them and was told I did not 
have enough money in my account to settle with Capital One. I 
had paid approximately $4,000 by this time, and was told I only 
had about $1,900 in my account. They stated that they had no 
control on what a credit card company could do and that I did 
not have enough money to settle this account.
    I learned, at this time, that FFOA had taken over $2,000 in 
``up front'' fees out of what I had paid. This did not make 
sense to me, as they didn't even know what the credit card 
companies would settle for. It did not make sense that would 
they take the money up front; they were making money off of me, 
even though they had done nothing to earn it, yet. I called 
back and canceled the account and was then told I only had 
$1,400 in my account. There were several phone conversations 
back and forth before I received a check for around $1,100. I 
was just sick about this. Once the New York Times interviewed 
me, FFOA decided to return another $1,200 to me. However, I 
still have not received all of my money back from them--I'm 
sorry, I lost my place. And companies like this are taking 
advantage of people who are desperate for help and trying to do 
the right thing. This is a scam and a rip-off, and I told them 
that.
    And I thank you that I was able to testify on this today, 
and I hope that it helps other people.
    [The prepared statement of Ms. Robertson follows:]

   Prepared Statement of Linda Robertson, Consumer, Odessa, Missouri

    Thank you, Senator McCaskill, for giving me the opportunity to 
share my experiences with debt settlement. I want to share my story so 
that others will learn about the debt settlement schemes that are out 
there. I hope my testimony helps other people who are in the situation 
I was in.
    In 2008, I was working as a real estate appraiser when the slow 
economy forced me to give up that work. At the same time, there was an 
illness in my family, so I began having a hard time keeping up with 
bills. When my credit card debt became too high, I turned to a debt 
settlement company. I had seen advertisements for debt settlement on 
television, which made promises about helping people settle their debt 
without declaring bankruptcy. So, it seemed like the right option.
    In February of 2009, I signed up with a debt settlement company 
called Financial Freedom of America after seeing one of its television 
advertisements. I called their toll free number and their 
representative told me the company would get me out of debt within 3 
years without taking bankruptcy. I was made to feel confident that they 
would handle my credit cards and settle for up to 50 percent of the 
original balance. I sent every correspondence from the credit card 
companies to FFOA, as was instructed, and felt secure in the fact that 
they were handling these accounts. Their representative also informed 
me to stop paying my credit card bills, so I thought FFOA was taking 
care of it.
    My monthly payment to Financial Freedom of America was $428.97 per 
month. It was automatically taken from my checking account. That was a 
lot of money to me, while I was making around $11.00 an hour at the 
time, but I wanted to avoid bankruptcy.
    After making payments to FFOA for 10 months, I was served with 
court papers and informed that Capital One was suing me in court. I was 
surprised because I thought FFOA was handling this for me. I 
immediately called FFOA and was told I did not have enough money in my 
account to settle with Capital One. I had paid approximately $4,000 by 
this time and was told I only had about $1,900 in my account. They 
stated that they had no control on what a credit card company could do 
and that I did not have enough money to settle this account.
    I learned at this time that FFOA had taken over $2,000 in ``up 
front'' fees out of what I had paid. This did not make sense to me as 
they didn't even know what the credit card companies would settle for. 
It did not make sense that would they take the money up front. They 
were making money off of me, even though they had done nothing to earn 
it yet. I called back and canceled the account and was then told I had 
only $1,400 in my account. There were several phone conversations back 
and forth before I received a check for around $1,100. I was just sick 
about this.
    Once the New York Times interviewed me, FFOA decided to return 
another $1,200 to me. However, I still have not received all of my 
money back from FFOA. Companies like this are taking advantage of 
people who are desperate for help and trying to do the right thing. 
This is a scam and rip-off.
    I thank you for being able to testify about what has happened to me 
and hope it will help other people.

    Senator McCaskill. Thank you very much, Linda. It's great 
that you've come and----
    [Applause.]
    Senator McCaskill.--and I think the hardest thing about 
this is when you're vulnerable, and you feel badly about the 
situation you're in and then to have someone take advantage of 
that is the worst. And you've done the right thing by coming 
forward and talking about it, even though I know it's an 
invasion of your privacy. We appreciate you being willing to 
allow us to take a peek into your personal life in regards to 
this, and it has been very helpful.
    Mr. Angle?

         STATEMENT OF DAVID ANGLE, ASSISTANT ATTORNEY 
        GENERAL, OFFICE OF THE MISSOURI ATTORNEY GENERAL

    Mr. Angle. Thank you, Senator. And thank you for bringing 
this hearing to Kansas City. It is a potential powerful 
partnership that we are discussing and engaging in, here, with 
Federal legislators, Federal regulators, and myself as a 
representative of the Missouri Attorney General's Office.
    Attorneys General across the country have been addressing 
debt settlement issues for a number of years, now. It has been 
an ever-increasing problem. In our office, alone, we have had 
an ever-increasing number of complaints. In 2009, we 
experienced more than double the complaints that we had in 
2008, and in 2010, we're on track to experience even more than 
that as compared to 2009.
    Ms. Robertson's situation, unfortunately, is not unique. 
And if you listened to what she had to say, she mentioned that 
this debt settlement company had done nothing to earn the fees 
that they had appropriated from her. And, in our view, under 
this particular set-up, there's nothing that they can do to 
earn those fees because they're not earned, they're just taken.
    The debt settlement structure is such that it is designed 
not to reduce consumer debt, but to drain fees from 
financially-vulnerable consumers, while the debt ever increases 
that they sought help from, and then the consumers are left out 
in the cold. The structure has been discussed ad nauseum. In 
your hearing in April, my colleague, Phil Lehman, from the 
North Carolina Attorney's General Office, I think, laid out 
quite ably what the problem is.
    Debt settlers, not only will they instruct their 
``clients'' to stop paying, but they also instruct them to stop 
communicating. That is a strategy that is designed, absolutely, 
to increase the fees, to increase the interest rate, and 
indeed, as Ms. Robertson experienced, oftentimes it ends up 
getting the consumer sued on the very accounts that they 
thought they were getting help on. And the lack of 
communication not only flows from the consumer to their 
original creditors, but the debt settlers themselves are 
notorious for a lack of communication to their clients or to 
their creditors.
    This is an inherently deceptive industry. It's inherently 
unfair, and it's structurally predatory because it's designed 
to do nothing other than drain fees from financially-vulnerable 
consumers.
    Thank you very much for the opportunity to testify here and 
discuss some of these things. I thought, because we're in a 
policy-oriented environment, that it might be important to 
discuss some of the ways that this legislation adds, and could 
add, to the tool chest that the regulators and enforcers have 
in this industry.
    State Attorneys General are responsible for enforcing laws 
that prohibit unfair acts and deception in the marketplace; the 
FTC is the primary Federal regulatory agency that exists on 
behalf of consumers to protect them from predatory conduct in 
the marketplace. Anything that increases the tools that we have 
available is a very welcome benefit to our office, to the FTC 
and to the consumer population, as a whole.
    One of the things that hasn't necessarily been discussed or 
emphasized is, that there are third-parties out there who 
enable the debt settlement companies to accomplish the tasks 
that they accomplish. The primary debt settlement model 
involves not only the debt settlement entity, but payment 
processors to the debt settler's bank. Generally speaking, when 
a consumer signs up for a debt settlement program, they are 
introduced to a payment processing entity that is distinct from 
the debt settler, and the debt settler has his own bank account 
that the consumer's money goes into. This creates layers of 
obstruction that the consumers are unaware of when they enter 
into the program, and it allows the debt settlers, with a 
third-party entity, to automatically withdraw money from their 
primary bank account into a mysterious bank account that they 
had never heard of, that the debt settlement entity has equal, 
if not more, control over than the consumer does.
    If the legislation you are considering could encompass 
those who materially aid the debt settlers, I think that would 
be a very valuable tool, not only for the Federal regulators, 
but for the State consumer protection officials, as well.
    The FTC has issued a very strong rule: prohibition on 
advanced fees. If there is enough manpower out there to enforce 
it, we'll drive this business out of business. The additional 
tools that we could use would be those that would encompass 
those that materially aid the debt settlement entities, and 
your legislation currently has a very strong cap on fees: 5 
percent will take these folks out of business, too. And they 
deserve to be out of business. They deserve the attention that 
this committee has paid to it, and we thank you for that. They 
deserve the attention that the FTC has paid to it, because 
they're predatory by their nature. I would urge you, Senator, 
to stay strong on the 5 percent cap, and to consider, also, 
widening the sweep so that we can get some of the other third 
parties into the scope of this regulatory and policymaking 
conduct, and that we'll just stamp these folks out, for good.
    Thank you very much for your time.
    [The prepared statement of Mr. Angle follows:]

    Prepared Statement of David Angle, Assistant Attorney General, 
                Office of the Missouri Attorney General

    Chairman Rockefeller, Senator Hutchison, and members of the 
Committee, thank you for allowing me the opportunity to appear before 
the Committee and testify concerning the conduct of debt settlement 
industry participants and the impact this predatory industry has had on 
consumers in Missouri and across the country. I would also like to 
thank the Committee, and in particular Senator McCaskill, for bringing 
this hearing to Missouri. Although we are not alone in this regard, 
many Missourians have been deceptively lured into the debt settlement 
scheme. In my capacity as an Assistant Attorney General, I have 
responded to numerous complaints from Missourians who thought they had 
found a way to honorably reduce their debt burdens by enrolling in 
these so-called programs, only to find themselves in worse financial 
shape than before signing up for relief. I applaud your efforts to 
address the unfairness and deception inherent in this industry and am 
honored to share my thoughts and experiences today.
    At the Committee's April 22, 2010 hearing, my colleague from the 
North Carolina Department of Justice, Phil Lehman, provided an 
excellent overview of the deception and unfairness inherent in the debt 
settlement industry. Additionally, 41 Attorneys General voiced their 
support for the FTC prohibition on the collection of advance fees by 
debt settlers. This was due in no small part to the efforts of our 
colleagues in the Illinois Attorney General's Office. Many additional 
consumer protection groups have also provided their valuable insights, 
including the Center for Responsible Lending and the National Consumer 
Law Center. As has been clearly demonstrated by the collective 
experience and wisdom of the consumer protection community, the debt 
settlement industry is a menace.
    While many consumers can benefit from legitimate financial 
counseling, debt settlement practices are not aimed at reducing 
consumer debt. The objectives of debt settlers are to instill a false 
sense of hope in consumers mired in financial struggles while draining 
their limited resources.
    The debt settlement scheme is fairly consistent. Advertisements 
reach consumers claiming a given entity can reduce that consumer's debt 
by 40-50 percent or more.\1\ This message reaches consumers through 
television, radio, print, and Internet media. Stressed consumers are 
naturally drawn in by the possibility of living ``debt free.'' 
Consumers' hopes are heightened upon making contact with the debt 
settler and being informed the settler has a special program, based on 
unique creditor relationships, that will allow debts to be magically 
reduced. The consumer is sent a package and signs up for this 
``program.'' In many instances, this includes setting up a stand-alone 
bank account, purportedly for the purpose of paying off reduced debt. 
What the consumer ultimately discovers is that this account is 
primarily a vehicle for payments to be made to the debt settler. In the 
process, the consumer is introduced to two additional entities--the 
payment processor and the debt settler's bank. As noted by Mr. Lehman 
in his April 22, 2010 testimony, numerous states enacted prohibitions 
on debt settlement conduct but in many states these prohibitions only 
apply if the debt settler directly receives consumer funds. The modern 
debt settlement scheme would likely not be as prevalent without the 
participation of these processing and banking parties.
---------------------------------------------------------------------------
    \1\ See e.g., www.creditsolutions.com (``Put us to work for you and 
settle your unsecured debt by up to 50 percent.'')
---------------------------------------------------------------------------
    Upon setting up the debt settlement bank account, automatic 
withdrawals from this account then take place. Payments are withdrawn 
first for the benefit of the debt settler. In my experience, any actual 
negotiation with creditors occurs, if at all, only after significant 
fees are extracted by the debt settler. In one recent example involving 
a Missouri consumer on a fixed income, the debt settlement company 
withdrew $1,278.84 as fees before any settlement activity took place. 
While these fees were being extracted, this consumer was sued on an 
account she thought was being negotiated. A judgment was lodged against 
this consumer and we are now working to obtain restitution on her 
behalf. Unfortunately, this is not an isolated instance. Complaints to 
the Missouri Attorney General's Office concerning debt settlement 
practices more than doubled from 2008 to 2009. Complaints in 2010 are 
on pace to more than triple the number from 2008.
    The debt settlement ``program'' is premised on the debt settlers' 
claim that a consumer who ceases all payments on unsecured debt will be 
in a better negotiating position with creditors.\2\ The debt settler 
will also claim to have developed special relationships with creditors 
that facilitate reduction of debt. These claims are inherently 
deceptive. Indeed, many large creditors and/or the collection attorneys 
who work for them refuse to negotiate with debt settlement entities, a 
fact that is omitted from debt settlement advertisements.
---------------------------------------------------------------------------
    \2\ See e.g., www.netdebt.com (``When your accounts are past due, 
your creditors become very willing to accept significantly less than 
the balance owed and will settle the account.'')
---------------------------------------------------------------------------
    Even where creditors may deal with a debt settler, the structure of 
the ``program'' operates to the detriment of the consumer. The approach 
of defaulting on unsecured debt and ceasing communication with 
creditors inevitably causes the debtor to incur additional charges that 
increase the consumer's debt load. These charges can be substantial, 
including late fees, higher interest rates, attorney fees, and other 
litigation costs. The debt settlement industry's claims of debt 
reduction, while deceptive from a macro level, are also unfounded when 
one looks at any debt they claim to have reduced. In making these 
claims, debt settlers include the additional, default-related charges 
incurred by a consumer in calculating the percentage of ``reduction'' 
purportedly achieved on behalf of a consumer. For example, a consumer 
may go into a debt settlement ``program'' with $5,000 in debt to a 
given creditor; cease payments and communication with this creditor; 
incur additional fees and charges of $2,500; and the debt settler would 
claim a 33 percent ``reduction'' by negotiating the consumer's debt to 
the original $5,000 balance but only after the consumer had paid the 
debt settler hundreds or thousands of dollars in fees. This practice is 
predatory and inherently deceptive.
    Not surprisingly, and in spite of their claims to the contrary, 
debt settlement entities do not have track records of settling debts 
that even approach legitimacy. In one of the cases that illustrate this 
point, the FTC pursued the National Consumer Council for bogus claims 
regarding its claimed success rate in reducing consumer debt.\3\ The 
court appointed receiver reported that only 1.4 percent of consumers 
actually completed the debt settlement ``program.''
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    \3\ FTC v. National Consumer Council et al., case no. 04-0474, U.S. 
District Court, Central District of California.
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    Enforcement actions against debt settlement entities and principals 
are effective in dealing with the targeted entity. Unfortunately, where 
one entity's conduct is addressed by enforcement action, many others go 
unaddressed because enforcement offices do not learn of each entity 
operating within its jurisdiction; because resources do not allow for 
prosecution of every entity and/or its principals; and because the 
industry model is lucrative for its participants to the extent that the 
market is filled with new entrants.
    One method of addressing the deceptive nature of this industry has 
been issued in the FTC's recently enacted rule prohibiting the 
collection of advance fees. The FTC has issued a strong rule in this 
regard. Additional protective action could include instituting a cap on 
the total amount of fees that may be collected when negotiating debts 
on behalf of consumers. Truly comprehensive measures would also address 
the participation of processing and banking entities. Debt settlement 
is an unfair and deceptive scheme, the perpetration of which is 
dependant on individuals and entities that are willing to process the 
transactions and deliver consumers' money to the scammers.
    The debt settlement industry is deserving of the attention this 
Committee is paying to it. Any action by the Committee that supplements 
the tools and resources available for the Attorneys General, consumers, 
and society is welcome.

    Senator McCaskill. Thank you very much, Mr. Angle.
    Ms. Hrdy?

      STATEMENT OF ALICE SAKER HRDY, ASSISTANT DIRECTOR, 
        DIVISION OF FINANCIAL PRACTICES, FEDERAL TRADE 
                           COMMISSION

    Ms. Hrdy. Thank you, good morning. And thank you, Senator 
McCaskill, for holding this hearing and inviting the Federal 
Trade Commission to participate. I am honored to be here, in 
Kansas City. As a native Ohioan it's always wonderful to travel 
west from Washington. And you've brought us together today to 
discuss this critical issue facing Americans: credit card debt 
and the very problematic practices in the debt relief industry.
    The millions of Americans who are struggling with credit 
card debt, like Ms. Robertson, need realistic solutions that 
are tailored to their individual, particular situation. And, as 
you noted, there are some legitimate debt relief service 
providers who can provide valuable assistance. But, in far too 
many cases, consumers are paying large, up-front fees for 
nothing but empty promises.
    The FTC is working on several fronts to stop these 
deceptive and abusive practices by this industry. First, of 
course, is enforcement. Over the last decade, the Commission, 
State Attorneys General, including the Missouri Attorney 
General, have brought a combined 259 actions against these 
types of firms and their principals to halt the illegal 
practices and, wherever possible, to return money to victims. 
But enforcement--case-by-case enforcement, alone, is not enough 
to address illegal practices that harm consumers.
    And so, as you noted, 2 weeks ago, the Commission announced 
its final amendments to the Telemarketing Sales Rule. These new 
rules, which include an advance fee ban, will aid significantly 
in our efforts to tackle this industry's most harmful 
practices. And our education initiatives--for both businesses 
and consumers--will, of course, continue.
    This burgeoning industry of debt settlement has come under 
particular scrutiny for good reason. Using dramatic claims, 
extensive advertising, and high-pressure sales tactics, many 
debt settlement services claim the company will negotiate with 
consumers' creditors to achieve deep reductions in their debt, 
and ultimately to eliminate consumers' debt. Relying heavily on 
telemarketing sales pitches, they convince consumers to enroll 
in their services.
    Often we've seen that the companies track the latest 
headlines, and some of the worst actors lie--just outright 
lie--by claiming there's a government bailout for credit card 
debt. Or they simply claim they are the government.
    Consumers who enroll must pay hundreds--or even thousands--
in fees before the company even starts contacting their 
creditors. As a result, hard-pressed consumers face what is 
often an impossible task: paying the fees--which, often, the 
consumers don't even know they're paying to the debt settlement 
company--saving money for the settlements, and trying to pay 
their monthly bills for groceries and other things that they 
need. And not surprisingly, most consumers can not sustain this 
level of expenditures, and so they drop out before getting the 
savings that they were promised. After all, these are the 
consumers who were struggling to pay their bills in the first 
instance, before piling on the fees of the debt settlement 
company. And, in the cases that we've brought, and the State 
Attorneys General have brought, we've seen that those who do 
have to drop out forfeit almost all, if not all, of the fees 
that they've paid, unless they complain. And obviously, we know 
that it is so important for consumers to complain. Not only can 
it help to get the company to do right by the consumers, but it 
helps law enforcers to spot trends and to know which companies 
deserve a close look, or more.
    So, these new rules under the Telemarketing Sales Rule set 
clear standards for the debt relief industry, and will make our 
enforcement efforts more effective. Through these rules, we've 
strengthened protections for consumers in three key ways. 
First, the advance-fee ban; it will prohibit debt relief 
companies from taking any money from consumers until they 
achieve results. This pay-for-performance model is intended to 
align incentives of both the industry and consumers, so that 
consumers are paying for actual results, not unfulfilled 
promises of results.
    The second key protection afforded by the new rules are new 
disclosures specific to debt relief. Consumers must be told, 
clearly and conspicuously, before they pay for the service, and 
not in fine print after the fact.
    The contracts will need to provide key information, 
including how long it will take to get the promised results, 
how much it will cost, and the negative consequences to your 
credit score that could result if you stop paying your 
creditors.
    And third, the new rules prohibit specific 
misrepresentations that are common to debt settlement 
telemarketing, including deceptive claims about the amount of 
debt relief--that is, the debt reductions they can achieve.
    Our statement of basis and purpose--which is very 
extensive, and accompanies the final rule, provides extensive 
guidance about the type of evidence these marketers must have 
before they make these dramatic claims of 40 to 60 percent 
reduction, or more. They have to have that evidence before they 
make claims that, in fact, most consumers are getting those 
results.
    To assist industry members in their efforts to comply with 
the new rules, we've published this plain-English Business 
Education Guide, available online and by mail. We, of course, 
have other education materials geared to consumers on this 
topic, on the full range of debt issues, in English and in 
Spanish, online and in print.
    And as we plan our future enforcement efforts of this rule, 
it's important to highlight the importance of continued joint 
FTC/State efforts. And to that end, we feel the TSR, in 
particular, is an excellent enforcement tool. The rule 
authorizes both the FTC and State Attorneys General to enforce 
its provisions in Federal court. You can be assured we'll be 
vigilant in our enforcement efforts to make sure that consumers 
across the country receive the benefits of these new rules.
    Thank you, Senator, and I look forward to our discussion 
today.
    [The prepared statement of Ms. Hrdy follows:]

      Prepared Statement of Alice Saker Hrdy, Assistant Director, 
       Division of Financial Practices, Federal Trade Commission

I. Introduction
    Senator McCaskill and members of the Committee, I am Alice Saker 
Hrdy, Assistant Director in the Division of Financial Practices at the 
Federal Trade Commission (``FTC'' or ``Commission'').\1\ I appreciate 
the opportunity to appear before you today, and the Commission thanks 
this Committee for its interest in the work of the FTC to protect 
consumers from deception and abuse in the sale of debt relief services.
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    \1\ The views expressed in this statement represent the views of 
the Commission. My oral presentation and responses to any questions you 
may have are my own, however, and do not necessarily reflect the views 
of the Commission or any Commissioner.
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    The Commission has a long history of protecting consumers of 
financial products and services offered by entities within the agency's 
jurisdiction. With Americans continuing to feel the effects of the 
economic downturn, the Commission has stepped up its efforts to stop 
fraudulent financial schemes that exploit consumers who are 
particularly vulnerable as a result of financial distress.\2\
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    \2\ Since the beginning of 2009, the FTC has brought more than 40 
cases to stop scams that prey on consumers suffering from the financial 
downturn. See, e.g., Press Release, FTC, FTC Cracks Down on Con Artists 
Who Target Jobless Americans (Feb. 17, 2010), available at www.ftc.gov/
opa/2010/02/bottomdollar.shtm; Press Release, FTC, FTC Cracks Down on 
Scammers Trying to Take Advantage of the Economic Downturn (July 1, 
2009), available at www.ftc.gov/opa/2009/07/shortchange.shtm.
---------------------------------------------------------------------------
    Stopping deceptive debt relief practices is one of our highest 
consumer protection priorities. Providers of debt relief services 
purport to help people who cannot pay their debts by negotiating on 
their behalf with creditors. Debt settlement companies, for example, 
market their ability to dramatically reduce consumers' debts, often by 
making claims to reduce debt by specific and substantial amounts, such 
as ``save 40 to 60 percent off your credit card debt.'' In many 
instances, consumers pay hundreds or thousands of dollars for these 
services but get nothing in return.
    The FTC utilizes its four principal tools to protect consumers of 
debt relief services: law enforcement, rulemaking, consumer education 
efforts, and research and policy development. To halt deceptive and 
abusive practices and return money to victimized consumers, the 
Commission has brought 23 lawsuits in the last 7 years against credit 
counseling firms, debt settlement services, and debt negotiators.\3\ 
These cases have helped over 500,000 consumers harmed by deceptive and 
abusive practices.\4\ The Commission continues to actively investigate 
debt relief companies and pursue aggressive enforcement in this arena. 
As the Commission's law enforcement experience has shown, victims of 
these schemes often end up more in debt than when they began. 
Especially in these difficult economic times, when so many consumers 
are struggling to keep their heads above water, this is unacceptable.
---------------------------------------------------------------------------
    \3\ A list of the Commission's law enforcement actions against debt 
relief companies is attached as Appendix A.
    \4\ In addition to consumers who lost money to fraudulent debt 
relief companies, millions of consumers have been harassed by automated 
robocalls pitching services in violation of the Do Not Call provisions 
of the Telemarketing Sales Rule. The Commission has charged companies 
engaging in these robocalls with violations of the Rule. See, e.g., FTC 
v. Asia Pac. Telecom, Inc., No. 10C3168 (N.D. Ill., preliminary 
injunction issued June 17, 2010); FTC v. JPM Accelerated Servs. Inc., 
No. 09-CV-2021 (M.D. Fla., preliminary injunction issued Dec. 31, 
2009); FTC v. Econ. Relief Techs., LLC, No. 09-CV-3347 (N.D. Ga., 
preliminary injunction issued Dec. 17, 2009).
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    Over the past decade, the Commission and state enforcers have 
brought a combined 259 cases to stop deceptive and abusive practices by 
debt relief providers that have targeted consumers in financial 
distress. Despite these sustained efforts, consumer complaints 
continued to increase as did problematic advertising and telemarketing 
of these services. To strengthen the agency's ability to stop deception 
and abuse in the provision of debt relief services, the Commission 
proposed amendments to the Telemarketing Sales Rule (``TSR''). On July 
29, 2010, after a thorough and careful review of the rulemaking record, 
the Commission announced its final amendments to the TSR. The Rule now 
bans debt relief providers from collecting fees in advance of 
performing promised services, prohibits them from making 
misrepresentations, and requires them to make several important up 
front disclosures.
    This testimony provides an overview of the three common types of 
debt relief services, as well as the Commission's law enforcement 
efforts with respect to each. The testimony then describes the 
Commission's amendments to the TSR \5\ and discusses the FTC's ongoing 
efforts to educate consumers about debt relief options and how to avoid 
scams.\6\
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    \5\ Telemarketing Sales Rule; Final Rule, 75 Fed. Reg. 48,458 (Aug. 
10, 2010) (to be codified at 16 C.F.R.  310).
    \6\ With respect to its research and policy development in this 
area, in September 2008, the Commission held a public workshop entitled 
``Consumer Protection and the Debt Settlement Industry,'' which brought 
together stakeholders to discuss consumer protection concerns 
associated with debt settlement services. Workshop participants also 
debated the merits of possible solutions to those concerns. An agenda 
and transcript of the Workshop are available at www.ftc.gov/bcp/
workshops/debtsettlement/index.shtm. Public comments associated with 
the Workshop are available at www.ftc.gov/os/comments/
debtsettlementworkshop/index.shtm.
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II. The Commission's Authority
    The Commission enforces Section 5 of the FTC Act, which prohibits 
unfair or deceptive acts or practices in or affecting commerce,\7\ as 
well as the Telemarketing and Consumer Fraud and Abuse Prevention Act 
(``Telemarketing Act'') \8\ and the associated TSR that prohibit 
certain deceptive and abusive telemarketing practices.\9\ The 
Commission has used this authority to challenge debt relief providers 
within its jurisdiction \10\ who have engaged in deceptive or abusive 
practices. In addition, the Commission works to protect consumers from 
a wide range of other unfair and deceptive practices in the 
marketplace, such as credit-related and government grant scams, 
mortgage loan modification scams, deceptive marketing of health care 
products, deceptive negative option marketing, and business opportunity 
and work-at-home schemes. The FTC works closely with many state 
attorneys general and state banking departments to leverage resources 
in consumer protection.\11\
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    \7\ 15 U.S.C.  45.
    \8\ 15 U.S.C.  6101-6108. Pursuant to the Telemarketing Act's 
directive, the Commission promulgated the original TSR in 1995 and 
amended it in 2003, 2008, and 2010.
    \9\ The Commission also has law enforcement authority and, in some 
cases, regulatory powers under a number of other consumer protection 
statutes specifically related to financial services, including the 
Truth in Lending Act, 15 U.S.C.  1601-1666j; the Consumer Leasing 
Act, 15 U.S.C.  1667-1667f; the Fair Debt Collection Practices Act, 
15 U.S.C.  1692-1692o; the Fair Credit Reporting Act, 15 U.S.C.  
1681-1681x; the Equal Credit Opportunity Act, 15 U.S.C.  1691-1691f; 
the Credit Repair Organizations Act, 15 U.S.C.  1679-1679j; the 
Electronic Funds Transfer Act, 15 U.S.C. 1693-1693r; the privacy 
provisions of the Gramm-Leach-Bliley Act, 15 U.S.C.  6801-6809; and 
the Omnibus Appropriations Act of 2009, Pub. L. No. 111-8,  626, 123 
Stat. 524 (Mar. 11, 2009).
    \10\ The FTC Act exempts banks and other depository institutions 
and bona fide nonprofits, among others, from the Commission's 
jurisdiction. 15 U.S.C.  44, 45(a)(2). These exemptions apply to the 
FTC's jurisdiction under the Telemarketing Act and the TSR as well.
    \11\ See, e.g., FTC, Press Release, Federal and State Agencies 
Target Mortgage Foreclosure Rescue and Loan Modification Scams (July 
15, 2009), available at www.ftc.gov/opa/2009/07/loanlies.shtm 
(announcing sweep targeting mortgage assistance relief scams, including 
FTC v. US Foreclosure Relief Corp., No. SACV09-768 JVS (MGX) (C.D. 
Cal., final order March 11, 20 10) (State of Missouri, State of 
California, and FTC filed joint case alleging violations of FTC Act and 
TSR against defendants purporting to provide mortgage assistance relief 
services)); Press Release, FTC, FTC Announces ``Operation False 
Charity'' Law Enforcement Sweep (May 20, 2009), available at 
www.ftc.gov/opa/2009/05/charityfraud.shtm (including four cases brought 
by the Attorney General of Missouri).
---------------------------------------------------------------------------
III. Overview of Debt Relief Services and FTC Law Enforcement Efforts
    Debt relief services have proliferated over the past few years as 
greater numbers of consumers struggle with debts they cannot pay. A 
range of nonprofit and for-profit entities--including credit 
counselors, debt settlement companies, and debt negotiation companies--
offer to help consumers facing debt problems. As detailed below, 
consumers have complained of deceptive and abusive practices in all of 
these services, and in response, the FTC and state enforcement and 
regulatory bodies have brought numerous cases.\12\
---------------------------------------------------------------------------
    \12\ The Commission has addressed similar problems with respect to 
companies offering to resolve consumers' mortgage debts. The Commission 
has engaged in an aggressive, coordinated enforcement initiative to 
shut down companies falsely claiming the ability to obtain mortgage 
loan modifications or other relief for consumers facing foreclosure. In 
the past year alone, the FTC has brought 10 cases targeting foreclosure 
rescue and mortgage modification frauds, with other matters under 
active investigation. In addition, state enforcement agencies have 
brought more than 200 cases against such firms in recent years. 
Further, as directed by Congress under the Omnibus Appropriations Act 
of 2009, Pub. L. No. 111-8, the Commission has initiated a rulemaking 
proceeding addressing the for-profit companies in this industry. Under 
the proposed rule, companies could not receive payment until they have 
obtained for the consumer a documented offer from a mortgage lender or 
servicer that comports with any promises previously made. Mortgage 
Assistance Relief Services, 75 Fed. Reg. 10707 (Mar. 9, 2010).
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A. Credit Counseling Agencies
    Credit counseling agencies (``CCAs'') historically were nonprofit 
organizations that worked as liaisons between consumers and creditors 
to negotiate ``debt management plans'' (``DMPs''). DMPs are monthly 
payment plans for the repayment of credit card and other unsecured debt 
that enable consumers to repay the full amount owed to their creditors 
but under renegotiated terms that make repayment less onerous.\13\ 
Credit counselors typically also provide educational counseling to 
assist consumers in developing a manageable budget and avoiding debt 
problems in the future. Beginning in the late 1990s, however, some CCAs 
registered as nonprofit organizations with the Internal Revenue 
Service, but in reality were operating as for-profit companies and 
engaging in aggressive and illegal marketing practices. Other CCAs 
incorporated and openly operated as for-profit companies.
---------------------------------------------------------------------------
    \13\ To be eligible for a DMP, a consumer generally must have 
sufficient income to repay the full amount of his or her debts, 
provided that the terms are adjusted to make such repayment possible.
---------------------------------------------------------------------------
    Since 2003, the Commission has filed six cases against credit 
counseling providers for deceptive and abusive practices.\14\ In one of 
these cases, the FTC sued AmeriDebt, Inc., at the time one of the 
largest CCAs in the United States.\15\ On the eve of trial, the FTC 
obtained a $35 million judgment as part of a settlement agreement. Thus 
far, the Commission has collected and distributed $12.7 million in 
redress to 287,000 consumers.\16\ In AmeriDebt and other credit 
counseling cases, the FTC charged that the agencies engaged in 
deceptive conduct in violation of Section 5 of the FTC Act and the TSR, 
including:
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    \14\ See Appendix A (items 15, 16, 17, 18, 20, and 21).
    \15\ FTC v. AmeriDebt, Inc., No. PJM 03-3317 (D. Md., final order 
May 17, 2006).
    \16\ See Press Release, FTC, FTC's AmeriDebt Lawsuit Resolved: 
Almost $13 Million Returned to 287, 000 Consumers Harmed by Debt 
Management Scam (Sept. 10, 2008), www.ftc.gov/opa/2008/09/
ameridebt.shtm. The FTC expects to make another distribution of 
consumer refunds this year.

   misrepresentations about the benefits and likelihood of 
        success consumers could expect from the services, including the 
        savings they would realize; \17\
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    \17\ See FTC v. Integrated Credit Solutions, Inc., No. 06-806-SCB-
TGW (M.D. Fla., final order Oct. 16, 2006); United States v. Credit 
Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. Cal., final order June 
16, 2006); FTC v. Debt Mgmt. Found. Servs., Inc., No. 04-1674-T-17-MSS 
(M.D. Fla., final order Mar. 30, 2005).

   misrepresentations regarding fees, including false claims 
        that the CCAs did not charge up-front fees; \18\
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    \18\ See FTC v. Leshin, No. 06-cv-61851-WJZ (S.D. Fla., final order 
May 5, 2008); FTC v. AmeriDebt, Inc., No. PJM 03-3317 (D. Md., final 
order May 17, 2006).

   deceptive statements regarding their purported nonprofit 
        nature; \19\ and
---------------------------------------------------------------------------
    \19\ See FTC v. Leshin, No. 06-cv-61851-WJZ (S.D. Fla., final order 
May 5, 2008); FTC v. Integrated Credit Solutions, Inc., No. 06-806-SCB-
TGW (M.D. Fla., final order Oct. 16, 2006); United States v. Credit 
Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. Cal., final order June 
16, 2006); FTC v. AmeriDebt, Inc., No. PJM 03-3317 (D. Md., final order 
May 17, 2006); FTC v. Debt Mgmt. Found. Servs., Inc., No. 04-1674-T-17-
MSS (M.D. Fla., final order Mar. 30, 2005). Although the defendants in 
these cases had obtained IRS designation as nonprofits under Section 
501(c)(3) of the Internal Revenue Code, they allegedly funneled 
revenues out of the CCAs and into the hands of affiliated for-profit 
companies and/or the principals of the operation. Thus, the FTC alleged 
that the defendants were ``operating for their own profit or that of 
their members'' and fell outside the nonprofit exemption in the FTC 
Act. 15 U.S.C. 44.

   violations of the TSR's provisions that require certain 
        disclosures and prohibit misrepresentations, as well as the 
        requirements of the TSR's Do Not Call provisions.\20\
---------------------------------------------------------------------------
    \20\ See FTC v. Leshin, No. 06-cv-61851-WJZ (S.D. Fla., final order 
May 5, 2008); United States v. Credit Found. of Am., No. CV 06-3654 
ABC(VBKx) (C.D. Cal., final order June 16, 2006).
---------------------------------------------------------------------------
    In addition, over the last several years, in response to abuses 
such as these, the IRS has challenged a number of purportedly nonprofit 
CCAs--both through enforcement of existing statutes and new tax code 
provisions--resulting in the revocation, or proceedings to revoke, the 
nonprofit status of 41 CCAs.\21\ In addition, state authorities have 
brought at least 21 cases against CCAs under their own statutes and 
rules.
---------------------------------------------------------------------------
    \21\ Eileen Ambrose, Credit Firms' Status Revoked; IRS Says 41 Debt 
Counselors Will Lose Tax-Exempt Standing, Baltimore Sun, May 16, 2006. 
To enhance the IRS's ability to oversee CCAs, Congress amended the IRS 
Code in 2006, adding Section 501(q) to provide specific eligibility 
criteria for CCAs seeking tax-exempt status as well as criteria for 
retaining that status. See Pension Protection Act of 2006, Pub. L. No. 
109-280,  1220 (Aug. 2006) (codified at 26 U.S.C.  501(q)). Among 
other things, Section 501(q) of the IRS Code prohibits tax-exempt CCAs 
from refusing to provide credit counseling services due to a consumer's 
inability to pay or a consumer's ineligibility or unwillingness to 
agree to enroll in a DMP; charging more than ``reasonable fees'' for 
services; and, unless allowed by state law, basing fees on a percentage 
of a client's debt, DMP payments, or savings from enrolling in a DMP. 
In addition, as a result of changes in the Federal bankruptcy code, 158 
nonprofit CCAs, including the largest entities, have been subjected to 
rigorous screening by the Department of Justice's Executive Office of 
the U.S. Trustee. Finally, nonprofit credit counseling agencies must 
comply with state laws in 49 states, most of which specify particular 
fee limits.
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B. Debt Settlement Services
    Debt settlement companies purport to obtain from consumers' 
unsecured creditors lump sum settlements for significantly less than 
the full outstanding balance of the consumers' debts. Unlike a 
traditional DMP, the goal of a debt settlement plan is to enable the 
consumer to repay only a portion of the total debt owed. Debt 
settlement providers heavily market through Internet, television, 
radio, and print advertising. The advertisements typically make claims 
about the company's supposed ability to reduce consumers' debts to a 
fraction of the full amount owed, and then encourage consumers to call 
a toll-free number for more information.\22\ During the calls, 
telemarketers repeat and embellish many of these claims.
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    \22\ See, e.g., FTC v. Connelly, No. SA CV 06-701 DOC (RNBx) (C.D. 
Cal., final order Oct. 2, 2008); FTC v. Edge Solutions, Inc., No. CV-
07-4087 (E.D.N.Y., final order Aug. 29, 2008); FTC v. Debt-Set, Inc., 
No. 1: 07-cv-00558-RPM (D. Colo., final order Apr. 11, 2008); FTC v. 
Jubilee Fin. Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal., final order 
Dec. 12, 2004).
---------------------------------------------------------------------------
    Most debt settlement companies charge consumers hundreds, or even 
thousands, of dollars in up-front fees, in many cases with the entire 
amount of fees due within the first few months of enrollment and before 
any debts are settled. An increasing number of providers spread their 
fees over a longer period--for example, 12 to 18 months--but consumers 
generally still pay a substantial portion of the fees before any of 
their payments are used to pay down their debt. Most consumers drop out 
of these programs before completion, and they typically forfeit all of 
the money they paid to the debt settlement company, regardless of 
whether they received any settlements from their creditors.\23\
---------------------------------------------------------------------------
    \23\ Telemarketing Sales Rule; Final Rule, 75 Fed. Reg. at 48471-72 
(citing commenters).
---------------------------------------------------------------------------
    Since 2004, the Commission has brought nine actions against debt 
settlement providers, alleging that they deceived consumers about key 
aspects of their programs.\24\ The defendants' misrepresentations 
included claims that:
---------------------------------------------------------------------------
    \24\ See Appendix A (items 2, 6, 11, 12, 13, 19, 20, 22, and 23).

   the provider will, or is highly likely to, obtain large 
        reductions in debt for enrollees, e.g., a 50 percent reduction 
        or elimination of debt in 12 to 36 months; \25\
---------------------------------------------------------------------------
    \25\ See, e.g., FTC v. Edge Solutions, Inc., No. CV-07-4087 
(E.D.N.Y. , final order Aug. 29, 2008); FTC v. Innovative Sys. Tech., 
Inc., No. CV04-0728 GAF JTLx (C.D. Cal., final order July 13, 2005).

   the provider will stop harassing calls from debt collectors 
        as well as collection lawsuits; \26\
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    \26\ See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv-00558-RPM (D. 
Colo., final order Apr. 11, 2008); FTC v. Better Budget Fin. Servs., 
Inc., No. 04-12326 (WG4) (D. Mass., final order Mar. 28, 2005); FTC v. 
Jubilee Fin. Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal., final order 
Dec. 12, 2004).

   the provider has special relationships with creditors and is 
        expert in inducing creditors to grant concessions; \27\
---------------------------------------------------------------------------
    \27\ See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv-00558-RPM (D. 
Colo., final order Apr. 11, 2008); FTC v. Better Budget Fin. Servs., 
Inc., No. 04-12326 (WG4) (D. Mass. 2005). Some providers are also 
misrepresenting that their service is part of a government program 
through the use of such terms as ``government bailout'' or ``stimulus 
money.'' See, e.g., FTC v. Dominant Leads, LLC, No. 1:10-cv-00997 
(D.D.C., preliminary injunction issued July 8, 2010).

   the consumer will not have to pay substantial up-front 
        fees,\28\ and
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    \28\ See, e.g., FTC v. Debt-Set, No. 1:07-cv-00558-RPM (D. Colo., 
final order Apr. 11, 2008).

   the consumer will be able to obtain a refund if the provider 
        is unsuccessful.\29\
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    \29\ See, e.g., FTC v. Innovative Sys. Tech., Inc., No. CV04-0728 
GAF JTLx (C.D. Cal., final order July 13, 2005).

    The Commission also has alleged that debt settlement companies 
encouraged or instructed consumers to stop paying their creditors, 
while not disclosing that failing to make payments to creditors may 
actually increase the amount owed (because of accumulating fees and 
interest) and would harm their credit rating.\30\ In addition to the 
FTC cases, state attorneys general and regulators have filed over 125 
law enforcement actions against debt settlement providers under state 
statutes that, among other things, ban unfair or deceptive 
practices.\31\
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    \30\ See, e.g., FTC v. Connelly, No. SA CV 06-701 DOC (RNBx) (C.D. 
Cal., final order Oct. 2, 2008); FTC v. Jubilee Fin. Servs., Inc., No. 
02-6468 ABC (Ex) (C.D. Cal., final order Dec. 12, 2004).
    \31\ See, e.g., Minnesota v. American Debt Settlement Solutions, 
Inc., No. 70-CV-10-4478 (Minn., 4th Dist., filed Feb. 18, 2010); 
Illinois v. Clear Your Debt, LLC, No. 2010-CH-00167 (Ill. 7th Cir., 
filed Feb. 10, 2010); Press Release, Colorado Attorney General, Eleven 
Companies Settle with the State Under New Debt-Management and Credit 
Counseling Regulations (Mar. 12, 2009), available at 
www.ago.state.co.us/press_detail.cfmpressID=957.html; Texas v. CSA-
Credit Solutions of Am., Inc., No. 09-000417 (Dist. Travis Cty, filed 
Mar. 26, 2009); Florida v. Boyd, No. 2008-CA-002909 (Cir. Ct. 4th Cir. 
Duval Cty, filed Mar. 5, 2008).
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C. Debt Negotiation
    Debt negotiation companies assert that they can obtain interest 
rate reductions or other concessions from creditors to lower consumers' 
monthly payments. Such companies often market debt negotiation services 
through so-called automated ``robocalls.'' Like debt settlement 
companies, many debt negotiation providers charge significant up-front 
fees and promise specific results, such as a particular interest rate 
reduction or amount of savings.\32\ In some cases, the telemarketers of 
debt negotiation services refer to themselves as ``card services'' or a 
``customer service department'' during calls with consumers in order to 
mislead them into believing that the telemarketers are associated with 
the consumer's credit card company.\33\
---------------------------------------------------------------------------
    \32\ See FTC v. Asia Pac. Telecom, Inc., No. 10 C 3168 (N.D. Ill., 
preliminary injunction issued June 17, 2010); FTC v. JPM Accelerated 
Servs. Inc., No. 09-CV-2021 (M.D. Fla., preliminary injunction issued 
Dec. 31, 2009); FTC v. Econ. Relief Techs., LLC, No. 09-CV-3347 (N.D. 
Ga., preliminary injunction issued Dec. 17, 2009); FTC v. 2145183 
Ontario, Inc., No. 09-CV-7423 (N.D. Ill., preliminary injunction issued 
Dec. 17, 2009); FTC v. Select Pers. Mgmt., No. 07-0529 (N.D. Ill., 
final order May 15, 2009); FTC v. Group One Networks, Inc., No. 8:09-
cv-352-T-26-MAP (M.D. Fla., final order March 19, 2009); FTC v. Debt 
Solutions, Inc., No. 06-0298 JLR (W.D. Wash., final order June 18, 
2007).
    \33\ See cases cited supra, note 32.
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    The FTC has brought nine actions against defendants alleging 
deceptive debt negotiation practices.\34\ In each case, the Commission 
alleged that defendants: (1) misrepresented that they could reduce 
consumers' interest payments by specific percentages or minimum 
amounts, (2) falsely purported to be affiliated, or have close 
relationships, with consumers' creditors,\35\ and (3) violated the 
TSR's Do Not Call provisions, among other TSR violations.\36\
---------------------------------------------------------------------------
    \34\ See Appendix A (items 1, 3, 4, 5, 7, 8, 9, 10, and 14).
    \35\ See cases cited supra, note 32.
    \36\ See cases cited supra, note 32.
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    Our law enforcement colleagues at the state level also have focused 
attention on bogus debt negotiation companies. The states have brought 
at least 14 cases against such firms, and the FTC will continue to work 
closely with our state partners on these and related issues.
IV. The Commission's Amendments to the Telemarketing Sales Rule
    On July 29, 2010, the Commission announced final amendments to the 
TSR governing providers of debt relief services (``Final Rule''), based 
on its determination that such revisions to the TSR are necessary to 
protect consumers from deceptive and abusive practices in the 
telemarketing of debt relief services.\37\ The Commission developed the 
Final Rule after considering an extensive rulemaking record, including 
over 300 public comments,\38\ and information gathered during a 
November 2009 public forum. At that forum, representatives of all the 
major stakeholders discussed the key consumer protection issues and 
problems that are present in the debt relief industry and possible 
solutions for them.\39\ The Final Rule:
---------------------------------------------------------------------------
    \37\ Press Release, FTC, FTC Issues Final Rule to Protect Consumers 
in Credit Card Debt (July 29, 2010), available at www.ftc.gov/opa/2010/
07/tsr.shtm. Commissioner Rosch dissented from the Commission decision.
    \38\ Comments were submitted by: 35 industry representatives, 10 
industry trade associations and groups, 26 consumer groups and legal 
services offices, six law enforcement organizations, three professors, 
two labor unions, the Uniform Law Commission, the Responsible Debt 
Relief Institute, the Better Business Bureau, and 236 individual 
consumers. The public comments are available at www.ftc.gov/os/
comments/tsrdebtrelief/index.shtm.
    \39\ A transcript of the forum is available at www.ftc.gov/bcp/
rulemaking/tsr/tsr-debtrelief/index.shtm. After the forum, Commission 
staff sent letters to industry trade associations and individual debt 
relief providers that had submitted public comments, soliciting follow-
up information in connection with certain issues that arose at the 
forum. The letters are posted at www.ftc.gov/os/comments/tsrdebtrelief/
index.shtm. Sixteen organizations responded and provided data.

   prohibits any telemarketer or seller of debt relief services 
        from requesting or receiving payment until it produces the 
        promised services and provides proof documenting this fact to 
---------------------------------------------------------------------------
        the consumer;

   mandates certain additional disclosures and prohibits 
        misrepresentations in the telemarketing of debt relief 
        services; and

   extends the existing protections of the TSR to inbound debt 
        relief calls, i.e., those where consumers call a telemarketer 
        in response to a general media or direct mail 
        advertisement.\40\
---------------------------------------------------------------------------
    \40\ Outbound calls to solicit the purchase of debt relief services 
are already subject to the TSR.

    As to its scope, the Final Rule covers telemarketers of for-profit 
debt relief services, including credit counseling, debt settlement, and 
debt negotiation services. Because the FTC Act exempts nonprofit 
entities from the agency's jurisdiction under that Act, and the 
Telemarketing Act incorporates the FTC Act exemptions, the TSR 
generally does not apply to such entities. However, companies falsely 
claiming nonprofit status are subject to both the FTC Act and the TSR.
    The Final Rule specifies that fees for debt relief services may not 
be collected until:

   the debt relief provider successfully renegotiates, settles, 
        reduces, or otherwise changes the terms of at least one of the 
        consumer's debts;

   there is a written settlement agreement, debt management 
        plan, or other agreement between the consumer and the creditor, 
        and the consumer has agreed to it; and

   the consumer has made at least one payment to the creditor 
        or debt collector as a result of the agreement negotiated by 
        the debt relief provider.

    To ensure that debt relief providers do not front-load their fees 
if a consumer has enrolled multiple debts in one debt relief program, 
the Final Rule specifies how debt relief providers may collect the fee 
for each settled debt. First, the provider's fee for a single debt must 
be in proportion to the total fee that would be charged if all of the 
debts had been settled. Alternatively, if the provider bases its fee on 
the percentage of what the consumer saves as result of using its 
services, the percentage charged must be the same for each of the 
consumer's debts.
    Another new provision of the Final Rule will allow debt relief 
companies to require that consumers set aside their fees and savings 
for payment to creditors in a ``dedicated account.'' However, providers 
may only require a dedicated account as long as five conditions are 
met:

   the dedicated account is maintained at an insured financial 
        institution;

   the consumer owns the funds (including any interest 
        accrued);

   the consumer can withdraw the funds at any time without 
        penalty;

   the provider does not own or control or have any affiliation 
        with the company administering the account, and

   the provider does not exchange any referral fees with the 
        company administering the account.

    In addition, the Final Rule requires that providers must make 
several disclosures when telemarketing their services to consumers. 
Before the consumer signs up for any debt relief service, providers 
must disclose how long it will take for consumers to obtain results, 
how much it will cost, the negative consequences that could result from 
using debt relief services, and key information about dedicated 
accounts if they choose to require them. In addition, the TSR mandates 
general disclosures for all telemarketers, including the total cost and 
any material restrictions or limitations of the service.
    The Final Rule also prohibits misrepresentations about any debt 
relief service, including savings rates and whether the provider is a 
nonprofit entity. The Commission's Statement of Basis and Purpose, 
which accompanies the Final Rule, provides extensive guidance about the 
evidence providers must possess before they make specific claims about 
the amount of debt reduction they will obtain for consumers. First, 
providers must account for the additional debt and costs consumers 
incur as a result of interest, late fees, and other charges imposed by 
the creditors or debt collectors during the course of the program. 
Second, providers must account for the fees consumers pay to the 
provider in calculating the savings. Third, providers must include in 
their calculation of savings those consumers who dropped out or were 
otherwise unable to complete the program. Finally, providers must 
account for individual accounts that were not settled successfully. 
Thus, providers may not exclude debts that they have failed to settle--
including those associated with consumers who dropped out of the 
program--from their calculations of the average savings percentage or 
amount of consumers' debt reduction.
    The amendments become effective on September 27, 2010, except for 
the advance fee ban, which becomes effective on October 27, 2010. To 
help businesses comply with the new debt relief rules, the FTC staff 
issued a compliance guide describing the key changes to the TSR 
affecting debt relief services.\41\
---------------------------------------------------------------------------
    \41\ The guide is available at www.ftc.gov/bcp/edu/pubs/business/
marketing/bus72.pdf.
---------------------------------------------------------------------------
V. Efforts to Educate Consumers
    To complement its law enforcement and rulemaking, the Commission 
has made significant efforts to educate consumers about debt relief 
services and alert them to possible deceptive practices. This past 
spring, the agency released a brochure entitled ``Settling Your Credit 
Card Debts,'' which offers struggling consumers tips on seeking 
assistance with their debts and spotting red flags for potential 
scams.\42\ This brochure, along with additional educational materials 
on debt relief,\43\ is available at an FTC web page, www.ftc.gov/
MoneyMatters.\44\
---------------------------------------------------------------------------
    \42\ The brochure is available at www.ftc.gov/bcp/edu/pubs/
consumer/credit/cre02.shtm. Since its release in March 2010, the agency 
has distributed 20,400 print copies, and consumers have accessed it on 
the Internet over 13,700 times.
    \43\ Fiscal Fitness: Choosing a Credit Counselor (2005), available 
at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm; For People on 
Debt Management Plans: A Must-Do List (2005), available at www.ftc.gov/
bcp/edu/pubs/consumer/credit/cre38.shtm; Knee Deep in Debt (2005), 
available at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm. In 
the last 2 years, the FTC has distributed more than 271,000 print 
versions of these three publications combined, and consumers have 
accessed them online more than one million times.
    \44\ Over the last 6 months, the Money Matters website has received 
approximately 60,000 hits per month.
---------------------------------------------------------------------------
    In addition, the Commission has conducted numerous educational 
campaigns designed to help consumers manage their financial resources, 
avoid deceptive and unfair practices, and become aware of emerging 
scams. For example, the FTC has undertaken a major consumer education 
initiative related to mortgage loan modification and foreclosure rescue 
scams, including the release of a suite of mortgage-related resources 
for homeowners.\45\ Moreover, the agency has focused outreach efforts 
on a number of other issues faced by people in economic distress, 
including stimulus scams, rental scams, church ``opportunity'' scams, 
offers for bogus auto warranties, and solicitations for phony charities 
that exploit the public's concern for the welfare of our troops and 
public safety personnel in a time of crisis.
---------------------------------------------------------------------------
    \45\ NeighborWorks America, the Homeowners Preservation Foundation 
(a nonprofit member of the HOPE NOW Alliance of mortgage industry 
members and U.S. Department of Housing and Urban Development-certified 
counseling agencies), and other groups distribute FTC materials 
directly to homeowners.
---------------------------------------------------------------------------
    The Commission encourages wide circulation of all of its 
educational resources and makes bulk orders available free of charge, 
including shipping. We provide FTC materials to state attorneys general 
and other local law enforcement entities, consumer groups, and 
nonprofit organizations, who in turn distribute them directly to 
consumers. In addition, media outlets--online, print, and broadcast--
routinely cite our materials and point to our guidance when covering 
debt-related news stories.
VI. Conclusion
    The FTC appreciates the opportunity to describe its work to protect 
consumers from deceptive and abusive conduct in the marketing of debt 
relief services. Stopping the marketers of debt relief services who 
prey on consumers facing financial hardship is among the FTC's highest 
priorities, and we will continue our aggressive law enforcement and 
educational programs in this area.

                               Appendix A
       FTC Law Enforcement Actions Against Debt Relief Companies


    1. FTC v. MCS Programs, LLC, No. 09-CV-5380 (W.D. Wash., final 
order July 19, 2010) (debt negotiation), available at www.ftc.gov/os/
caselist/0823216/index.shtm
    2. FTC v. Dominant Leads, LLC, No. 1:10-cv-00997 (D.D.C., 
preliminary injunction issued July 8, 2010) (debt settlement and 
mortgage assistance relief services), available at www.ftc.gov/os/
caselist/1023152/index.shtm
    3. FTC v. Asia Pac. Telecom, Inc., No. 10-C-3168 (N.D. Ill., 
preliminary injunction issued June 17, 2010) (debt negotiation), 
available at www.ftc.gov/os/caselist/1023060/index.shtm
    4. FTC v. Advanced Mgmt. Servs. NW, LLC, No. 10-148-LRS (E.D. Wash. 
filed May 10, 2010) (debt negotiation), available at www.ftc.gov/os/
caselist/0923187/index.shtm
    5. FTC v. Group One Networks, Inc., No. 09-CV-00352 (M.D. Fla., 
final order March 19, 2010) (debt negotiation), available at 
www.ftc.gov/os/caselist/0723230/index.shtm
    6. FTC v. Credit Restoration Brokers, LLC, No. 2:10-cv-0030-CEH-SPC 
(M.D. Fla., final order Mar. 11, 2010) (debt settlement and credit 
repair), available at www.ftc.gov/os/caselist/0823001/index.shtm
    7. FTC v. JPM Accelerated Servs., Inc., No. 09-CV-2021 (M.D. Fla., 
preliminary injunction issued Dec. 31, 2009) (debt negotiation), 
available at www.ftc.gov/os/caselist/0923190/index.shtm
    8. FTC v. 2145183 Ontario, Inc., No. 09-CV-7423 (N.D. Ill., 
preliminary injunction issued Dec. 17, 2009) (debt negotiation), 
available at www.ftc.gov/os/caselist/0923183/index.shtm
    9. FTC v. Econ. Relief Techs., LLC, No. 09-CV-3347 (N.D. Ga., 
preliminary injunction issued Dec. 14, 2009) (debt negotiation), 
available at www.ftc.gov/os/caselist/0923118/index.shtm
    10. FTC v. Select Pers. Mgmt., Inc., No. 07-CV-0529 (N.D. Ill., 
final order May 15, 2009) (debt negotiation), available at www.ftc.gov/
os/caselist/0623215/0623215.shtm
    11. FTC v. Connelly, No. SA CV 06-701 DOC (RNBx) (C.D. Cal., final 
order Oct. 2, 2008) (debt settlement), available at www.ftc.gov/os/
caselist/0523091/0523091.shtm
    12. FTC v. Edge Solutions, Inc., No. CV 07-4087-JG-AKT (E.D.N.Y., 
final order Aug. 29, 2008) (debt settlement), available at www.ftc.gov/
os/caselist/0723025/index.shtm
    13. FTC v. Debt-Set, No. 1:07-cv-00558-RPM (D. Colo., final order 
Apr. 11, 2008) (debt settlement), available at www.ftc.gov/os/caselist/
0623140/index.shtm
    14. FTC v. Debt Solutions, Inc., No. CV06-0298 (W.D. Wash., final 
order June 18, 2007) (debt negotiation), available at www.ftc.gov/os/
caselist/0523002/0523
002.shtm
    15. FTC v. Leshin, No. 0:06-CV-61851-WJZ (S.D. Fla., final order 
May 5, 2007) (credit counseling), available at www.ftc.gov/os/caselist/
0523146/index.shtm
    16. FTC v. Integrated Credit Solutions, Inc., No. 8:06-CV-00806-
SCB-TGW (M.D. Fla., final order Oct. 16, 2006) (credit counseling), 
available at www.ftc.gov/os/caselist/0323244/0323244.shtm
    17. United States v. Credit Found. of Am., No. CV06-3654 ABC (VBKx) 
(C.D. Cal., final order June 16, 2006) (credit counseling), available 
at www.ftc.gov/os/caselist/0423044/0423044.shtm
    18. FTC v. AmeriDebt, Inc., No. PJM 03-3317 (D. Md., final order 
May 17, 2006) (credit counseling), available at www.ftc.gov/os/
caselist/0223171/0223171
ameridebt.shtm
    19. FTC v. Innovative Sys. Tech., Inc., No. CV04-0728 (C.D. Cal., 
final order July 13, 2005) (debt settlement), available at www.ftc.gov/
os/caselist/0323006/0323006.shtm
    20. FTC v. Nat'l Consumer Council, Inc., No. ACV04-0474CJC (JWJX) 
(C.D. Cal., final order Apr. 1, 2005) (credit counseling and debt 
settlement), available at www.ftc.gov/os/caselist/0323185/0323185.shtm
    21. FTC v. Debt Mgmt. Found. Servs., Inc., No. 8:04-CV-1674-T-17MSS 
(M.D. Fla., final order Mar. 30, 2005) (credit counseling), available 
at www.ftc.gov/os/caselist/0423029/0423029.shtm
    22. FTC v. Better Budget Fin. Servs., Inc., No. 04-12326 (WG4) (D. 
Mass., final order Mar. 28, 2005) (debt settlement), available at 
www.ftc.gov/os/caselist/0412326/0412326.shtm
    23. FTC v. Jubilee Fin. Servs., Inc., No. 02-6468 ABC(Ex) (C.D. 
Cal., final order Dec. 12, 2004) (debt settlement), available at 
www.ftc.gov/os/caselist/jubilee/jubilee.shtm

    Senator McCaskill. Thank you very much.
    Thank you to all of the witnesses.
    Let's talk a little bit about some of the details on this. 
When you were finally sued, Ms. Robertson, by Capital One, did 
Financial Freedom of America offer you any assistance, 
whatsoever, at the point in time that you received the lawsuit?
    Ms. Robertson. They said that, like, you know, Capital One 
would win the lawsuit and say I had to pay them $100 a month, 
well, they'd deduct that off their payment. Well, that's, how 
do I want to say--contradicting what I was trying to do.
    Senator McCaskill. Right.
    Ms. Robertson. And they just said, ``Well, we can't help 
that they sued, we don't have any control over the credit card 
companies.'' And I was--I sent all of the paperwork, they knew 
what was going on. And I just felt, this is where I should have 
done my due diligence, and checked this company out before I 
ever went with them.
    Senator McCaskill. Was there anything at all that the 
company accomplished on your behalf?
    Ms. Robertson. Nothing, nothing.
    Senator McCaskill. And it cost you--even with you 
complaining and being on the front page of The New York Times, 
it still cost you a net--how much are you out-of-pocket for 
what happened to you, total?
    Ms. Robertson. I paid them almost $4,000 and I believe I've 
gotten around $2,200 back from them.
    Senator McCaskill. OK.
    Ms. Robertson. And I wouldn't have got the last back if 
they didn't know I was being interviewed by The New York Times.
    Senator McCaskill. Let's talk about how big a problem this 
is. I know, Ms. Hrdy, that the FTC has brought numerous 
separate actions against debt settlement companies over the 
past 2 years, and it's my understanding, Mr. Angle, that you 
have a current lawsuit that you all are actually pursuing.
    First, to you, Mr. Angle, do you have more than one 
lawsuit, currently, against debt settlement companies in 
Missouri, and if not, are there others that are pending? Have 
you seen an increase in the complaints? How big a problem is 
this?
    Mr. Angle. It's a big problem. The landscape is changing 
with the enactment of the FTC rule and with your efforts. So, 
hopefully, the landscape will be changing in the other 
direction.
    We have one case pending against Credit Solutions of 
America----
    Senator McCaskill. There is not going to be a movie.
    [Laughter.]
    Mr. Angle. I didn't bring a Power Point presentation.
    We have one case pending in St. Louis City Court against 
Credit Solutions of America. We have, probably, a dozen more 
investigative files that have been elevated to the enforcement 
level because of the groundswell of complaints. We've seen a 
doubling of complaints each year regarding consumers who were 
taken in and it's natural that they're taken in, because these 
claims are hitting them, as you said, when they're most 
vulnerable; they're looking for a way to honestly reduce their 
debts. And we see, probably, a minor percentage of the 
consumers in Missouri who are actually impacted by this because 
if it--and I have no reason to believe it doesn't--if it 
correlates with other consumer complaint activity, we only get 
a small percentage of folks to actually complain to our office.
    Senator McCaskill. And so, one of the things we should talk 
about in this hearing today is making sure that consumers know 
that if they have signed up with a debt settlement company, 
they need to call the Attorney General's Office.
    Mr. Angle. Yes, ma'am.
    Senator McCaskill. The more people that call the Attorney 
General's Office, and there's a hotline number that is 
available at the Attorney General's Office for consumer 
complaints and we should certainly encourage consumers to do 
that. Because I think a lot of people are embarrassed, and 
don't know that there's strength in numbers--the more we know 
about, the more we can take action to try to help them.
    What about from your perspective throughout the whole 
country? Are there any regions of the country that have fallen 
more victim to this than others? And how big is--I know we were 
up to 2,000 companies, now. How big a problem is it?
    Ms. Hrdy. Based on the advertising, the pervasiveness of 
the advertising and the consumer complaints that we get, and 
that we get from the Better Business Bureaus, I think that this 
is a growth industry. We've just seen a real explosion in the 
advertising and increasing complaints as have the Attorney 
Generals.
    And, in terms of whether it's more local or national--
generally speaking, these are nationwide telemarketers that are 
saturating, I think, the airwaves across the country with ads, 
and getting consumers to sign up across the country.
    In the mortgage foreclosure relief area, we've seen 
consumers principally in California, Florida, Arizona, Nevada--
where we've seen the very worst of the market crash in the 
mortgage market really hit those consumers. So, I would project 
that where the foreclosure crisis is really hitting hardest is 
also where consumers are also being targeted for these credit 
card relief services.
    Senator McCaskill. Let's talk about the claims that they 
make. I know that there's a principal and consumer law called 
substantiation. That is the notion that if you're, you know, 
it's like, ``Buy this product, it will make you rich, famous, 
and thin,'' those kind of outlandish claims that are made, 
there are actually laws against that--making claims that cannot 
be substantiated.
    The debt settlement industry often makes representations 
about their success. Tell us what the reality is of those 
claims that they're making, Ms. Hrdy, and what can be done to 
shut them down in terms of the false claims that they're using 
to trick people, like Ms. Robertson, into giving them their 
money?
    Ms. Hrdy. Yes, Senator. I think we all are very troubled by 
these, just, unqualified blanket claims, ``We'll reduce your 
debt by 40 to 60 percent, or more.'' And, they're not 
qualifying them in the broadcast ads, and so they're leaving it 
all to the telemarketers to explain, ``What does that mean?'' A 
reasonable consumer is going to think, ``OK, if I owe $10,000 
now, and they're saying they're going to reduce it by 50 
percent, I'm only going to have to pay $5,000 when it's all 
over.'' But we know from stories like Ms. Robertson's and other 
consumers that we've interviewed, that they're not counting the 
fees and penalties that the credit card companies will charge 
you as the program goes on, and especially if you're not paying 
on the debt, and the fees that the debt settlement company will 
charge you. So, it's not a 50 percent reduction; it's often far 
less.
    And the debt settlement companies will often say that 
they're not taking that reduction based on the amount of debt 
you owed when you signed up, they're waiting until that debt 
balloons and saying, ``Oh, no, but if you could see, the 50 
percent reduction is after, you know, you've paid all of 
these--you have all of these fees and charges,'' and the debt 
has actually increased. So again, that's a smaller percentage.
    Senator McCaskill. Well, and isn't it true that oftentimes 
these companies are not counting the people who dropped out?
    Ms. Hrdy. Oh, yes. And that's exactly right, Senator. So, 
when a consumer hears a claim, ``We will reduce your debts by 
50 percent,'' the law says, most consumers have to get that 
result. The average consumer has to get that result in order 
for that claim to be true and substantiated. And so when, as 
you cited, the industry data itself says that only a third of 
consumers get results based on that one data sample, you can't 
say--make that blanket claim. That's a false claim.
    Senator McCaskill. Up-front fees. I think that in the 
hearing in April some of the industry representatives said that 
banning up-front fees would decimate the industry, and I said, 
``That--well, that's a good thing. Nothing wrong with that.'' 
The ban is very important and does the industry model work? Can 
these companies even be profitable if we are successful in 
doing away with the up- front fees?
    Ms. Hrdy. Well, it's interesting, Senator, during our 
rulemaking proceeding, we did hear from a small--very small 
minority--but there were, there are for-profit debt settlement 
companies who say they are operating under what would be this 
advance-fee ban model. Whether they can make it----
    Senator McCaskill. There are companies out there who are 
not charging up-front fees?
    Ms. Hrdy. Yes, a handful. I mean, not many.
    Senator McCaskill. A handful out of 2,000?
    Ms. Hrdy. Exactly. That have come forward, and told us that 
they are trying to do this model. I mean, they have to 
capitalize, like any other business, in order to stay in 
business. But, that's what companies have to do.
    The problem is, they're marketing these services like, you 
know, ``Just go to your grocer's freezers and pull out your 
debt settlement.'' They're not engaging in what, we think, is 
the stringent, suitability requirement before they sign 
consumers up. Because for most--for many consumers, this is 
probably not possible. That's why they have these overwhelming 
dropout rates.
    So, if they want to try to screen consumers and enroll 
consumers who, for whatever reason, can save for settlement--
and save for fees, because, you know, if they do get a 
settlement then they should be able to get a fee--then there 
should be some companies who should be able to follow that 
model.
    But, if the whole model is built on just on-boarding every 
consumer and just taking the fees up front, regardless of what 
happens afterwards, you know, we don't see that as a model that 
should succeed.
    Senator McCaskill. Hasn't Missouri, Mr. Angle, already 
banned up-front fees by companies who assist with mortgage 
foreclosure?
    Mr. Angle. Yes, that's true and there is also a statute on 
Missouri's books that deals with debt adjusters. And it, in 
some ways, is a permissive statute with regard to up-front 
fees, but as my colleague, Mr. Lehman, noted in the hearing in 
April, Missouri, like many States that have such statutes, they 
carve out the most prominent debt settler model, and basically 
the Missouri statute--which is in Chapter 425--says that you're 
not a debt adjuster unless you directly receive the money from 
the consumer.
    So, we have an up-front ban that could be looked to in the 
mortgage modification industry, but we also have this other 
statute that's sort of a relic of times past in terms of what 
the modern debt settlement model is.
    Senator McCaskill. I see.
    Mr. Angle. Which is part of why I think it's important to 
look at the other actors who enable the debt settlement 
companies.
    Senator McCaskill. Yes. And we're going to get to the 
third-parties in a minute, because I'm interested in that.
    This notion that they're telling consumers to stop paying 
their bills. Now, the industry group, the association which is 
called The Association of Settlement Companies, TASC, their 
member companies supposedly are told they cannot direct 
potential or current clients to quit paying their bills. 
Obviously, there's a good reason you shouldn't encourage people 
to quit paying their bills. But, according to the testimony we 
heard--and I need both of you to comment on this--that's just 
not happening. That, in fact, I mean, Ms. Robertson, you were 
told to quit paying your bills, correct?
    Ms. Robertson. Yes, ma'am.
    Senator McCaskill. That was the advice that you were given 
by the company you thought you had hired, was the best thing to 
do was to quit paying them and start paying Financial Freedom 
of America?
    Ms. Robertson. Well, I couldn't pay both.
    Senator McCaskill. Right.
    Ms. Robertson. So, you know, I just thought that this was 
the way that I could get out of debt.
    Senator McCaskill. And you assumed they were doing 
something----
    Ms. Robertson. Yes, I did.
    Senator McCaskill.--with your creditors, and your creditors 
knew that you were in the process of working things out and 
that somehow they were going to hold in abeyance any efforts to 
collect the money that you owed to them.
    Ms. Robertson. Yes, but now listening to the other 
witnesses talk, with the fees going up, with the credit card 
and the late charges and all of that, how can they guarantee 
that your debt will be paid off in 3 years, because the 
estimations they made are not going to be the same?
    Senator McCaskill. Right.
    Ms. Robertson. The credit cards are going to be more.
    Senator McCaskill. Right.
    Ms. Robertson. So----
    Senator McCaskill. It's like--it's like trying to get out 
of a hole and you keep digging deeper.
    Ms. Robertson. So, after 3 years, I can just hear them 
telling me, ``Oh, we need a couple of more thousand dollars to 
settle this.''
    Senator McCaskill. Right, right.
    Third-party processors--I'm trying to understand exactly 
how this works. The third-party processors are the people, is 
the institution that holds, ``holds'' the customer's money. 
Now, are these financially--are these financial institutions 
insured? Are these chartered financial institutions? Are these 
entities that are made up by the debt settlement companies for 
the purposes of holding, ``holding'' this money?
    Ms. Hrdy. The major player in this space is a company 
called Global Client Solutions, and they commented during our 
rulemaking. We understand about 80 percent of debt settlement 
companies use Global Client Solutions. Global is not a bank. It 
has an account--it's called a Special Purpose Account--at an 
FDIC-insured institution--probably more than one. And what 
Global does is it's the account--it holds the Special Purpose 
Account, and then has all of these sub-accounts where it holds 
money for each consumer enrolled in a debt settlement company.
    So, the good news is, that consumers that are putting their 
money into this account with Global Client--the account is 
FDIC-insured. So that--consumers' money is protected.
    The less good news, and the concerns that we've had, is 
that Global Client Solutions is a third-party provider to the 
debt settlement company. And so, when the debt settlement 
company wants to get paid, it turns to Global and says, ``See 
my contract with the consumer, I should get paid, now. And so 
the consumer, again, given our concerns about the prevalence of 
the deceptive advertising about the fees, they don't know that 
Global Client is sending money to the debt settlement company, 
because they don't even know that that money isn't being saved 
for settlement, it's being taken by this up-front fee.
    So, some of the benefits of using the Telemarketing Sales 
Rule is that it has assisting and facilitating liability. So, 
these third-party providers, such as Global, if they are found 
to have knowledge of the violations that a debt settlement 
company is engaging in, they can be held liable under the 
Telemarketing Sales Rule. And, we intend to visit with Global, 
and any of the other major third-party providers and give them 
a copy of our compliance guide, and make sure that they 
understand what their responsibilities are under the law.
    Senator McCaskill. Well, what is the purpose of Global?
    Ms. Hrdy. The purpose of Global is----
    Senator McCaskill. I mean, because, why don't these 
companies just open----
    Ms. Hrdy.--bank accounts----
    Senator McCaskill.--open bank accounts directly in an FDIC-
insured financial institution? Why is this layer in here?
    Ms. Hrdy. Well, we--there are some, we think, who do 
directly open those FDIC-insured bank accounts. But, as we've 
seen in our cases, part of the telemarketing sales pitch is, 
``Don't worry, we're not going to hold your money,'' we, the 
debt settlement company. ``We have this third-party, it's an 
arms' length transaction, your money's in an FDIC-insured bank 
account,'' true, ``you can look at your account online,'' true, 
``don't worry, it's all taken care of. We're not taking your 
money.'' So, it fits within this whole idea that, ``Don't 
worry, consumer, this is a good way to go, and we've got this 
third-party who will take care of your money, and it will sit 
there and grow, and so it won't be in your account, it won't be 
in our account, it'll be somewhere safe, saving for 
settlement.''
    Senator McCaskill. But, I guess, the advantage to the debt 
settlement companies is it's easier for them to pull the money 
out?
    Ms. Hrdy. Yes.
    Senator McCaskill. Because there are not as many hoops to 
jump through as there would be if they put the money directly 
in a bank.
    Ms. Hrdy. Well, obviously, if the debt settlement company 
is the account holder, that's the easiest way to take the 
money, but it sort of raises a level of suspicion with the 
consumer if they're just giving all of this money into the debt 
settlement account.
    Senator McCaskill. Right.
    Ms. Hrdy. So, in our--consumers that we've interviewed have 
said they felt very comforted by this representation that, 
''Oh, this Global Client Solutions, they're going to hold my 
money, and it's going to be safe.``
    Senator McCaskill. OK, here's the $64-dollar question--how 
much is Global Client Solutions making on this?
    Ms. Hrdy. That is a very good question and I don't think 
they told us what their revenues were in their public comment. 
I can check it, and let you know. But, they represent that they 
are holding millions and millions of dollars in these Special 
Purpose Accounts.
    Senator McCaskill. And so, do we know what the debt 
settlement companies are paying--there has never been any 
information that you all are aware of, of what the debt 
settlement companies are paying Global Client Solutions for 
this?
    Ms. Hrdy. I don't think we know how much the debt 
settlement company is paying Global. We do know--and we've seen 
it in the consumer contracts--that the consumers are paying to 
use Global Client Solutions. It can be anywhere between $10 or 
$20 a month. Again, if this is a 36-month program, that monthly 
fee will add up. So, the consumers are paying to use Global 
Client Solutions.
    Senator McCaskill. Well, does Global Client Solutions do 
anything else?
    Ms. Hrdy. No. That's it. They have a proprietary----
    Senator McCaskill. This is it?
    Ms. Hrdy. This is it. As far as we know.
    Senator McCaskill. Do you know who owns it?
    Ms. Hrdy. Yes. And we've interviewed them as part of the 
rulemaking process----
    Senator McCaskill. Are they a debt settlement business?
    Ms. Hrdy. They were.
    Senator McCaskill. Ah.
    Ms. Hrdy. And then they realized that----
    Senator McCaskill. Somehow that doesn't surprise me.
    Ms. Hrdy.--there was a business model--yes. And they 
developed this proprietary software that is, basically houses 
these Special Purpose Accounts so that it splices out all of 
these consumer accounts. And as part of our rulemaking, we did 
reach out to the FDIC, because they have examined both the 
FDIC-insured banks that are holding this money, and they've 
been onsite at Global, to ensure that--and again, the good news 
is that, consumers who are putting their money into these FDIC-
insured accounts, the money is insured.
    Senator McCaskill. The problem is, it's not insured against 
the debt settlement company taking it.
    Ms. Hrdy. Exactly. Which is where the TSR comes in.
    Senator McCaskill. They're insured against the problem that 
if the bank had some kind of structural issue in terms of 
solvency, but they're not protected, because the debt 
settlement companies can get access to as much of it----
    Ms. Hrdy. Right.
    Senator McCaskill.--as they want, essentially, at any time.
    Ms. Hrdy. Right.
    Senator McCaskill. OK. So, we probably need to look at the 
legislation as it's currently drafted and see if we've gone far 
enough to get at the aiding and assisting to get a company like 
Global Client that clearly has been created for the purpose of 
assisting in the marketing of debt settlement product----
    Mr. Angle. And the facilitation of taking the consumer's 
money, that--the consumer will often see an automatic--a line 
item on their primary bank account statement, that an automatic 
withdrawal has taken place, and it says Global Client Solutions 
on it. That, to us, is also another level of deception that the 
consumer has to punch through, it's just another actor in this 
scheme.
    Senator McCaskill. I think we also ought to reach out as a 
committee and ask some specific questions of Global Client, and 
get their responses for the record. Because I think we need to 
at least find out whether they're willing to talk to us.
    You know, one of the interesting things is, I asked this--
getting information from these companies, it is ridiculously 
difficult to get these companies to tell us things. In fact, 
the representative of the industry at the April hearing 
actually said, on the record, that they would provide to me a 
list of their members. And they were supposed to have done that 
by August 1. We have not received that. Have you all had any 
more success than the Commerce Committee has had in actually 
getting important information in terms of profitability, 
ownership, you know, how many clients they actually have--do 
you all feel that you have, either at the State level or at the 
Federal level, as people who are trying to enforce the law, 
that you've been able to get information that you need from 
these companies?
    Mr. Angle. No. We'll get it, though. Thus far, in our 
investigative and enforcement activities, the first line of 
defense is to delay. But we'll get it. We won't just stand on 
non-responsive or obstructive answers. So, the process is 
sometimes slow of enforcing our investigatory subpoenas, or 
going through the discovery process, and seeking a motion to 
compel information that we've asked for. And oftentimes, 
industry will hide behind this model and say, ``Well, we don't 
hold any money, so we can't tell you how much we've taken from 
X or Y consumer,'' well, that's baloney. So, we have to punch 
through that.
    Senator McCaskill. Isn't the information--don't they market 
that it's available online?
    Mr. Angle. Yes. We have to--it's a circle of deception that 
you just have to keep punching through as an enforcement 
officer.
    Senator McCaskill. Right.
    Ms. Hrdy?
    Ms. Hrdy. We've had the same enforcement experience as Mr. 
Angle, in terms of getting information in specific 
investigations and litigation, but we will pursue and get it. 
And there are--in terms of the rulemaking, it was a real 
challenge to get them to provide us the information that we 
needed to asses the business model. And our requests go back to 
September of 2008, when the Commission held a public hearing, 
and we put out questions to the industry, ''Tell us, what is 
your model like, what are your success rates? How do you 
substantiate your advertising claims?`` And we got nothing in 
response; very little. And--nothing meaningful. And it wasn't 
until we issued the Notice of Proposed Rulemaking that we 
started to get a little something more. But, the best of their 
data shows that two-thirds of these consumers who enroll, drop 
out.
    Senator McCaskill. The FTC rule, I know, you've used your 
authority under the telemarketing statutes. Which is terrific, 
and I think it's great that you all did the rule. As I said 
before, many things in the rule mirror the legislation. We go a 
little farther, in terms of capping the fees. The other thing 
that the legislation does that you can't do--you can only get 
at the telemarketing. And, I'm assuming that since this 
marketing model has been so successful, and since we've seen 
this as such a growth industry, preying on vulnerable people, 
I'm assuming that some of this is being marketed directly over 
the Internet?
    Ms. Hrdy. Yes, I think there is some of that. I mean, we're 
going to be watching that very carefully because the channel is 
really critical. And I think we'll--I would project that the 
Commission will be very vigilant and very aggressive in 
pursuing cases where it's clear that they're trying to get 
around the telemarketing aspect of it.
    Senator McCaskill. Marketing rule.
    Ms. Hrdy. We always have Section 5, if they are completely 
not using phones. And if they----
    Senator McCaskill. Why don't you explain what Section 5 is?
    Ms. Hrdy. Thank you. Section 5 of the FTC Act prohibits 
unfair, deceptive acts or practices. Very broad grant of 
authority--it's channel-neutral. No matter how you market, if 
you make a deceptive claim or engage in an unfair practice, 
you've violated Section 5. Under the TSR, telemarketing does 
have to be involved. So, if they move away from that model, 
that will be a concern. And, although we do have Section 5, 
that's definitely an area where your legislation would fill in.
    Senator McCaskill. The GAO investigation, I want to put in 
the record some of the specifics of the investigation that was 
done. The GAO investigators called 20 well-known debt 
settlement companies and posed as consumers. The GAO did this 
so we could learn what the industry was actually doing. It is 
these undercover investigations where you really expose what is 
happening to people like Ms. Robertson.
    Here's what happened when these auditors posed as 
consumers. Of the 20 companies GAO called, 17 of them collected 
up-front fees before ever making any attempt to settle any 
debt. Nearly all of the companies advised the consumers to stop 
paying their credit card bills, including their accounts that 
were current. So, they not only were telling them to quit 
paying the ones they're behind on, we're going to instruct you 
to get behind on every account. In other words, give us all the 
money you have for as long as we can get it from you, and then 
we'll leave you to deal with the wreckage left behind. That's, 
essentially, the model that GAO found.
    The GAO also found that they made fraudulent and deceptive 
claims about their success rates, and some made claims, as you 
indicated earlier that they were linked to government programs, 
like we're, ``This is a government program, we can help bail 
you out.'' And, do you think that with the findings that GAO 
found, is that actually in sync with what FTC has found, and 
with what you have seen on the State level?
    Ms. Hrdy. Yes.
    Senator McCaskill. And, Mr. Angle?
    Mr. Angle. It certainly is. Our consumer complaints which 
are our primary vehicle for learning what consumers are told by 
these entities are very consistent along that line. ``Quit 
paying, quit communicating,'' that's a very important piece of 
it, too. Because the creditor--this is an industry that abuses 
debtors as well as creditors. That's a pretty unique 
combination. And, when you quit paying, there are consequences, 
and when you quit communicating, those consequences are 
enhanced. And the deceptive things that are told to consumers, 
as reflected in our complaints, include the litany of what was 
listed in the GAO investigation, too. ``We'll improve your 
credit score,'' well, that's not true. ``We'll get you out of 
debt in 3 years,'' that's not true. ``All of the major 
creditors work with us.'' That's a key piece of material 
information that is omitted from their advertisements and 
communications frequently, is there are a number of major 
creditors who just won't deal with these people. And if they 
were told that up front, consumers would say, ``Well, wait a 
minute, all of my credit card accounts are with creditors who 
won't deal with you, so I'm not going to sign up with you.'' 
The layers of deception are very consistent, the model itself, 
regardless of the debt settlement entity is generally the same, 
and that's reflected in our complaint information.
    Senator McCaskill. You know, in the Commerce Committee we 
have--and I know in your every day work--both of your work, 
your life's work now is looking after consumers. And there are 
so many places that consumers are taken advantage of--so many 
places where they have deceptive marketing techniques that are 
used on them. But there really is a special place in hell for 
people who prey on the most vulnerable. Who have found a 
business model that takes advantage of people when they are at 
their most desperate state, in terms of trying to pay their 
bills, keep food on the table, and provide for their families. 
I know that the industry thinks that they're going to be able 
to somehow wiggle through the efforts that are ongoing to clamp 
down on these practices. This hearing just reaffirms, in my 
mind, that we've got to be tenacious about this. And we should 
not be afraid of their claims that we are going to ``put them 
out of business.'' Well, that would probably be a good day's 
work. If we could put them out of business. Because there are 
ways that you can help people who are in financial trouble. 
There are credit counseling agencies that work, in good faith, 
on a model that is not front-loaded with the consumers' money. 
I can imagine that the credit card companies can't stand these 
guys, because all of the money they're collecting is, in fact, 
the very money that could be used to begin to pay down on 
significant debt that so many Americans now are facing.
    I want to thank all of you. Is there anything else that you 
want to add to the record that I have not asked today, or 
anything else that we need to add to the record before we 
conclude the hearing?
    Ms. Robertson. No, I don't have anything.
    Senator McCaskill. Anything else that needs to be added?
    Mr. Angle. Just thank you very much, Senator, for your 
attention to this issue. It is a very powerful moment when 
State, and Federal agencies and legislative bodies can get 
together. Thank you.
    Senator McCaskill. It is a special moment when we can have 
a Federal hearing at a local level with the Federal Government 
and the State Government both represented, with everyone on the 
same page, with everyone trying to accomplish the same goal. 
And I have a feeling, if we stay focused on this--because these 
are bad guys, and we need to clean this up--I think that we're 
going to be able to get it done.
    We will keep the record of this hearing open. We will reach 
out to the third-party entities that are a player in this that, 
clearly, I don't think, maybe have gotten the scrutiny they 
deserve. I thank you for that suggestion, Mr. Angle, and we'll 
look at the legislation to see if we need to add any provisions 
in the legislation to deal with these third-party entities. 
And, I'm optimistic about the passage of this legislation. 
Probably not during the silly season--we are now in the silly 
season where we can't even agree on motherhood and apple pie in 
Washington at this point, but once we get past the elections, 
we'll get back down to work, hopefully, and we'll quit playing 
political games that seem to be ongoing right now. And I think 
that there's a chance that we can add this legislation to a 
number of different legislative vehicles that will be moving 
through the Senate.
    So, thank you all for being here today, and the hearing is 
concluded.
    [Whereupon, at 11 a.m., the hearing was adjourned.]

                                  
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