AFSA to Congress: Close Debt Settlement Loopholes

Last week, AFSA joined several with other financial trade groups to send a letter to the Senate Commerce and House Energy and Commerce Committees highlighting our growing concern about the questionable practices in the debt settlement industry. Too many debt settlement companies are engaging in deceptive and harmful practices that mislead millions of Americans into financial jeopardy with false promises of a quick way to negotiate existing debt at a fraction of the cost.

In some cases the companies use a “strategic default” model where consumers are told to stop paying their monthly bills and intentionally default on their loans and instead make monthly payments into an account operated by the debt settlement company. This can lead to many consumers failing to settle any debt at all.

With debt settlement companies expanding their efforts to target more consumers, AFSA and other trade associations believe it is crucial to modernize federal oversight of the Telemarketing Sales Rule (TSR). The TSR currently restricts debt settlement firms from charging upfront fees, requires certain disclosures about their services, and forbids them from overpromising results. However, there are still gaps in the rule that allow problematic practices to continue. AFSA urged the committees to consider enacting legislation to establish additional safeguards to codify key protections found in the TSR and establish additional safeguards to ensure consumers are protected.

AFSA is continuing efforts to meet with Members of Congress to push for action to limit these deceptive debt settlement practices. Also signing the letter: American Bankers Association, America’s Credit Unions, Consumer Bankers Association, National Bankers Association, Payments Leadership Council, ACA International