The Federal Trade Commission is cracking down on abusive tactics from some debt relief services by instituting a number of new rules. Among them is a provision that will bring the Telemarketing Sales Rule into play for calls that were in fact consumer-initiated in response to advertisements.
The key initiative, however, is a rule stating that companies may not collect any fees from a client until they are successful in settling or reducing the client’s unsecured debt. The new rules become effective 10/27/10.
“At the FTC we strive every day to make sure America’s middle class families get straight deals for their dollars,” Chairman Jon Leibowitz said. “This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees. Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy.”
The FTC said that three other Telemarketing Sales Rule provisions will kick in 9/27/10. They will:
* require debt relief companies to make specific disclosures to consumers;
* prohibit them from making misrepresentations; and
* extend the Telemarketing Sales Rule to cover calls consumers make to these firms in response to debt relief advertising.
In FTC documents pertaining to the matter, FTC wrote, “Debt settlement companies typically advertise through the Internet, television, radio, or direct mail. The advertisements generally follow the ‘problem-solution’ approach – consumers who are over their heads in debt can be helped by enrolling in the advertiser’s program. Many advertisements make specific claims that appeal to the target consumers – for example, claims that consumers will save 40 to 50 cents on each dollar of their credit card debts or will become debt-free. The advertisements typically then urge consumers to call a toll-free number for more information.”
The phone call often links the consumer not to a debt counselor but to a telemarketer who proceeds to continue the sales pitch initiated by the advertising.
FTC said the amendments to the Telemarketing Sales Rule were primarily to expand the definition to include debt counseling, which does not specifically fit within the existing parameters which account for “a plan, program, or campaign which is conducted to induce the purchase of goods or services.” The broadcast connection, such as it is, means that the same disclosure requirements associated with outgoing telemarketing calls apply to incoming advertising-generated calls.
RBR-TVBR observation: The good news for broadcasters is that the FTC is clearly placing the onus on the companies, rather than the venues they use to market their services.
We suspect that reputable debt counseling organizations will not be happy with these rules, but we hope that compliance is not too onerous, and ideally, we hope that their operations will be improved by ridding the debt counseling barrel of whatever bad apples may be there.