FTC Restricts Debt Settlers, Relies on Testimony of SBLS and QLS in Justifying Ruling

The radio and television are filled with slick ads offering to pay off
consumers’ credit card debt at half price in two to three years. Some
of these ads even suggest that the companies are part of a federal
bail-out program available only to financially strapped U.S. citizens.
In reality, these companies, called debt settlers, are well documented
scams that take in thousands of dollars from clients while catapulting
that customer’s debt into the stratosphere. So fraudulent are these
companies (which number over 2,000) that Attorneys General from 21
states, including New York, have filed 128 suits against them in the
last five years. Such state policing efforts have brought attention to
the problem, but done little to stop the growing industry. Indeed, a
state can only ban a debt settler from operating within its borders,
leaving an endless source of potential victims for the debt settler to
rip off in the remaining 49 states.

In August 2009, the Federal Trade Commission proposed a rule to ban debt settlers nationwide. Queens Legal Services and South Brooklyn Legal Services were two of the three legal service offices that commented in support of the proposed rule. In November 2009, Johnson Tyler of SBLS was one of a handful of consumer advocates invited to a public hearing by the FTC to discuss the proposed rule. The forum was dominated by debt settlement owners and lobbyists. In July 2010, the FTC published its final rule that effectively bans the industry. In its 186 page justification for its severe action, the FTC cites QLS and SBLS thirty seven (37) times, an extraordinary contribution when one considers that the FTC had 321 written comments from which to choose. Legal Services NYC-Bronx and Manhattan Legal Services also contributed to the ruling by identifying debt settlement victims whose stories could be told.

From an July 29th New York Times article ("New Restrictions Places on Debt Settlement Companies"):

The rules, which will take effect in the fall, prohibit companies from
charging a fee before they settle or reduce a customer’s credit card or
unsecured debt. The rules also require that the companies set up
dedicated accounts for debt relief payments by consumers and disclose
how long the debt-reduction efforts will take, what they will cost and
the potentially negative consequences that could occur.

“Too many of these companies pick the last dollar out of consumers’
pocket and, far from leaving them better off, push them deeper into
debt, even bankruptcy,” Jon Leibowitz, chairman of the F.T.C., said in
a statement announcing the regulations.

“This rule will stop companies who offer consumers false promises of
reducing credit card debts by half or more in exchange for large,
upfront fees,” he said.