Press Releases

Hearing Summary - The Debt Settlement Industry: The Consumer's Experience

April 22, 2010

WASHINGTON, D.C.—The U.S. Senate Committee on Commerce, Science, and Transportation held a full committee hearing on The Debt Settlement Industry: The Consumer's Experience.

Witness List:
Mr. Gregory Kutz, Managing Director, Forensic Audits and Special Investigations, United States Government Accountability Office 
 
Commissioner Julie Brill, Federal Trade Commission 
 
Mr. Phil Lehman, Assistant Attorney General in the Office of the North Carolina Attorney General
Mr. John Ansbach, Legislative Director of the United States Organization for Bankruptcy Alternatives (USOBA) and Chief Operating Officer and General Counsel of EFA Processing 
 
Mr. William and Mrs. Holly Haas, Consumers
Key Quotations from Today’s Hearing:
“This is outrageous.  It is appalling, and it is wrong.  These debt settlement companies are kicking people when they are down.  Even though they take patriotic names like ‘U.S. Debt Settlement’ or ‘Consumer Credit Counseling of America,’ their actions are profoundly un-American.  This is a serious and growing problem, and I am pleased to report that our state attorneys general and the Federal Trade Commission are fighting these fraudulent companies.”
Chairman John D. (Jay) Rockefeller IV
“In several cases, representatives of companies we called claimed success rates for their programs that we found to be suspiciously high—85 percent, 93 percent, even 100 percent.  In its notice, FTC cites claims of high likelihood of success as a frequent representation in the debt settlement industry.  The success rates we heard are significantly higher than is suggested by evidence obtained by federal and state agencies.  When these agencies have obtained documentation on debt settlement success rates, the figures have often been in the single digits.”
Mr. Gregory Kutz, Managing Director, Forensic Audits and Special Investigations, United States Government Accountability Office 
“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.’  To be sure, some debt relief services do help consumers reduce their debt loads.  In too many instances, however, consumers pay hundreds or thousands of dollars for these services but get nothing in return.” 
Julie Brill, Commissioner, Federal Trade Commission 
“The whole premise of debt settlement is based on consumers not paying their debts and not communicating with creditors, i.e., essentially encouraging breach of contract.  The theory is that the older and more delinquent the debt, the easier it will be to negotiate.  Only after sufficient funds are accumulated in the consumer’s settlement account (after deduction of fees), which can take a year or more, the debt settler may initiate some settlement negotiation activity.  Consumers are taking a big risk, while interest charges mount and the debt settler’s fees are being collected, that they will eventually get relief from all their debts.”   
Mr. Phil Lehman, Assistant Attorney General in the Office of the North Carolina Attorney General
“The truth is that USOBA, as well as our sister trade group the Association of Settlement Companies (‘TASC’), supports strong consumer protection regulation in the debt settlement industry…Stronger consumer disclosure requirements are needed and should be adopted.  Rules proscribing certain misrepresentations in advertising are needed and should be adopted.”
Mr. John Ansbach, Legislative Director of the United States Organization for Bankruptcy Alternatives (USOBA) and Chief Operating Officer and General Counsel of EFA Processing 
“As we now know, debt settlement plans do extreme damage to your credit, and in our opinion, they don’t work and shouldn’t exist.  In two years we have paid about $32,000 toward our credit cards and now owe about $34,000.  If we had started with a legitimate company first, our current debt would be about $13,000.  We would have paid off our credit cards in April 2011.” 
Mr. William and Mrs. Holly Haas, Consumers
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Witness List:

Mr. Gregory Kutz, Managing Director, Forensic Audits and Special Investigations, United States Government Accountability Office 

Commissioner Julie Brill, Federal Trade Commission 

Mr. Phil Lehman, Assistant Attorney General in the Office of the North Carolina Attorney General

Mr. John Ansbach, Legislative Director of the United States Organization for Bankruptcy Alternatives (USOBA) and Chief Operating Officer and General Counsel of EFA Processing 

Mr. William and Mrs. Holly Haas, Consumers

Key Quotations from Today’s Hearing:

“This is outrageous.  It is appalling, and it is wrong.  These debt settlement companies are kicking people when they are down.  Even though they take patriotic names like ‘U.S. Debt Settlement’ or ‘Consumer Credit Counseling of America,’ their actions are profoundly un-American.  This is a serious and growing problem, and I am pleased to report that our state attorneys general and the Federal Trade Commission are fighting these fraudulent companies.”

Chairman John D. (Jay) Rockefeller IV

“In several cases, representatives of companies we called claimed success rates for their programs that we found to be suspiciously high—85 percent, 93 percent, even 100 percent.  In its notice, FTC cites claims of high likelihood of success as a frequent representation in the debt settlement industry.  The success rates we heard are significantly higher than is suggested by evidence obtained by federal and state agencies.  When these agencies have obtained documentation on debt settlement success rates, the figures have often been in the single digits.”

Mr. Gregory Kutz, Managing Director, Forensic Audits and Special Investigations, United States Government Accountability Office 

“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.’  To be sure, some debt relief services do help consumers reduce their debt loads.  In too many instances, however, consumers pay hundreds or thousands of dollars for these services but get nothing in return.” 

Julie Brill, Commissioner, Federal Trade Commission 

“The whole premise of debt settlement is based on consumers not paying their debts and not communicating with creditors, i.e., essentially encouraging breach of contract.  The theory is that the older and more delinquent the debt, the easier it will be to negotiate.  Only after sufficient funds are accumulated in the consumer’s settlement account (after deduction of fees), which can take a year or more, the debt settler may initiate some settlement negotiation activity.  Consumers are taking a big risk, while interest charges mount and the debt settler’s fees are being collected, that they will eventually get relief from all their debts.”   

Mr. Phil Lehman, Assistant Attorney General in the Office of the North Carolina Attorney General

“The truth is that USOBA, as well as our sister trade group the Association of Settlement Companies (‘TASC’), supports strong consumer protection regulation in the debt settlement industry…Stronger consumer disclosure requirements are needed and should be adopted.  Rules proscribing certain misrepresentations in advertising are needed and should be adopted.”

Mr. John Ansbach, Legislative Director of the United States Organization for Bankruptcy Alternatives (USOBA) and Chief Operating Officer and General Counsel of EFA Processing 

“As we now know, debt settlement plans do extreme damage to your credit, and in our opinion, they don’t work and shouldn’t exist.  In two years we have paid about $32,000 toward our credit cards and now owe about $34,000.  If we had started with a legitimate company first, our current debt would be about $13,000.  We would have paid off our credit cards in April 2011.” 

Mr. William and Mrs. Holly Haas, Consumers

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