41988 Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 

1Please note that your request constitutes a public 

filing before the Commission and will be placed on 

the public record of the proceeding, including on 

the publicly accessible FTC website, at 

(www.ftc.gov/os/publiccomments.shtm). Therefore, 

your request should not include any sensitive or 

confidential information. In particular, it should not 

include any sensitive personal information – such 

as any individual’s Social Security Number; date of 

birth; driver’s license number, other state 

identification number, or foreign country 

equivalent; passport number; financial account 

number; or credit or debit card number. Comments 

also should not include any sensitive health 

information, such as medical records or other 

individually identifiable health information. In 

addition, comments should not include any ‘‘[t]rade 

secret or any commercial or financial information 

which is obtained from any person and which is 

privileged or confidential,’’ as provided in Section 

6(f) of the Federal Trade Commission Act (‘‘FTC 

Act’’), 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 

CFR 4.10(a)(2). 

The Federal Trade Commission Act and other 

laws the Commission administers permit the 

collection of requests to participate in the above 

forum to consider and use in this proceeding as 

appropriate. As a matter of discretion, the 

Commission makes every effort to remove home 

contact information for individuals before placing 

requests to participate on the FTC website. More 

information, including routine uses permitted by 

the Privacy Act, may be found in the FTC’s privacy 

policy, at (www.ftc.gov/ftc/privacy.shtm). 

2 The comment must be accompanied by an 

explicit request for confidential treatment, 

including the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. 

The request will be granted or denied by the 

Commission’s General Counsel, consistent with 

applicable law and the public interest. See FTC 

Rule 4.9(c), 16 CFR 4.9(c). 

FEDERAL TRADE COMMISSION 

16 CFR Part 310 

Telemarketing Sales Rule 

AGENCY: Federal Trade Commission 

(‘‘Commission’’ or ‘‘FTC’’). 

ACTION: Notice of Proposed Rulemaking; 

Announcement of Public Forum. 

SUMMARY: In this document, the FTC 

issues a Notice of Proposed Rulemaking 

(‘‘NPRM’’ or ‘‘Notice’’) to amend the 

FTC’s Telemarketing Sales Rule (‘‘TSR’’ 

or ‘‘Rule’’) to address the sale of debt 

relief services. The Commission seeks 

public comment on the proposed 

amendments, which would: define the 

term ‘‘debt relief service’’; ensure that, 

regardless of the medium through which 

such services are initially advertised, 

telemarketing transactions involving 

debt relief services would be subject to 

the TSR; mandate certain disclosures 

and prohibit misrepresentations in the 

telemarketing of debt relief services; and 

prohibit any entity from requesting or 

receiving payment for debt relief 

services until such services have been 

fully performed and documented to the 

consumer. 

This NPRM invites written comments 

on all issues raised by the proposed 

amendments and seeks answers to the 

specific questions set forth in Section 

VIII of this Notice. This document also 

contains an invitation to participate in 

a public forum, to be held following the 

close of the comment period, which will 

afford Commission staff and interested 

parties an opportunity to discuss the 

proposed amendments as well as any 

issues raised in comments in response 

thereto. 

DATES: Written comments must be 

received by October 9, 2009. For 

information on the public forum, please 

see the SUPPLEMENTARY INFORMATION

section below. 

ADDRESSES: Interested parties are 

invited to submit written comments 

electronically or in paper form. For 

important information concerning the 

comments you file, please review the 

SUPPLEMENTARY INFORMATION section 

below. Comments in electronic form 

should be filed at the following 

electronic address: (https:// 

secure.commentworks.com/ftcTSRDebtRelief) (following the 

instructions on the web-based form). 

Comments in paper form should be 

mailed or delivered to the following 

address: Federal Trade Commission, 

Office of the Secretary, Room H-135 

(Annex T), 600 Pennsylvania Avenue, 

NW, Washington, DC 20580, in the 

manner detailed in the SUPPLEMENTARY

INFORMATION section below. 

FOR FURTHER INFORMATION CONTACT: 

Evan Zullow, Division of Financial 

Practices, Bureau of Consumer 

Protection, Federal Trade Commission, 

600 Pennsylvania Avenue, NW, 

Washington, DC 20580, (202) 326-3224. 

SUPPLEMENTARY INFORMATION: The 

public forum will be held at the Federal 

Trade Commission. The Commission 

will post the date, time, and location of 

the public forum on its website no later 

than 30 days after the publication of this 

NPRM. The Commission will publish an 

agenda for the public forum on its 

website prior to the forum. Requests to 

participate as a panelist at the public 

forum must comply with all applicable 

requirements set forth in this document 

and must be received by October 9, 

2009. To be considered as a panelist at 

the public forum, interested parties 

must submit both a request to 

participate and a comment in response 

to this NPRM. Further details regarding 

the public forum are included in 

Section IV of this Notice. 

Requests to participate in the public 

forum, which must be filed separately 

from a party’s public comment, may be 

filed in paper form or sent via e-mail to: 

(tsrdebtrelief@ftc.gov) and should refer 

to ‘‘Telemarketing Sales Rule - Debt 

Relief Rulemaking Forum – Request to 

Participate, R411001’’ to facilitate 

organization of such requests.1 Requests 

must comply with all other applicable 

requirements set forth in this section 

and elsewhere in this document. A 

request to participate filed in paper form 

should include this reference, both in 

the text and on the envelope, and 

should be mailed or delivered to: 

Federal Trade Commission/Office of the 

Secretary, Room H-135 (Annex T), 600 

Pennsylvania Avenue, NW, Washington, 

DC 20580. Because paper mail in the 

Washington area, and specifically to the 

FTC, is subject to delay due to 

heightened security screening, please 

consider submitting your request to 

participate via e-mail to: 

(tsrdebtrelief@ftc.gov.) 

Interested parties are invited to 

submit written comments electronically 

or in paper form. Comments should 

refer to ‘‘Telemarketing Sales Rule - 

Debt Relief Amendments, R411001’’ to 

facilitate the organization of comments. 

Please note that your comment – 

including your name and your state – 

will be placed on the public record of 

this proceeding, including on the 

publicly accessible FTC Website at 

(www.ftc.gov/os/publiccomments.shtm). 

Because comments will be made 

public, they should not include any 

sensitive personal information, such as 

any individual’s: Social Security 

Number; date of birth; driver’s license 

number, other state identification 

number, or foreign country equivalent; 

passport number; financial account 

number; or credit or debit card number. 

Comments also should not include any 

sensitive health information, such as 

medical records or other individually 

identifiable health information. In 

addition, comments should not include 

any ‘‘[t]rade secret or any commercial or 

financial information which is obtained 

from any person and which is privileged 

orconfidential,’’ as provided in Section 

6(f) of the Federal Trade Commission 

Act (‘‘FTC Act’’), 15 U.S.C. 46(f), and 

FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). 

Comments containing material for 

which confidential treatment is 

requested must be filed in paper form, 

must be clearly labeled ‘‘Confidential,’’ 

and must comply with FTC Rule 4.9(c), 

16 CFR 4.9(c).2

Because paper mail addressed to the 

FTC is subject to delay due to 

heightened security screening, please 

consider submitting your comments in 

electronic form. Comments filed in 

electronic form should be submitted by 

using the following weblink: (https:// 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 41989 

3 15 U.S.C. 6101-6108. 

4 15 U.S.C. 6102(a)(3). 

5 15 U.S.C. 6102(a). 

6 15 U.S.C. 6103, 6104. 

7 The effective date of the original Rule was 

December 31, 1995. 

8 See TSR; Final Amended Rule, 68 FR 4580 (Jan. 

29, 2003). 

9 See TSR; Final Rule Amendments, 73 FR 51164 

(Aug. 29, 2008). 

10 16 CFR 310.2(cc) (using the same definition as 

the Telemarketing Act, 15 U.S.C. 6106). 

11 15 U.S.C. 6105(b). 

12 15 U.S.C. 45(a)(2) (setting forth certain 

limitations to the Commission’s jurisdiction with 

regard to its authority to prohibit unfair or 

deceptive acts or practices). These entities include 

banks, savings and loan institutions, and certain 

federal credit unions. It should be noted, however, 

that although the Commission’s jurisdiction is 

limited with respect to the entities exempted by the 

FTC Act, the Commission has made clear that the 

Rule does apply to any third-party telemarketers 

those entities might use to conduct telemarketing 

activities on their behalf. See TSR; Proposed Rule, 

67 FR 4492, 4497 (Jan. 30, 2002) (citing TSR; 

Statement of Basis and Purpose and Final Rule, 60 

FR, 43842, 43843 (Aug. 23, 1995)) (‘‘As the 

Commission stated when it promulgated the Rule, 

‘[t]he Final Rule does not include special provisions 

regarding exemptions of parties acting on behalf of 

exempt organizations; where such a company 

would be subject to the FTC Act, it would be 

subject to the Final Rule as well.’ ’’) 

13 For example, Section 310.6(a) exempts 

telemarketing calls to induce charitable 

contributions from the Do Not Call Registry 

provisions of the Rule, but not from the Rule’s other 

requirements. In addition, there are exceptions to 

some exemptions that limit their reach. See, e.g., 16 

CFR 310.6(b)(5)-(6). 

14 The TSR requires that telemarketers soliciting 

sales of goods or services promptly disclose several 

key pieces of information: (1) the identity of the 

seller; (2) the fact that the purpose of the call is to 

sell goods or services; (3) the nature of the goods 

or services being offered; and (4) in the case of prize 

promotions, that no purchase or payment is 

necessary to win. 16 CFR 310.4(d). Telemarketers 

must also, in any telephone sales call, disclose cost 

and certain other material information before 

consumers pay. 16 CFR 310.3(a)(1). In telemarketing 

calls soliciting charitable contributions, the Rule 

requires prompt disclosure of the identity of the 

charitable organization on behalf of which the 

request is being made and that the purpose of the 

call is to solicit a charitable contribution. 16 CFR 

310.4(e). 

15 The TSR prohibits misrepresentations about, 

among other things, the cost and quantity of the 

offered goods or services. 16 CFR 310.3(a)(2). It also 

prohibits making a false or misleading statement to 

induce any person to pay for goods or services or 

to induce a charitable contribution. 16 CFR 

310.3(a)(4). 

secure.commentworks.com/ftcTSRDebtRelief) (and following the 

instructions on the web-based form). To 

ensure that the Commission considers 

an electronic comment, you must file it 

on the web-based form at the weblink 

(https://secure.commentworks.com/ftcTSRDebtRelief). If this Notice appears at 

(www.regulations.gov/search/index.jsp), 

you may also file an electronic comment 

through that website. The Commission 

will consider all comments that 

regulations.gov forwards to it. You may 

also visit the FTC Website at 

(www.ftc.gov) to read the Notice and the 

news release describing it. 

A comment filed in paper form 

should include the ‘‘Telemarketing 

Sales Rule - Debt Relief Amendments - 

R411001’’ reference both in the text and 

on the envelope, and should be mailed 

or delivered to the following address: 

Federal Trade Commission, Office of the 

Secretary, Room H-135 (Annex T), 600 

Pennsylvania Avenue, NW, Washington, 

DC 20580. The FTC requests that any 

comment filed in paper form be sent by 

courier or overnight service, if possible, 

to avoid security related delays. 

Comments on any proposed filing, 

recordkeeping, or disclosure 

requirements that are subject to 

paperwork burden review under the 

Paperwork Reduction Act should 

additionally be submitted to: Office of 

Information and Regulatory Affairs, 

Office of Management and Budget 

(‘‘OMB’’), Attention: Desk Officer for 

Federal Trade Commission. Comments 

should be submitted via facsimile to 

(202) 395-5167 because U.S. postal mail 

at the OMB is subject to delays due to 

heightened security precautions. 

The FTC Act and other laws the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives, 

whether filed in paper or electronic 

form. Comments received will be 

available to the public on the FTC 

website, to the extent practicable, at 

(www.ftc.gov/os/publiccomments.shtm). 

As a matter of discretion, the 

Commission makes every effort to 

remove home contact information for 

individuals from the public comments it 

receives before placing those comments 

on the FTC website. More information, 

including routine uses permitted by the 

Privacy Act, may be found in the FTC’s 

privacy policy, at (www.ftc.gov/ftc/ 

privacy.shtm). 

I. Background 

A. Telemarketing and Consumer Fraud 

and Abuse Prevention Act 

On August 16, 1994, the 

Telemarketing and Consumer Fraud and 

Abuse Prevention Act (‘‘Telemarketing 

Act’’ or ‘‘Act’’) was signed into law.3

The purpose of the Act was to curb 

telemarketing deception and abuse and 

provide key anti-fraud and privacy 

protections for consumers receiving 

telephone solicitations to purchase 

goods or services. The Telemarketing 

Act directed the Commission to issue a 

rule defining and prohibiting deceptive 

and abusive telemarketing acts or 

practices, and specified that the FTC’s 

rule must address certain acts or 

practices. The Act directed the 

Commission to include provisions 

relating to three specific ‘‘abusive 

telemarketing acts or practices’’: (1) a 

requirement that telemarketers may not 

undertake a pattern of unsolicited 

telephone calls which the reasonable 

consumer would consider coercive or 

abusive of his or her right to privacy; (2) 

restrictions on the time of day 

telemarketers may make unsolicited 

calls to consumers; and (3) a 

requirement that telemarketers promptly 

and clearly disclose in all sales calls to 

consumers ‘‘that the purpose of the call 

is to sell goods or services and make 

such other disclosures as the 

Commission deems appropriate, 

including the nature and price of the 

goods and services.’’4 The Act also 

directed the Commission to consider 

including recordkeeping requirements 

in the Rule.5 Finally, the Act authorized 

state Attorneys General, other 

appropriate state officials, and private 

persons to bring civil actions in federal 

district court to enforce compliance 

with the FTC’s Rule.6

B. Telemarketing Sales Rule 

Pursuant to its authority under the 

Telemarketing Act, the FTC 

promulgated the TSR on August 16, 

1995.7 The Rule was subsequently 

amended on two occasions, first in 

20038 and again in 2008.9 As to the 

Rule’s scope, the TSR applies to 

virtually all ‘‘telemarketing’’ – defined 

to mean ‘‘a plan, program, or campaign 

which is conducted to induce the 

purchase of goods or services or a 

charitable contribution, by use of one or 

more telephones and which involves 

more than one interstate telephone call 

. . . .’’10 However, the Telemarketing Act 

makes clear that the jurisdiction of the 

Commission in enforcing the Rule is 

coextensive with its jurisdiction under 

Section 5 of the FTC Act.11 As a result, 

some entities and products fall outside 

the jurisdiction of the TSR.12 Further, 

the Rule wholly or partially exempts 

from its coverage several types of 

calls.13

The TSR sets forth rules governing 

communications between telemarketers 

and consumers, requiring certain 

disclosures14 and prohibiting certain 

material misrepresentations.15 Further, 

the TSR requires telemarketers to obtain 

consumers’ ‘‘express informed consent’’ 

to be charged on a particular account 


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41990 Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 

16 16 CFR 310.4(a)(6). 17 16 CFR 310.3(a)(3). 18 See TSR; Final Amended Rule, 68 FR at 4614. 19 16 CFR 310.4(a)(2). 20 16 CFR 310.4(a)(3). As the Commission has 

previously explained, in ‘‘recovery room scams . . . a 

deceptive telemarketer calls a consumer who has 

lost money, or who has failed to win a promised 

prize, in a previous scam. The recovery room 

telemarketer falsely promises to recover the lost 

money, or obtain the promised prize, in exchange 

for a fee paid in advance. After the fee is paid, the 

promised services are never provided. In fact, the 

consumer may never hear from the telemarketer 

again.’’ TSR; Statement of Basis and Purpose and 

Final Rule, 60 FR 43842, 43854 (Aug. 23, 1995). 21 16 CFR 310.4(a)(4). 22 16 CFR 310.3(c). 23 16 CFR 310.3(b). 24 16 CFR 310.4(c). 25 16 CFR 310.4(b)(1)(iii)(B) (a safe harbor 

regarding Do Not Call violations can be found at 16 

CFR 310.4(b)(3)). 26 16 CFR 310.4(b)(1)(iii)(A) (a safe harbor 

regarding Do Not Call violations can be found at 16 

CFR 310.4(b)(3)). 27 16 CFR 310.4(a)(7). 28 16 CFR 310.4(b)(1)(iv) (a call abandonment safe 

harbor is found at 16 CFR 310.4(b)(4)). 29 16 CFR 310.4(b)(1)(v). 

30 Materials from the Workshop, including an 

agenda and transcript, and link to public comments, 

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). Attachment 

A to this Notice contains a list of commenters who 

submitted comments for the Workshop, together 

with the abbreviations used to identify each 

commenter referenced in this NPRM. Where a 

commenter has submitted multiple comments, the 

abbreviation used indicates – by reference to either 

its date or subject matter – which specific comment 

is being referenced in this NPRM. Attachment B to 

this Notice contains a list of Workshop participants, 

together with the abbreviations used to identify 

each participant referenced in this NPRM. 

31 But see Credit Advisors at 1 (stating that the 

credit counseling industry ‘‘was founded as a forprofit industry, and was much more consumer 

oriented than under the subsequent nonprofit 

model’’). 

32 See National Consumer Law Center, Inc. 

(‘‘NCLC’’) and Consumer Federation of America 

(‘‘CFA’’), Credit Counseling in Crisis: The Impact on 

Consumers of Funding Cuts, Higher Fees and 

Aggressive New Market Entrants, April 2003, at 6. 

33 See IRS (Grodnitzky) Tr. at 19 (noting that the 

IRS ‘‘issued two rulings, one in 1965 and one in 

1969, and really kind of set up a framework for 

what a compliant credit counseling organization 

needs to look like. I think the overarching theme 

of these rulings were the organization, at least with 

respect to 501(c)(3), needs to educate, educate 

consumers, educate the public.’’). 

34 See Credit Counseling in Crisis at 6. The study 

goes on to note that ‘‘a DMP is very similar to a 

chapter 13 bankruptcy ‘reorganization,’ through 

which a consumer submits a plan to repay creditors 

over time. The critical difference is that Chapter 13 

plans allow consumers with sufficient income to 

pay back secured as well as unsecured creditors. 

For consumers trying to hold onto their homes or 

cars, this is a critical distinction.’’ Id. at 25-26. 

35 See Press Release, National Foundation for 

Credit Counseling, Top Credit Card Issuers Support 

the NFCC’s ‘‘Call to Action’’ For Consumer 

Repayment Relief, (Apr. 15, 2009) (also noting that 

‘‘in these tough economic times, fewer consumers 

have sufficient income to be eligible for, or the 

ability to maintain, a traditional DMP, often leaving 

bankruptcy as the only option’’), available at 

(www.nfcc.org/NewsRoom/newsreleases/files09/ 

NFCC_Call_Action.pdf); CCFS (Manning) Tr. at 6. 

before billing or collecting payment16

and, through a specified process, to 

obtain consumers’ ‘‘express verifiable 

authorization’’ to be billed through any 

payment system other than a credit or 

debit card.17 In addition, the Rule 

prohibits requesting or receiving 

payment of any fee or consideration in 

advance of obtaining any of three 

purported services that the Commission 

determined to be ‘‘fundamentally 

bogus’’18: credit repair services,19

recovery services,20 and offers of a loan 

or other extension of credit, the granting 

of which is represented as ‘‘guaranteed’’ 

or having a high likelihood of success.21

The Rule also prohibits credit card 

laundering22 and other forms of 

assisting and facilitating fraudulent 

telemarketers.23

The Rule restricts telemarketers from 

calling before 8:00 a.m. or after 9:00 

p.m. (in the time zone where the 

consumer is located),24 and from calling 

consumers whose numbers are on the 

National Do Not Call Registry (except 

when the seller has an established 

business relationship with the person 

called or has obtained the person’s 

express agreement, in writing, to receive 

telemarketing calls).25 It also prohibits 

calling consumers who have specifically 

requested not to receive calls from a 

particular entity.26 The TSR also 

requires that telemarketers transmit 

accurate Caller ID information27 and 

places restrictions on calls made by 

predictive dialers28 and calls delivering 

pre-recorded messages.29

II. Overview of Debt Relief Services 

Debt relief services – including credit 

counseling, debt management plans, 

debt settlement, and debt negotiation – 

are offered by a range of nonprofit and 

for-profit entities, often through 

telemarketing. As consumer debt has 

grown in recent years, so have the 

number and type of entities that 

provide, or purport to provide, services 

to consumers struggling with debt. Over 

the past several years, consumer 

protection concerns have arisen 

regarding the sale of debt relief services. 

The Commission has addressed these 

concerns in a variety of ways, including 

through law enforcement actions, 

consumer education, and outreach to 

industry. In September 2008, the 

Commission held a public workshop 

entitled ‘‘Consumer Protection and the 

Debt Settlement Industry’’ 

(‘‘Workshop’’),30 which brought together 

stakeholders to discuss the current state 

of debt settlement services, one facet of 

the debt relief services industry. Based 

upon information provided in 

conjunction with the Workshop, as well 

as through its independent research and 

law enforcement efforts, the 

Commission provides the following 

description of the evolution and 

marketing practices of the debt relief 

services industry, with a particular 

focus on two primary types of service 

providers: credit counseling agencies 

and for-profit debt settlement service 

providers. 

A. Credit Counseling Agencies 

1) Background 

For decades, debt relief services were 

almost exclusively the province of 

nonprofit credit counseling agencies 

(‘‘CCAs’’).31 Beginning in the mid1960s, creditor banks initiated this 

model, providing funding for CCAs with 

the intent of reducing personal 

bankruptcy filings.32 CCA credit 

counselors work as a liaison between 

consumers and creditors to negotiate a 

‘‘debt management plan’’ (‘‘DMP’’) – 

usually for the repayment of credit card 

and other unsecured debt. Typically, 

credit counselors also have provided 

educational counseling on financial 

literacy to assist consumers in 

developing a manageable budget and 

avoiding debt problems in the future.33

The hallmark of a traditional DMP is 

that it enables a consumer to repay the 

full amount owed to creditors, albeit 

under renegotiated terms that make 

repayment less onerous.34 Thus, DMPs 

can be beneficial both to consumers, 

who receive more manageable terms, 

and to creditors, who are paid the 

outstanding balance. A credit counselor 

makes an initial determination about 

whether a DMP is a viable option for a 

consumer after obtaining the consumer’s 

full financial profile. Traditionally, to be 

eligible for a DMP, a consumer 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.35

Crafting a DMP begins when a credit 

counselor contacts each of a consumer’s 

unsecured creditors. Each creditor 

determines what, if any, repayment 

options to offer the consumer based on 

the consumer’s income and total debt 

load. Repayment options, known as 

‘‘concessions,’’ include reduced interest 

rates, elimination of late or over limit 

fees, and extensions of the term for 

repayment. After negotiations with all of 

a consumer’s creditors are complete, the 

credit counselor finalizes the DMP and 

calculates the new repayment schedule. 

The traditional DMP typically calls for 

a consumer to repay the full balance of 


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36 Id. The participating creditors include: 

American Express, Bank of America, Capital One, 

Chase Card Services, Citi, Discover Financial 

Services, GE Money, HSBC Card Services, U.S. 

Bank, and Wells Fargo Card Services. 

37 Id. These credit card issuers endorsed two new 

plans: a ‘‘more affordable ‘Standard’ DMP’’ and a 

‘‘‘Hardship’ DMP,’’ specifically designed to enable 

consumers who have lost their jobs or experienced 

other serious financial problems to qualify. Like 

traditional DMPs, these so-called ‘‘Call to Action 

DMPs’’ provide for a five-year repayment term, but 

they allow a consumer to make more affordable, 

fixed monthly payments and establish an 

emergency savings fund rather than using all 

disposable income to repay existing debt. Id. 

38 See Consumer Protection Issues in the Credit 

Counseling Industry: Hearing Before the Permanent 

Subcommittee on Investigations Senate Committee 

on Governmental Affairs, 108 th Cong. 2d Sess. 

(2004) (Testimony of the FTC), available at 

(www.ftc.gov/os/2004/03/040324testimony.shtm). 

Binzell Tr. at 37 (‘‘If we had to do it all over again, 

we could go back 50 years, that fair share would 

have never existed. We think it’s important. We 

think creditors have a very important role and 

should be responsible for helping to fund credit 

counseling and financial literacy. I mean, they have 

a vested interest and they should be supporting it. 

The fact that it’s tied to DMPs, again, it started long 

before I got involved and it probably ought to be 

something different.’’). 

39 These fees are often limited by state law. See, 

e.g., Me. Rev. Stat. Ann. Tit. 17 § 701, et seq., tit. 

32 § 6171, et seq. (limiting fees to $75 for set-up, 

$40 monthly charge, and 15% of reduction for any 

settlement of debt); Md. Code Ann. § 12-901 et seq. 

(limiting to $50 consultation fee and the lesser of 

$40 per month or $8 per creditor per month); Ill. 

Com. Stat. Ann., § 205 ILCS 665/1 et seq. (capping 

initial and monthly credit counseling fees). 

40 See Credit Counseling in Crisis at 13-14 

(‘‘charging consumers was virtually unheard of 

even a decade ago’’ but, in 2001, ‘‘about 88% of 

[NFCC] agencies were charging monthly fees, a little 

more than half charged enrollment fees, and almost 

25% were charging for counseling.’’). 

41 See id. 

42 See Cards & Payments, Vol. 22, Issue 2, Credit 

Concessions: Assistance for Borrowers on the Brink 

(Feb. 1, 2009) (noting that ‘‘nonprofit agencies’ 

counseling fees average about $25 per month’’); 

Miami Herald, Credit Counselors See Foreclosures 

on the Rise (July 13, 2008) (noting that CCAs charge 

an initial fee of $25, and a $25 monthly fee). 

43 See Letter from NFCC to Lucy Morris, 

Attorney, Federal Trade Commission (Feb. 27, 

1997) (proposing CCA disclosure that creditor 

contributions are usually calculated as a percentage 

of ‘‘each payment received’’), available at 

(www.ftc.gov/os/1997/03/nfcc2.pdf). 

44 See NFCC, FAQs (‘‘The majority of agency 

funding comes from voluntary contributions from 

creditors who participate in Debt Management 

Plans.’’), available at (www.nfcc.org/aboutus/ 

aboutus_04.html#7); NFCC (Binzel) Tr. at 37. Some 

have since questioned the appropriateness of the 

‘‘fair share’’ model. See, e.g., NFCC (Binzel) Tr. at 

37 (‘‘If we had to do it all over again . . . fair share 

would have never existed . . . . We think creditors 

have a very important role and should be 

responsible for helping to fund credit counseling 

and financial literacy. I mean, they have a vested 

interest and they should be supporting it. The fact 

that it’s tied to DMPs, again, it started long before 

I got involved and it probably ought to be 

something different.’’). 

45 See Credit Counseling in Crisis at 10-12. 

46 See IRS (Grodnitzky) Tr. at 19-21 (noting that 

in the past 10 years, the IRS observed that new 

entities, which looked more like commercial 

entities than nonprofits, entered the CCA 

marketplace); AADMO (Guimond) Tr. at 40 

(‘‘Everybody saw the AmeriDebt nightmare, all the 

horror stories that were on the news.’’); see also 

Credit Counseling in Crisis at 7 (‘‘Ten years ago, 

there were about 200 credit counseling 

organizations in the country, with 90% affiliated 

with NFCC. By 2002, there were more than 1,000 

credit and debt management organizations in the 

country.’’). 

47 See Credit Counseling in Crisis at 8 (‘‘These 

[new] agencies have pioneered more business-like 

methods of making debt management plans 

convenient for consumers, including flexible hours, 

phone and Internet counseling, and electronic 

payments. These improvements, in turn, have 

forced the ‘old guard’ to be more responsive to their 

clients. Some of these newer agencies are 

responsible, effective and sensitive to their client’s 

needs. However, as the newer agencies have gained 

market share, a number of serious problems have 

surfaced as well.’’). 

48 See generally id; see also IRS (Grodnitzsky) Tr. 

at 20; NFCC (Binzel) Tr. at 28-29 (noting that ‘‘when 

profit motive is injected into a non-profit industry, 

it should come as no surprise that harm to 

consumers will follow.’’). In March of 2004, the 

Senate Permanent Subcommittee on Investigations 

of the Committee on Homeland Security and 

Governmental Affairs conducted an investigation 

and held hearings on the industry. The 

Subcommittee’s report, issued in April 2005, 

concluded that ‘‘[c]learly, something is wrong with 

the credit counseling industry.’’ S. Rep. No. 109-55, 

at 1 (2005). 

49 The FTC and IRS, as well as other entities, 

have created and disseminated education materials 

to help consumers understand the fundamentals of 

credit counseling and learn how to select a 

reputable CCA. See, e.g., FTC, Fiscal Fitness: 

Choosing a Credit Counselor, available at 

(www.ftc.gov/bcp/edu/pubs/consumer/credit/ 

cre26.shtm); FTC, Knee Deep in Debt, available at 

(www.ftc.gov/bcp/edu/pubs/consumer/credit/ 

cre19.shtm); IRS, Credit Counseling Organizations - 

Questions and Answers about New Requirements, 

available at (www.irs.gov/charities/article/ 

0,,id=163180,00.html). 

50 Some industry associations have created or 

enhanced self-regulatory codes. See, e.g., NFCC, 

Member Application (Attachments A-C), available 

at (www.nfcc.org/ 

NFCC_MemberApplicationFINAL_REV071006.pdf); 

AICCA Certification of Compliance, available at 

(www.aiccca.org/images/ 

CertificateofCompliance.pdf); AADMO (Guimond) 

Tr. at 43 (AADMO ‘‘created the first nationwide 

accreditation program for for-profit credit 

counselors’’). 

51 State enforcers have sued CCAs for violations 

of state consumer protection laws. See, e.g., 

Colorado Office of the Attorney General Press 

Release, 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); Press Release of 

Continued 

unsecured debt to creditors by making 

reduced, consolidated monthly 

payments over a period of three to five 

years. The CCA receives these monthly 

payments over the term of the DMP and 

distributes the appropriate share to each 

of the consumer’s creditors. 

In response to the recent economic 

downturn and increase in consumer 

debt, the National Foundation for Credit 

Counseling (‘‘NFCC’’) – the umbrella 

organization for more than one hundred 

nonprofit credit counseling 

organizations – announced on April 15, 

2009, that the top ten credit card issuers 

in the U.S. had agreed to provide 

additional concessions to ensure that 

even consumers in significant financial 

straits may be able to use a DMP as a 

means to extricate themselves from 

indebtedness.36 According to the NFCC, 

this initiative came in response to its 

October 2008 ‘‘Call to Action,’’ which 

urged creditors to ‘‘make DMPs more 

affordable for people in troubled 

financial circumstances.’’37

For their efforts, CCAs, which operate 

as nonprofit entities, receive funding 

from two sources.38 First, consumers 

now typically pay for services,39

although this was not always the case.40

According to the NFCC, as of 2001, 

consumers paid on average about $20 to 

enroll in a DMP, and then paid a 

monthly service fee of about $12.41

These fees have increased over the last 

decade, and now average approximately 

$25 to enroll, plus $25 per month.42 The 

second source of funding is creditors 

themselves. Traditionally, after a 

consumer enrolls in a DMP, the 

consumer’s creditors pay the CCA a 

percentage of the monthly payments the 

CCA receives.43 This funding 

mechanism, known as a ‘‘fair share’’ 

contribution, historically has provided 

the bulk of a CCA’s operating revenue.44

For many years, creditors’ fair share 

payments ranged from 12 to 15% of the 

amount received as a result of the DMP, 

but that amount has decreased over time 

to between 0% and 10%.45

2) Abuse and Crackdown in the Credit 

Counseling Industry 

Responding to the rise in consumer 

debt and the concomitant increase in 

defaults, many new entities entered the 

credit counseling field during the last 

decade.46 The advent of these new 

credit counseling entities – many of 

which, unlike traditional CCAs, 

operated on a for-profit basis – appeared 

to increase the options for indebted 

consumers.47 At the same time 

consumer protection concerns emerged 

with regard to these new credit 

counselors. Research by consumer 

advocates and congressional scrutiny 

highlighted troubling trends in the 

credit counseling industry, including: 

deceptive and unfair practices; 

excessive fees; and the abuse of 

nonprofit status.48 These abuses 

prompted an array of responses over the 

past decade, including law enforcement, 

regulatory, legislative, educational,49

and self-regulatory50 actions. 

The FTC and state Attorneys General 

have targeted unscrupulous practices by 

some CCAs in a number of law 

enforcement actions.51 Since 2003, the 


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the N.J. Department of Public Affairs, State Files 

Suit Against United Credit Adjusters and Related 

Companies (Oct. 15, 2008), available at 

(www.nj.gov/lps/ca/press/creditadjusters.htm); 

North Carolina Office of Attorney General Press 

Release, AG Cooper Seeks to Stop Sham Credit 

Counselor (Oct. 10, 2006), available at 

(www.ncdoj.gov/ 

DocumentStreamerClient?directory=PressReleases/ 

&file=Commercial Credit Counseling final.pdf); 

State Accuses Columbus Man of Credit-Counseling 

Scam, Columbus Dispatch (July 12, 2006), available 

at (www.columbusdispatch.com/live/contentbe/ 

dispatch/2006/07/12/20060712-D1-01.html); New 

York Office the Attorney General, State Wins Order 

to Shut Down Bogus Debt Counseling Agencies in 

Queens (Oct. 17, 2000), available at 

(www.oag.state.ny.us/media_center/2000/oct/ 

oct17a_00.html). 

52 See FTC v. Express Consolidation, No. 06-cv61851-WJZ (S.D. Fla. 2006); United States v. Credit 

Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. 

Cal. 2006); FTC v. Integrated Credit Solutions, No. 

06-806-SCB-TGW (M.D. Fla. 2006); FTC v. Nat’l 

Consumer Council, No. SACV04-0474 CJC(JWJX) 

(C.D. Ca. 2004); FTC v. Debt Mgmt. Found. Svcs., 

No. 04-1674-T-17-MSS (M.D. Fla. 2004); FTC v. 

AmeriDebt, Inc., No. PJM 03-3317 (D. Md. 2003). 

AmeriDebt was also the subject of law enforcement 

actions by several states. See, e.g., State of Missouri 

ex rel. Nixon v. AmeriDebt, Inc., No. 03-402378 (St. 

Louis City Circuit Court, Sept. 11, 2003); State of 

Texas v. AmeriDebt, Inc., No. GV-304638 (Dist. Ct. 

Travis County, Texas, Nov. 19, 2003); State of 

Minnesota v. AmeriDebt, Inc., Case No. MC 03- 

018388 (Hennepin County Dist. Ct., Nov. 19, 2003). 

53 See, e.g., FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR (W.D. Wash. 2006); United States v. Credit 

Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. 

Cal. 2006); FTC v. Nat’l Consumer Council, No. 

SACV04-0474 CJC(JWJX) (C.D. Cal. 2004). 

54 See FTC v. Integrated Credit Solutions, Inc., 

No. 06-806-SCB-TGW (M.D. Fla. 2006); FTC v. 

Express Consolidation, No. 06-cv-61851-WJZ (S.D. 

Fla. 2006); FTC v. Debt Mgmt. Found. Svcs., Inc., 

No. 04-1674-T-17-MSS (M.D. Fla. 2004); FTC v. 

AmeriDebt, Inc., No. PJM 03-3317 (D. Md. 2003). 

Other defendants allegedly claimed to have ‘‘special 

relationships’’ with the consumers’ creditors. See 

FTC v. Debt Solutions, Inc., No. 06-0298 JLR (W.D. 

Wash. 2006). 

55 See, e.g., FTC v. Integrated Credit Solutions, 

No. 06-806-SCB-TGW (M.D. Fla. 2006); United 

States v. Credit Found. of Am., No. CV 06-3654 

ABC(VBKx) (C.D. Cal. 2006); FTC v. Nat’l Consumer 

Council, No. SACV04-0474 CJC(JWJX) (C.D. Cal. 

2004). 

56 See United States v. Credit Found. of Am., No. 

CV 06-3654 ABC(VBKx) (C.D. Cal. 2006); FTC v. 

Integrated Credit Solutions, Inc., No. 06-806-SCBTGW (M.D. Fla. 2006); FTC v. Debt Mgmt. Found. 

Svcs., Inc., No. 04-1674-T-17-MSS (M.D. Fla. 2004). 

57 See FTC v. Express Consolidation, No. 06-cv61851-WJZ (S.D. Fla. 2006); FTC v. AmeriDebt, Inc., 

No. PJM 03-3317 (D. Md. 2003). 

58 See FTC v. Integrated Credit Solutions, No. 06- 

806-SCB-TGW (M.D. Fla. 2006); United States v. 

Credit Found. of Am., No. CV 06-3654 ABC(VBKx) 

(C.D. Cal. 2006). 

59 See FTC v. Express Consolidation, No. 06-cv61851-WJZ (S.D. Fla. 2006); United States v. Credit 

Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. 

Cal. 2006). 

60 See IRS (Grodnitzky) Tr. at 19-23; see also IRS, 

Press Release, IRS Takes Steps to Ensure Credit 

Counseling Organizations Comply with 

Requirements for Tax-Exempt Status (Oct. 17, 

2003), available at (www.irs.gov/newsroom/article/ 

0,,id=114575,00.html). 

61 A list of entities whose tax exempt status has 

been revoked can be found at (www.irs.gov/ 

charities/charitable/article/ 

0,,id=164392,00.html).See also IRS (Grodnitzky) Tr. 

at 20-23 (noting that of the initial 63 CCAs 

reviewed, the vast majority of them had their 

501(c)(3) status revoked, or were issued notices of 

revocation). 

62 IRS, Press Release, IRS Takes New Steps on 

Credit Counseling Groups Following Widespread 

Abuse (May 15, 2006), available at 

(www.irs.ustreas.gov/newsroom/article/ 

0,,id=156996,00.html). 

63 Pension Protection Act of 2006, P.L. 109-280, 

Section 1220 (Aug. 2006), codified as 26 U.S.C. 

501(q). 

64 See 26 U.S.C. 501(q). 

65 See id. 

66 26 U.S.C. 501(q)(2) (requiring that ‘‘[t]he 

aggregate revenues of the organization which are 

from payments of creditors of consumers of the 

organization and which are attributable to debt 

management plan services do not exceed the 

applicable percentage [that is being phased in and 

that will go down to 50%] of the total revenues of 

the organization.’’). 

67 See 26 U.S.C. 501(q)(1)(C). In addition to 

government efforts to regulate CCAs, some industry 

trade associations have imposed registration and/or 

certification requirements on their members 

requiring, among other things, that members 

maintain nonprofit status, provide counseling and 

education services, and provide counseling services 

to consumers regardless of ability to pay. See NFCC 

Member Application (Attachments A-C), available 

at (www.nfcc.org/ 

NFCC_MemberApplicationFINAL_REV071006.pdf); 

AICCA Certification of Compliance, available at 

(www.aiccca.org/images/ 

CertificateofCompliance.pdf.) 

Commission has brought six cases 

against credit counseling entities for 

deceptive and abusive practices, 

including a seminal action against 

AmeriDebt, Inc., which was, at the time, 

one of the largest CCAs.52 The 

defendants in these cases allegedly 

engaged in several common patterns of 

deceptive conduct in violation of 

Section 5 of the FTC Act.53 First, most 

made deceptive statements regarding 

their nonprofit status.54 Second, they 

allegedly frequently misrepresented the 

scope, benefits, and likelihood of 

success consumers could expect from 

their services. Misrepresentations 

included false promises to provide 

counseling and education services55 and 

overstatements of the amount or 

percentage of interest charges a 

consumer might save using the 

services.56 Third, these entities 

allegedly commonly misrepresented 

material information regarding their 

fees, including making false claims that 

they did not charge up-front fees57 or 

that fees were tax deductible.58 In 

addition to allegedly violating the FTC 

Act, some of these entities also allegedly 

engaged in violations of the TSR, 

particularly the Rule’s disclosure and 

misrepresentation provisions and the 

abusive practices section, including the 

National Do Not Call Registry 

provision.59

The IRS has played a key role in 

regulating CCAs based on its authority 

to regulate nonprofit entities under 

Section 501(c)(3) of the Internal 

Revenue Code (‘‘IRC’’). In 2003, in 

response to the abuses arising from forprofit entities masquerading as 

nonprofits, the IRS announced its 

intention to re-examine CCAs with 

501(c)(3) status to determine whether 

they were complying with the laws and 

regulations governing tax-exempt 

status.60 Ultimately, this initiative 

expanded into a full-scale program to 

examine all tax-exempt CCAs, resulting 

in ‘‘widespread revocation, proposed 

revocation or other termination of taxexempt status,’’ of many 

organizations,61 as well as increased 

scrutiny of new applications for taxexempt status by credit counseling 

agencies.62

To enhance the IRS’s ability to 

oversee CCAs, in 2006 Congress 

amended the IRC, adding Section 501(q) 

to provide specific eligibility criteria for 

CCAs seeking tax-exempt status as well 

as criteria for retaining that status.63

Among other things, Section 501(q) of 

the IRC prohibits tax-exempt CCAs 

from: making or negotiating loans to or 

on behalf of a client; engaging in credit 

repair activities, if those activities are 

not incidental to the provision of credit 

counseling, or charging a separate fee 

for credit repair activities; or 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.64 In addition, Section 501(q) 

provides that tax-exempt credit 

counselors may only charge reasonable 

fees for services; must allow fee waivers 

if a consumer is unable to pay; and may 

not, unless allowed by state law, base 

fees on a percentage of a client’s debt, 

DMP payments, or savings from 

enrolling in a DMP.65 Section 501(q) 

also limits the aggregate revenues that a 

tax-exempt CCA may receive from 

creditors for DMPs.66 Under Section 

501(q), tax-exempt CCAs also are 

prohibited from making or receiving 

referral fees and from soliciting 

voluntary contributions from a client.67

In addition to receiving regulatory 

scrutiny from the IRS, as a result of 

changes in the federal bankruptcy code, 

certain nonprofit CCAs have been 

subjected to rigorous screening by the 

Department of Justice’s Executive Office 

of the U.S. Trustee (‘‘EOUST’’). 

Pursuant to the Bankruptcy Abuse 

Prevention and Consumer Protection 

Act of 2005, consumers must obtain 

credit counseling before filing for 

bankruptcy and must take a financial 

literacy class before obtaining a 


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68 See Pub L. No. 109-8, 119 Stat. 23 (codified as 

amended at 11 U.S.C. 101 et seq.). 

69 See Application Procedures and Criteria for 

Approval of Nonprofit Budget and Credit 

Counseling Agencies by United States Trustees; 

Notice of Proposed Rulemaking, 73 FR 6062 (Feb. 

1, 2008) (seeking comment on proposed rule setting 

forth additional procedures and criteria for 

approval of entities seeking to become, or to remain, 

approved nonprofit budget and credit counseling 

agencies). The proposed rule and public comments 

are available at (www.regulations.gov). A list of 

EOUST-approved credit counselors is available to 

consumers at (www.usdoj.gov/ust/eo/bapcpa/ccde/ 

cc_approved.htm). 

70 See CCFS (Manning) Tr. at 54-57 (noting 

‘‘unprecedented levels of debt’’ and explaining that 

at least $350 billion in credit card debt was 

refinanced into home equity loans and mortgages 

between 2001 and 2007). 

71 See CCFS (Manning) Tr. at 65; FTC (Parnes) Tr. 

at 6-7; Care One at 2, 5 (estimating that six million 

consumers a year are unable to qualify for a 

traditional DMP because ‘‘[t]he traditional [DMP] 

supported by creditors is not sufficient to help 

consumers impacted by the downturn in the 

economy and the increased availability and use of 

unsecured debt.’’); see also supra notes 35-38 and 

accompanying text. 

72 This pressure may be responsible for a 

reduction in entities seeking to engage in credit 

counseling on a nonprofit basis. See, e.g., IRS 

(Grodnitzky) Tr. at 25 (noting that ‘‘since 2006, [the 

IRS has] received very few new applications from 

organizations wishing to engage in credit 

counseling’’). 

73 See NFCC (Binzel) Tr. at 29 (‘‘what we’ve seen 

as a result of companies being pushed out of 501(c), 

many have reemerged or are morphing into for 

profit entities and, in some cases, debt settlement 

companies.’’); IRS (Grodnitzky) Tr. at 66; EFA Data 

Processing (Ansbach) Tr. at 81 (‘‘There are more 

and more debt settlement companies that join us 

every day. Some are certainly well organized. 

Others are not. Some certainly join us with a 

tremendous amount of expertise. Others do not.’’); 

Debt Settlement USA (Craven) Tr. at 88 (‘‘In the 

past year alone, we have experienced a more than 

50% increase in the number of consumers who 

have turned to us and turned to debt settlement as 

an alternative to bankruptcy.’’). 

74 See NFCC (Binzel) Tr. at 31. 

75 See CCFS (Manning) Tr. at 61-62 (‘‘If people 

are in financial distress, we should be able to 

essentially underwrite them through a means test 

provision and say which program they should go 

into, and most importantly, what the debt 

concessions should look like. . . . We need to have 

a means test that says people are going to pay what 

they can afford to pay.’’). 

76 See CFA (Plunkett) Tr. at 103; EFA Data 

Processing (Ansbach) Tr. at 83 (‘‘These are 

consumers that are distraught, these are consumers 

that are crying, and I am sad to report to you that 

more often than not my representatives shared with 

me that these are people that are actually 

suicidal.’’). 

77 See USOBA at 7; see also generally US Debt 

Resolve (Johnson) Tr. at 71-75 (discussing the debt 

settlement business model). 

78 See USOBA at 7 (asserting that debt settlement 

offers are more likely to be accepted on accounts 

that are at least 120 days delinquent). 

79 See FTC, Collecting Consumer Debts, The 

Challenges of Change: A Workshop Report (Feb. 

2009), at 2-3; Kaulkin Ginsberg, The Kaulkin 

Report: The Future of Receivables Management 37 

(7th ed. 2007). 

80 See NCLC, Fair Debt Collection 14-15 (6th ed. 

2008). 

81 See id. Of course, many creditors use 

contingency collection agencies to collect debts that 

are delinquent but not charged-off. Once the debt 

is charged-off, ‘‘[c]ollection efforts continue on 

many charged-off debts for a substantial period of 

time . . . . Any payment on the charged-off debt is 

then treated as income – a recovery on a bad debt 

– on the debt collector’s books.’’ Id. (citing Uniform 

Retail Credit Classification and Account 

Management Policy, 65 FR 36,903 (June 12, 2000)). 

The use of the term ‘‘debt collector’’ to include 

contingency collection agencies, collection law 

firms, and debt buyers is consistent with the 

Commission’s interpretations of the Fair Debt 

Collection Practices Act (‘‘FDCPA’’). See FTC, 

Collecting Consumer Debts, The Challenges of 

Change: A Workshop Report (Feb. 2009), at 2-3. 

82 See ACA (Feb. 20, 2009) at 2 (reporting the 

results of a survey ACA conducted to determine its 

members’ experiences with debt settlement 

companies). 

83 See, e.g., USOBA at 7 (‘‘Once a consumer has 

preliminarily qualified for and decided upon a debt 

settlement company, the consumer receives an 

agreement for services, a creditor information form, 

a budget form, limited power of attorney, a 

permission to communicate form, and instructions 

on how to complete the package. Once the 

consumer has completed the package . . . [the 

company] is responsible for reviewing the package 

to ensure that the consumer meets the criteria to 

qualify for the program. The qualification process 

is a timely process, which includes a complete 

review of the client’s monthly budget form, the list 

of creditors on the creditor worksheet, the client’s 

Continued 

discharge from bankruptcy.68 Under the 

established processes, CCAs seeking 

certification as approved providers of 

the required credit counseling must 

submit to an in-depth initial 

examination and to subsequent reexamination by the EOUST.69

B. For-profit Debt Settlement Services 

1) Background 

As detailed above, the last decade has 

seen tremendous change in the debt 

relief industry. Historic levels of 

consumer debt70 have dramatically 

increased the demand for debt relief 

services, but traditional DMPs have 

become less available to consumers who 

increasingly have insufficient income to 

repay their debts under such plans.71 At 

the same time, CCAs have been under 

significant pressure due to decreases in 

fair share funding and new regulatory 

constraints.72 These developments have 

created an opportunity for a new debt 

relief business model offered by forprofit debt settlement companies.73

These companies commonly use radio, 

television, and Internet advertising to 

entice consumers with the prospect of 

lump sum settlements for less than the 

full outstanding balance of their 

unsecured debts.74 In many cases, they 

purport to offer consumers a way to pay 

off their unsecured debt obligations for 

pennies on the dollar. Unlike a DMP, 

the goal of a debt settlement plan is for 

the consumer to repay only a portion of 

the total owed. Thus, debt settlement 

may appeal to a wide range of indebted 

consumers, including: those who are 

ineligible for a DMP because their 

income is insufficient to enable them to 

repay their total debt in three to five 

years; those who would be able to repay 

their debts in full, but are unaware of 

the existence of or uninterested in the 

DMP option; and even those who might 

be better off declaring bankruptcy due to 

the extent of their indebtedness or other 

specifics of their particular situation.75

Many consumers seeking information 

about debt settlement are already 

behind on their debt payments and 

subject to the attendant stresses of their 

financial situations, including fielding 

multiple debt collection calls, struggling 

to make even minimum payments on 

their credit cards, and, in many 

instances, struggling to pay their 

mortgages. Thus, the prospect of 

alleviating these stresses has undeniable 

appeal. Advertisements for debt 

settlement services typically direct 

consumers to call for more information, 

and the resulting telemarketing 

transactions often occur when 

consumers are extremely vulnerable.76

The debt settlement business model 

appears to depend on the ability of the 

debt settlement provider to time a 

consumer’s delinquency and rate of 

savings to coincide with a creditor’s or 

debt collector’s incentive to settle.77

According to debt settlement industry 

representatives, settling a debt for less 

than the full principal value becomes 

more attractive to creditors as their 

internal charge-off deadlines 

approach.78 The delinquency, chargeoff, and collection process varies from 

creditor to creditor, but some 

commonalities exist. Generally, after a 

credit card account is delinquent for 

some period of time (most often 

between six months and a year) the 

issuer will ‘‘charge off the account.’’79

Once the creditor charges off the 

account, it is no longer listed as an 

account receivable, and its value is 

charged against the creditor’s reserves 

for losses.80 At the time of charge-off, 

the issuer may assign or sell the debt to 

a debt collector – whether a contingency 

collection agency, collection law firm, 

or debt buyer –who will then attempt to 

collect the debt directly from the 

consumer.81 Debt settlement companies 

often negotiate with debt collectors 

regarding accounts that are, due to their 

delinquency status, no longer in the 

creditor’s portfolio.82

Debt settlement industry 

representatives assert that they assess 

the information about a particular 

consumer’s financial condition and, 

based on that individualized 

assessment, calculate a monthly 

payment.83 Depending on the debt 


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history with those creditors (current, delinquent, 

how long the account has been open, cash 

advances, balance transfers), and the client’s ability 

to make the recommended monthly payment.’’). 

84 In many instances, consumers are requested or 

required to send funds to the debt settlement 

company to be escrowed. One debt settlement 

provider at the Workshop noted, however, that no 

‘‘legitimate debt settlement company [should] pay 

creditors on behalf of the consumer.’’ Debt 

Settlement USA (Craven) Tr. at 91. The 

Commission’s law enforcement shows the dangers 

of the escrow model. See, e.g., FTC v. Jubilee Fin. 

Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal. 2002) 

(alleging that defendants regularly withdrew money 

from consumers’ trust accounts to pay their 

operating expenses); FTC v. Edge Solutions, No. CV07-4087 (E.D.N.Y.), First Interim Report of 

Temporary Receiver (Oct. 23, 2007), at 3 (noting 

that ‘‘customer funds in the amount of $601,520 

were missing from the receivership defendants’ 

accounts and unaccounted for by the receivership 

defendants’’). 

85 See, e.g., FTC v. Connelly, No. SA CV 06-701 

DOC(RNBx) (C.D. Cal. 2006); FTC v. Jubilee Fin. 

Servs., Inc., No. 02-6468 ABC(Ex) (C.D. Cal. 2002). 

86 See ACA (Dec. 1, 2008) at 5 (‘‘ACA members 

routinely receive letters from debt settlement 

companies or law firms claiming to represent 

consumers. Commonly the letters include [power of 

attorney documents] that purport to be signed by 

the consumer authorizing the attorney to act on 

behalf of the consumer. The attorney then directs 

the credit-grantor or collection agency to work with 

a debt settlement company to resolve the debt.’’); 

see also, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007)(alleging defendants 

send power of attorney documents to consumers); 

FTC v. Better Budget Fin. Servs., Inc., No. 04- 

12326(WG4) (D. Mass. 2004) (alleging that 

consumers were instructed to sign power of 

attorney forms); FTC v. National Credit Council, 

Case. No. SACV04-0474 CJC(JWJx) (C.D. Cal. 2004) 

(alleging that defendants used power of attorney 

documents). 

In a comment submitted to the Commission in 

connection with the Workshop, ACA International 

(a trade organization representing third-party debt 

collectors) claimed that the power of attorney 

documents prepared by debt settlement companies 

are frequently legally deficient under state law. See 

ACA (Dec. 1, 2008) at 5-8. Moreover, unless 

presented by an attorney, a power of attorney may 

permit, but does not require, a creditor to contact 

the debt settlement company. Accordingly, it 

appears that this strategy often does not stop 

contacts between creditors and consumers, 

collection calls, or lawsuits/garnishment 

proceedings, but instead has the propensity to 

escalate the collection process. 

87 See ACA (Dec. 1, 2008) at 7 (‘‘The increase in 

for-profit debt settlement companies has resulted in 

more of these companies seeking to interpose 

themselves between consumers and credit-grantors 

or collectors.’’). Workshop comments from the 

Community Bankers Association (CBA), the 

American Financial Services Association (AFSA) 

and ACA International, as well as statements by 

banking representatives at the workshop, indicate 

debt settlement companies often use power of 

attorney and cease and desist letters to stop contacts 

between creditor and consumer. See ACA (Dec. 1, 

2008) at 4-7; CBA at 2-3; AFSA at 3. Creditors 

express displeasure, however, that once debt 

settlement companies intercede on behalf of 

consumers, the debt settlement companies are nonresponsive to creditor contacts. See, e.g., AFSA at 

3. One workshop panelist representing the 

American Bankers Association (‘‘ABA’’) noted that, 

even when successful, attempts to inhibit direct 

communication with consumers prevent creditors 

from informing consumers about available options 

for dealing with the debt and the ramifications of 

failure to make payments. See ABA (O’Neill) Tr. at 

96. 

88 See, e.g., FTC v. Jubilee Fin. Servs., Inc., No. 

02-6468 ABC (Ex) (C.D. Cal 2002) (alleging 

defendants instructed consumers, among other 

things, to submit change of address information to 

creditors so that mail would go directly to 

defendants); FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM, Exs. Supp. Mot. T.R.O., at Ex. 7 (D. 

Colo. 2007) (same). 

89 See US Debt Resolve (Johnson) Tr. at 72-74 (‘‘It 

is my opinion that a front end-loaded model looks 

at that [sic] 40 percent or more of the service fee 

is collected within the first three or four months 

and, then typically, the remainder of the service fee 

paid by the consumer to the company is paid over 

a 12-month period of time, sometimes even less.’’); 

TASC, General Response (Dec. 1, 2008), at 2 (‘‘The 

settlement savings fee model bases the majority of 

the fee on a percentage of the savings realized by 

the consumer. In most instances the fees for this 

model equate to around 20%. Companies using the 

settlement savings model generally charge an initial 

fee collected over the first one to three months 

followed by a lower monthly fee over the life of the 

program.’’); USOBA at 12 (‘‘Some business models 

call for the fee to be paid up front in its entirety, 

over the first several months of the program prior 

to any negotiating with creditors takes [sic] place. 

Other business models include this percentage fee 

into a consumer’s monthly payment, deducting a 

portion of the monthly payment and applying that 

portion towards the overall fee amount.’’); see also, 

e.g., FTC v. Connelly, No. SA CV 06-701 DOC 

(RNBx) (C.D. Cal. 2006) (alleging that defendants 

required consumers to make a ‘‘down payment’’ of 

30% to 40% of total fee in first two or three months 

with the remainder paid over the following 6 to 12 

months). 

90 See US Debt Resolve (Johnson) Tr. at 73 (noting 

that the cost of a program may be tied to a 

percentage of the debt owed when the consumer 

enrolls in the program or based on an estimate of 

the amount of money the consumer may save); see 

also CFA (Plunkett) Tr. at 103, 110 (‘‘Fifteen to 20 

percent of the total debt enrolled in the program is 

collected in the first year of the program. So, if you 

have $50,000 in debt, we’re talking about $7,500 or 

more in the first year . . . [T]hat makes it very 

difficult for most people to afford a program for 

which they have received nothing at that point.’’). 

91 See CFA (Plunkett) Tr. at 103. 

92 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007)(alleging defendant 

required full payment of fee – 8% of consumer’s 

total unsecured debt – before contacting any 

creditors); FTC v. Innovative Sys. Tech., Inc., No. 

CV04-0728 GAF JTLx (C.D. Cal. 2004) (alleging 

defendants required payment of ‘‘all or some of the 

fee’’ before they would perform services); US Debt 

Resolve (Johnson) Tr. at 108 (‘‘I think there is 

concern on protection for the consumer because at 

different points in time[] the settlement firm will 

collect 65% of the fees in six months and the client 

won’t have any results at that point in time.’’); id. 

Tr. at 74 (‘‘Typically on a front-end loaded program 

– I’m not saying that it’s incorrect – but the 

opportunity for the average consumer will not have 

the ability to settle.’’); see also USOBA Comment at 

12 (‘‘Some business models call for the fee to be 

paid up front in its entirety, over the first several 

months of the program prior to any negotiating with 

creditors takes place.’’); FTC v. National Credit 

Council, Case. No. SACV04-0474 CJC (JWJx) (C.D. 

Cal. 2004) (alleging ‘‘[o]nly after these [up-front] 

fees are paid in full do defendants begin to apply 

a consumer’s monthly payments to his NCCadministered trust account for use in settling his 

debts’’). 

93 See US Debt Resolve (Johnson) Tr. at 73. 

94 See id. at 73-74. 

settlement company, the consumer may 

make the payment to the debt settlement 

company or to a third-party escrow 

company.84 Consumers are typically 

told that the monthly payments – often 

in the range of hundreds of dollars – 

will accumulate until there are 

sufficient funds to make the creditor or 

debt collector an offer equivalent to an 

appreciable percentage of the amount 

originally owed to the creditor. During 

this time, the debt settlement provider 

often instructs the consumer not to talk 

to his or her creditors or debt 

collectors.85 To effectuate what appears 

to be a ‘‘communication blackout,’’ debt 

settlement companies often instruct 

consumers to assign them power of 

attorney86 and to send creditors 

(directly or through the debt settlement 

provider) a cease communication 

notice.87 In some cases, the debt 

settlement provider may even execute a 

change of address form substituting its 

address for the consumer’s, redirecting 

billing statements and collections 

notices so that the consumer does not 

receive them.88 A company may assure 

the consumer that it is in contact with 

the creditors or debt collectors directly 

and represent that collection calls and 

lawsuits will cease upon enrollment in 

the debt settlement program. 

The Workshop record indicates that 

there are three common fee models in 

the debt settlement industry. The first is 

the ‘‘front-end fee model.’’ Although 

this model has some variations, debt 

settlement companies that charge frontend fees generally require consumers to 

pay as much as 40% or more of the fee 

within the first three or four months of 

enrollment, and collect the remaining 

fee over an ensuing period of 12 months 

or less,89 whether or not any settlements 

have been attempted or achieved.90 This 

model is apparently becoming the most 

prevalent.91 Additionally, depending on 

the debt settlement company, 

consumers may be required to pay a 

substantial percentage or even the full 

fee before any portion of their funds are 

paid to creditors – and perhaps before 

the debt settlement company makes any 

contact with creditors.92 As a result, 

consumers may pay hundreds of dollars 

in up-front fees before any of their funds 

are escrowed for the settlement fund. 

The second common fee structure is 

the ‘‘flat fee model,’’ in which the entire 

fee is collected over approximately the 

first half of the total enrollment 

period.93 Finally, the ‘‘back-end model’’ 

contemplates the consumer paying a 

small monthly fee for the duration of the 

plan, and then, upon program 

completion, paying a fee equal to a 

percentage of total savings.94

Debt settlement broadcast advertising 

typically omits any representation 


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95 See, e.g,. FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007)(alleging defendants’ 

website represented ‘‘It’s Free’’ and ‘‘No Fee 

Application’’); FTC v. Connelly, No. SA CV 06-701 

DOC (RNBx) (C.D. Cal. 2006) (alleging defendants 

offered consumers free analysis of their financial 

situation); FTC v. Nat’l Credit Council, Case. No. 

SACV04-0474 CJC (JWJx) (C.D. Cal. 2004) (alleging 

defendant purported to offer ‘‘free counseling and 

assistance in debt management’’); TASC (Young) Tr. 

at 138-139. 

96 See, e.g., CFA (Plunkett) Tr. at 110 (‘‘[Y]ou go 

on almost any website for a settlement firm and you 

can’t find a simple explanation of what will be 

charged in general based on whatever, say a fee 

schedule.’’); TASC (Young) Tr. at 155-56. 

97 See AADMO (Guimond) Tr. at 45-46 (‘‘What 

are the real problems with debt settlement? I would 

mirror the earlier comments. I believe it’s the 

advertising practices. It’s an enticing offer to 

eliminate 75% of your debt in 12 months, but if 

that’s not what’s occurring it’s an absolutely 

worthless claim.’’). 

98 See USOBA at 7 (‘‘Most consumers normally 

begin the debt settlement process by searching 

online through various search engines, such as, 

Yahoo, Google, MSN, ASK, etc. Consumers will 

type in a keyword or key phrase, such as ‘debt help’ 

or ‘debt assistance’ and the search engine will 

provide both natural and advertised results. . . . 

Other means of advertising include national radio, 

television, newspapers, and magazines. Most 

advertisements specifically target consumers who 

are in financial trouble.’’). 

99 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007); FTC v. Edge Solutions, 

Inc., No. CV-07-4087 (E.D.N.Y. 2007); FTC v. 

Connelly, No. SA CV 06-701 DOC (RNBx) (C.D. Cal. 

2006); FTC v. Jubilee Fin. Servs., Inc., No. 02-6468 

ABC (Ex) (C.D. Cal 2002). 

100 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007); FTC v. Better Budget 

Fin. Servs., Inc., No. 04-12326 (WG4) (D. Mass. 

2004); California v. Am. Debt Arb., No. 06CS01309 

(Sup Ct. Sacramento Cty. 2006); Florida v. 

Emergency Debt Relief, AG Case No. L05-3-1033 

(2006); Florida v. Boyd, 2008 CA 002909 (4 th Jud. 

Cir., Duval Cty Mar 2008); see also NFCC (Binzel) 

Tr. at 30. 

101 See, e.g., FTC v. Innovative Sys. Tech., Inc., 

No. CV04-0728 GAF JTLx (C.D. Cal. 2004) (alleging 

that defendant represented that service was ‘‘no 

risk’’ because it guaranteed that its services would 

produce the advertised result). 

102 See, e.g., FTC v. Nat’l Consumer Council, Inc., 

No. SACV04-0474 CJC(JWJX) (C.D. Cal. 2004) 

(showing that only 1.4% of the consumers that 

entered defendant’s debt settlement program 

obtained the promised results); FTC v. Connelly, 

No. SA CV 06-701 DOC (RNBx), Order Denying 

Def’s Mot. Summ. J. (Dec. 20, 2006), at 18 (finding 

that only 12% to 14% of defendant’s consumers 

had debts settled with the represented reduction in 

overall debt); FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR, App. for T.R.O. (W.D. Wash. Mar. 6, 

2006) at 15 (alleging that Defendants failed to 

achieve promised interest rate reductions for 99.5% 

of sample of accounts and failed to achieve any 

interest rate reductions in 80.4 percent of the 

accounts); New York Attorney General, Press 

Release, Attorney General Cuomo Sues Debt 

Settlement Companies for Deceiving and Harming 

Consumers (May 20, 2009) (alleging that two debt 

settlement companies only provided the promised 

results to 1% and 1/3% of their consumers, 

respectively), available at (www.oag.state.ny.us/ 

media_center/2009/may/may19b_09.html). 

103 Generally, when asked for data to support its 

pervasive performance claims, the industry has not 

provided reliable statistical or empirical data. The 

lack of industry-wide statistics is not a new 

phenomenon. In its 2005 report on the debt 

settlement industry, the NCLC described its 

difficulty getting debt settlement companies or a 

trade association to provide data to support the 

advertising claims of debt settlement entities. See 

NCLC, An Investigation of Debt Settlement 

Companies: An Unsettling Business for Consumers 

(2005), at 1 (‘‘[M]any debt settlement companies we 

called would not share information about their 

business.’’); id. at 9 (‘‘It is possible that the fee 

arrangements described above would be justifiable 

if the companies actually earned those fees. 

Unfortunately, it is not easy to determine what the 

companies actually do to earn these fees. As noted 

above, the debt settlement trade association 

(USOBA) and companies we called have either 

refused to speak with us or provided vague 

responses.’’). Then, and now, the industry has not 

provided sufficient performance data to 

demonstrate that the typical consumer who enrolls 

in their debt relief services obtains the represented 

relief. For example, at the Workshop, USOBA’s 

representative stated that it has undertaken a new 

study, but could not state whether the study would 

be made public. See USOBA (Keehnen) Tr. at 260- 

61; see also CFA (Plunkett) Tr. at 105 (‘‘This is a 

very murky industry. It’s not just consumers who 

have a hard time getting real information on what’s 

really occurring. We need empirical information 

that’s independently verified. Based on what we 

have seen in the industry, it has to be 

independently verified.’’). 

104 TASC, a debt settlement industry trade 

association, submitted a study to the FTC 

purporting to show ‘‘completion rates’’ for 

consumers in debt settlement programs offered by 

TASC members. The study, which was voluntary 

for industry members, reported that ‘‘completion 

rates’’ ranged from 35% to 60%. See TASC , Study 

on the Debt Settlement Industry, at 1 (2007). 

However, this study’s probative value is limited 

substantially by, among other things, the fact that 

it does not provide any information on the TASC 

members who participated in the survey – i.e., how 

many TASC members participated, how long those 

who did participate had been in business, and how 

many consumers those members serviced. 

Additionally, the measurement of ‘‘completion 

rates’’ –a term undefined and subject to various 

interpretations – is not the correct means of judging 

success rates for the debt relief industry. For 

example, industry members may define 

‘‘completion’’ to mean that consumers obtained 

even a single settlement, regardless of how many 

accounts a consumer may have outstanding. See id. 

at 1 (in explaining its methodology, TASC notes 

that some of those surveyed ‘‘defined a completion 

as having all debts settled, [but that] there were two 

that considered a client completed if they had 

settled at least 80% of the debt and one if they had 

settled at least 50% of the debt’’). Similarly, a 

settlement may be counted as ‘‘completed’’ 

regardless of whether it was obtained on the terms 

represented to the consumer, or on less favorable 

terms. Industry members might even include 

consumers who ceased paying for services prior to 

receiving the represented results in the count of 

‘‘completed’’ accounts. The Commission believes, 

instead, that success rates should reflect the number 

or percentage of consumers who pay for the offered 

goods or services that then fully achieve the 

represented results. 

105 See, e.g., FTC v. Connelly, No. SA CV 06-701 

DOC (RNBx) (C.D. Cal. 2006); FTC v. Jubilee Fin. 

Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal. 2002). 

106 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007). 

regarding fees or charges for the service, 

other than statements such as ‘‘free 

online evaluation’’ or ‘‘free 

consultation.’’95 The issue of fees or 

charges is not broached until contact is 

made through a telemarketing sales call 

or even later – in the written contract 

the consumer receives after the 

telemarketing call.96

2) Consumer Protection Abuses in the 

Debt Settlement Industry 

Debt settlement plans, as they are 

commonly marketed and implemented, 

raise several consumer protection 

concerns. These concerns begin with the 

marketing and advertising of the 

services,97 but also extend to whether 

such plans are fundamentally sound for 

consumers. 

The initial contact between a debt 

settlement company and a prospective 

customer is typically through Internet, 

television, or radio advertising.98 The 

ads commonly urge consumers to call a 

toll-free number for more information.99

Common claims in the ads and ensuing 

telemarketing pitches include 

representations that debt settlement 

companies will obtain for consumers 

who enroll in a debt settlement plan any 

of the following results: a reduction of 

their debts by 50%; elimination of debt 

in 12 to 36 months; cessation of 

harassing calls from debt collectors and 

collection lawsuits; and expert 

assistance from debt settlement 

providers who have special 

relationships with creditors and 

knowledge about available techniques to 

induce settlement.100 Debt settlement 

companies also frequently represent that 

there is a high likelihood (sometimes 

even a ‘‘guarantee’’) of success.101 Law 

enforcement actions, consumer 

complaints, and the Workshop record, 

however, cast serious doubt on the 

validity of such claims.102 Indeed, even 

the industry’s own figures, to the 

limited extent it has provided them,103

indicate that a large proportion of 

consumers who enter a debt settlement 

plan do not attain the commonly touted 

results.104

In some instances debt settlement 

companies omit material information 

about the debt settlement process from 

their marketing presentations to 

consumers. Specifically, they often 

counsel consumers to stop paying their 

creditors105 without informing them 

that failing to make payments to 

creditors may actually increase the 

amount they owe because of penalties 

and interest and likely will adversely 

affect their credit score. Consumers 

often are misled that their initial 

payments are taken by the debt 

settlement company as fees and not 

saved for settlement of their debt.106

Further, debt settlement companies, in 

many instances, misrepresent to 

consumers how long it will take them to 


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107 See, e.g., Debt Settlement USA, Growth of the 

Debt Settlement Industry, at 10 (‘‘Fraudulent firms 

also regularly fail to provide the services promised 

to consumers by claiming that they can help them 

become debt free in an unrealistically short amount 

of time and/or promise too low of a settlement.’’). 

108 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007); FTC v. Innovative Sys. 

Tech., Inc., No. CV04-0728 GAF JTLx (C.D. Cal. 

2004); see also USOBA at 12 (‘‘Some business 

models call for the fee to be paid up front in its 

entirety, over the first several months of the 

program prior to any negotiating with creditors 

takes place.’’). 

109 One of the Commission’s enforcement actions, 

FTC v. Connelly, No. SA CV 06-701 DOC (RNBx) 

(C.D. Cal. 2006), is particularly illustrative on this 

harm: In that matter, between 2004 and 2005, 5,679 

lawsuits were filed against defendants’ estimated 

18,116 consumers (the total number of consumers 

as of October 2005). See id., Trial Exs. 382, 561, 

562, 623 & Schumann Test., Day 4, Vol. III, 37:21- 

40:12; 34:17-37:4; see also infra note 221. 

110 FTC v. Debt-Set, Inc., No. 1:07-cv-00558-RPM 

(D. Colo. 2007); FTC v. Edge Solutions, No. CV-07- 

4087 (E.D.N.Y. 2007); FTC v. Connelly, No. SA CV 

06-701 DOC (RNBx) (C.D. Cal. 2006); FTC v. Better 

Budget Fin. Servs., Inc., No. 04-12326 (WG4) (D. 

Mass. 2004); FTC v. Innovative Sys. Tech., Inc., No. 

CV04-0728 GAF JTLx (C.D. Cal. 2004); FTC v. Nat’l 

Consumer Council, No. SACV04-0474 

CJC(JWJX)(C.D. Cal. 2004); FTC v. Jubilee Fin. 

Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal. 2002). 

111 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007) (alleging that 

defendants misrepresented that they would not 

charge consumers any up-front fees before obtaining 

the promised debt relief, but required a substantial 

up-front fee). 112 See, e.g., id. 113 See, e.g., id.; FTC v. Connelly, No. SA CV 06- 

701 DOC (RNBx) (C.D. Cal. 2006). 114 See, e.g., FTC v. Innovative Sys. Tech., Inc., 

No. CV04-0728 GAF (JTLx) (C.D. Cal. 2004) 

(defendants misrepresented that they would refund 

consumers’ money if unsuccessful). 115 See, e.g., id. 116 See, e.g., FTC v. Connelly, No. SA CV 06-701 

DOC (RNBx) (C.D. Cal. 2006). 117 See, e.g., FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007). 118 In addition to the Workshop, the FTC has also 

published a number of relevant consumer education 

publications. See e.g., Knee Deep in Debt, available 

at (www.ftc.gov/bcp/edu/pubs/consumer/credit/ 

cre19.shtm;) Fiscal Fitness: Choosing a Credit 

Counselor, available at (www.ftc.gov/bcp/edu/pubs/ 

consumer/credit/cre26.shtm.) 119 See AADMO (Guimond) Tr. at 44 (‘‘If you also 

look at some states [which regulate debt settlement] 

. . . [t]here are no or very few licensed debt 

settlement companies.’’). 120 See, e.g., Conn. Gen. Stat. § 36A-655, et seq.; 

La. Rev. Stat. § RS 14:331, et seq., 37:2581, et seq.; 

N.D. Gen. Stat. § 13-06-01-03 & 13-07-01-07; Wyo. 

Stat. Ann. § 33-14-101, et seq. 

121 See, e.g., N.C. Gen. Stat § 14-423 et seq. 

122 See, e.g., Kan. Stat. Ann. § 50-1116, et seq.; 

Me. Rev. Stat. Ann. Tit. 17 § 701, et seq. &tit. 32 

§ 6171, et seq., 1101-03; N.H. Rev. Stat. Ann. § 339- 

D:1, et seq.; Va. Code Ann. § 6.1-363.2, et seq. 

123 See, e.g,. Kan. Stat. Ann. § 50-1116, et seq.; 

N.H. Rev. Stat. Ann. § 339-D:1, et seq; S.C. Code 

Ann. § 37-7-101, et seq.; Wash. Rev. Code 

§ 18.28.010, et seq. 

124 See, e.g., S.C. Code Ann. § 37-7-101, et seq.; 

Va. Code Ann. § 6.1-363.2, et seq.; Wash. Rev. Code 

§ 18.28.010, et seq. 

125 See, e.g., Fla. Stat. § 817.801, et seq. (limiting 

initial fee to $50 and monthly fee to $35 or 7.5% 

of total payment); Me. Rev. Stat. Ann. Tit. 17 § 701, 

et seq., tit. 32 § 6171, et seq. (limiting set-up fee to 

$75, monthly charge to $40, and 15% of reduction 

for any settlement of debt). 

126 See AADMO (Guimond) Tr. at 42. 

127 Unif. Debt-Mgmt. Servs. Act § 23(d)(2) (2008) 

(allowing debt settlement entities to charge ‘‘a fee 

for consultation, obtaining a credit report, setting 

up an account, and the like, in an amount not 

exceeding the lesser of $400 and four percent of the 

debt in the plan at the inception of the plan; and 

. . . a monthly service fee, not to exceed $10 times 

the number of creditors remaining in a plan at the 

time the fee is assessed, but not more than $50 in 

any month.’’); id. § 23(d)(1) (2008) (allowing entities 

that offer to ‘‘reduce finance charges or fees for late 

payment, default, or delinquency’’ to charge ‘‘a fee 

not exceeding $50 for consultation, obtaining a 

credit report, setting up an account, and the like; 

and . . . a monthly service fee, not to exceed $10 

times the number of creditors remaining in a plan 

at the time the fee is assessed, but not more than 

$50 in any month.’’). 

128 Unif. Debt-Mgmt. Servs. Act § 17(b) (requiring 

that debt management entities provide consumers 

‘‘with reasonable education about the management 

of personal finance’’). 

129 Unif. Debt-Mgmt. Servs. Act § 2(6) (setting 

forth requirements for certification); id. § 16 

(requiring that registered entities ‘‘maintain a tollfree communication system, staffed at a level that 

reasonably permits an individual to speak to a 

certified counselor, certified debt specialist, or 

customer-service representative, as appropriate, 

during ordinary business hours.’’). 

save sufficient funds in order to offer 

settlements to each creditor.107

Consumers often suffer irreparable 

injury as a result of paying a fee in 

advance of receiving services offered by 

a debt settlement company. These 

consumers, relying on the 

representations of results, pay fees to 

debt settlement companies believing 

that most or all of the payments are 

being saved for the promised debt 

settlement.108 Telemarketers’ practice of 

taking fees before a settlement is 

obtained results in a number of adverse 

consequences: late fees or other penalty 

charges, interest charges, delinquencies 

reported to credit bureaus that decrease 

the consumer’s credit score, and 

sometimes legal action to collect the 

debt.109 Given what appear to be the 

relatively low success rates for debt 

settlement plans, consumers who pay 

substantial fees up-front are likely to be 

harmed. 

3) Law Enforcement Actions and Other 

Responses 

The Commission and state enforcers 

have brought law enforcement actions 

and launched consumer education 

efforts to combat deceptive and unfair 

practices in the debt settlement 

industry. Since 2001, the Commission 

has brought seven actions against debt 

settlement entities for a variety of the 

abuses detailed above.110 As in the 

FTC’s actions against deceptive credit 

counselors, these suits commonly allege 

the misrepresentation of fees, or the 

failure to fully disclose them – 

including the significant up-front fees 

that are often charged.111 Additionally, 

the Commission alleged that these 

defendants falsely promised high 

success rates,112 promisedunattained 

results (e.g., settlements for a certain 

percentage of the total original debt),113

and misrepresented their refund 

policies.114 Further, the Commission 

complaints charged that the defendants 

in these matters failed to warn 

consumers of the negative consequences 

of debt settlement, including the 

accumulation of late fees and other 

charges,115 the effect on consumers’ 

credit ratings,116 and the fact that debt 

collectors would continue to contact 

consumers.117

To complement its law enforcement 

efforts, the Commission has worked to 

advance public awareness of the debt 

settlement industry through its 

September 25, 2008 Workshop to 

discuss the origins and current practices 

of the debt settlement industry and 

consumer protection issues, including 

the possible need for additional 

regulation by the Commission and the 

future of the industry. The Workshop 

record has aided Commission efforts to 

understand better, and now propose 

additional restrictions to curb, deceptive 

and unfair practices involving debt 

settlement and other forms of debt relief 

services.118

The states have also been active in 

attempting to regulate abuses in the debt 

settlement industry.119 Many states have 

enacted statutes specifically designed to 

restrict deceptive practices in this area; 

in fact, some have banned for-profit debt 

settlement entirely120 or the charging of 

up-front fees.121 However, most of these 

statutes allow debt settlement but 

impose certain requirements, for 

example that companies be licensed in 

the state,122 that they provide 

consumers with certain key disclosures 

(e.g., schedule of payments and fees),123

and/or that they provide consumers 

with some right to cancel enrollment.124

Additionally, some states restrict the 

amount and timing of fees, including 

up-front fees and subsequent monthly 

charges.125 In 2005, the National 

Conference of Commissioners on 

Uniform Laws (‘‘NCCUSL’’) drafted the 

Uniform Debt-Management Services Act 

(‘‘Uniform Act’’) in an attempt to 

provide consistent regulation of both 

for-profit and nonprofit debt relief 

services across the United States.126

Among the key consumer protection 

provisions in the Uniform Act are: a fee 

cap127; mandatory education 

requirements128; certified counselors129; 

and accreditation requirements for 


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130 Unif. Debt-Mgmt. Servs. Act § 6(8); see also 

AADMO (Guimond) Tr. at 42-43; NCCUSL (Kerr) 

Tr. at 207. 

131 According to NCCUSL, the recent 

amendments to the Uniform Act did not impact the 

consumer protection provisions referenced above, 

rather the amendments focused on addressing 

problems identified with the Uniform Act that 

made it difficult for states to implement. See 

NCCUSL (Kerr) Tr. at 211-12. 

132 See, e.g., California v. American Debt Arb., 

Case No. 06CS01309 (Sup. Ct. Sacramento Cty. 

2006); Florida v. Emergency Debt Relief, AG Case 

No. L05-3-1033 (2006); Florida v. Boyd, 2008 CA 

002909 (4 th Jud. Cir., Duval Cty Mar. 2008); see 

also, Florida Attorney General, Press Release, 

Attorney General Announces Settlement in Debt 

Relief Scheme that Victimized Thousands (Nov. 25, 

2008), available at (www.myfloridalegal.com/ 

newsrel.nsf/pv/ 

352C2D099A1FA7EE8525750C006DF6B4); North 

Carolina Attorney General, Press Release, Debt relief 

firms ordered to stop taking money in NC, says AG, 

available at (www.ncdoj.gov/ 

DocumentStreamerClient?directory=PressReleases/ 

&file=Consumer%20Law%20Center.pdf) (Feb. 15, 

2008); Maryland Attorney General, Press Release, 

Attorney General Settles with Companies Selling 

Debt Repayment Services, available at 

(www.oag.state.md.us/Press/2007/101907.htm) 

(Oct. 19, 2007); West Virginia Attorney General, 

Press Release, Attorney General McGraw Reaches 

Settlement with Four Debt Relief Companies for 366 

Consumers (May 16, 2007), available at 

(www.wvago.gov/press.cfm?ID=343&fx=more). 

133 See Texas v. CSA-Credit Solutions of Am., 

Inc., No. 09-000417 (Dist. Travis Cty, filed Mar. 26, 

2009), available at (www.oag.state.tx.us/newspubs/ 

releases/2009/032509csa_op.pdf). In a similar case, 

Florida challenged the practices of another debt 

settlement provider. See Florida v. Boyd, 2008-CA002909 (Cir. Ct. 4th Cir. Duval Cty, Mar. 5, 2008) 

(alleging deceptive and unfair practices for 

promises to settle debts for ‘‘as little as 25-50%’’ of 

the balance owed in 12 to 36 months), available at 

(www.myfloridalegal.com/webfiles.nsf/WF/JFAO7CFMMD/$file/FutureFinancialComplaint.PDF.) 

134 See, e.g., New Hampshire Banking Dept. v. 

Debt Relief USA, No. 08-361 (Order of License 

Denial, Jan. 2, 2009) (denying company licencing 

for failing to abide by state requirements, including 

fee caps), available at (www.nh.gov/banking/ 

Order08_361DebtReliefUSA_DO.pdf); Florida v. 

Boyd, 2008-CA-002909 (Cir. Ct. 4 th Cir. Duval Cty, 

Mar. 5, 2008) (alleging violations of Florida credit 

counseling statute for, inter alia, charging fees 

above statutory cap), available at 

(www.myfloridalegal.com/webfiles.nsf/WF/JFAO7CFMMD/$file/FutureFinancialComplaint.PDF). 

West Virginia Attorney General, Press Release, 

Attorney General McGraw Sues Texas Debt 

Settlement Company (Apr. 14, 2009) (alleging that 

defendant charged more the 2% fee cap set by state 

law), available at (www.wvago.gov/ 

press.cfm?fx=more&ID=472); Vermont Attorney 

General, Debt Adjuster Sanctioned For Violating 

Licensing And Consumer Laws (Mar. 9, 2009) 

(alleging, inter alia, that company violated state 

debt adjustment law by doing business in state 

without a license), available at (www.atg.state.vt.us/ 

display.php?smod=63&pubsec=4&curdoc=1659). 

Maryland Attorney General, Attorney General 

Settles with Companies Selling Debt Repayment 

Services (Oct. 19, 2007), available at 

(www.oag.state.md.us/Press/2007/101907.htm). 

135 See Colorado Attorney General Press Release, 

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). 

136 See e.g., FTC v. MCS Programs, LLC, No. C09- 

5380RJB (W.D. Wash. 2009); FTC v. Group One 

Networks, Inc., No. 8:09-cv-352-T-26-MAP (M.D. 

Fla. 2009) (amended complaint); FTC v. Select Pers. 

Mgmt., No. 07- 0529 (N.D. Ill. 2007); FTC v. Debt 

Solutions, Inc., No. 06-0298 JLR (W.D. Wash. 2006). 

137 See FTC v. MCS Programs, LLC, No. C09- 

5380RJB (W.D. Wash. 2009)(alleging defendants 

charged an up-front fee of $690 to $899); FTC v. 

Group One Networks, Inc., No. 8:09-cv-352-T-26- 

MAP (M.D. Fla. 2009) (amended complaint) 

(alleging defendants charged an up-front fee of $595 

to $895); FTC v. Select Pers. Mgmt., No. 07- 0529 

(N.D. Ill. 2007) (alleging defendants charged an upfront fee of $695); FTC v. Debt Solutions, Inc., No. 

06-0298 JLR (W.D. Wash. 2006) (alleging that 

defendants charged an up-front fee of $399 to $629). 

138 See FTC v. MCS Programs, LLC, No. C09- 

5380RJB (W.D. Wash 2009) (alleging defendants 

represented that their program would save 

consumers $2,500 or more); FTC v. Group One 

Networks, Inc., No. 8:09-cv-352-T-26-MAP (M.D. 

Fla. 2009) (amended complaint) (alleging 

defendants represented they would provide 

consumers with savings of $1,500 to $20,000 in 

interest); FTC v. Select Pers. Mgmt., No. 07- 0529 

(N.D. Ill. 2007) (alleging defendants represented 

consumers would save a minimum of $2,500 in 

interest); FTC v. Debt Solutions, Inc., No. 06-0298 

JLR (W.D. Wash. 2006) (alleging defendants 

promised to save consumers $2500). 

139 See FTC v. MCS Programs, LLC, No. C09- 

5380RJB (W.D. Wash. 2009); FTC v. Group One 

Networks, Inc., No. 8:09-cv-352-T-26-MAP (M.D. 

Fla. 2009) (amended complaint); FTC v. Select Pers. 

Mgmt., No. 07- 0529 (N.D. Ill. 2007); FTC v. Debt 

Solutions, Inc., No. 06-0298 JLR (W.D. Wash. 2006). 

140 See FTC v. MCS Programs, LLC, No. C09- 

5380RJB, App. for T.R.O. at 7 (W.D. Wash. 2009) 

(alleging that defendants ‘‘create the impression of 

affiliation with consumers’ banks or credit card 

companies’’); FTC v. Group One Networks, Inc., No. 

8:09-cv-352-T-26-MAP (M.D. Fla. 2009) (amended 

complaint) (alleging defendants claimed to have 

‘‘close working relationship with over 50,000’’ 

creditors); FTC v. Select Pers. Mgmt., No. 07- 0529 

(N.D. Ill. 2007) (alleging defendants claimed to be 

affiliated with consumers’ credit card companies); 

FTC v. Debt Solutions, Inc., No. 06-0298 JLR (W.D. 

Wash. 2006) (alleging that defendants claimed to 

have ‘‘special relationships’’ with creditors). 

141 Workshop participants expressed support for 

a federal legislative or regulatory solution to 

concerns about debt settlement. See, e.g., American 

Credit Alliance (Franklin) Tr. at 212 (agreeing that 

federal regulation is necessary); NCCUSL (Kerr) Tr. 

at 212 (agreeing that federal regulation of debt 

settlement advertising is needed); USPIRG 

(Mierzwinski) Tr. at 212-213 (agreeing that federal 

regulation is necessary, but arguing that it should 

serve as a floor, not a ceiling, of protection); USOBA 

(Keehnen) Tr. at 213 (agreeing that federal 

regulation is necessary, but arguing that it should 

serve as a floor, not a ceiling, of protection); Gordon 

Feinblatt (Witzel) Tr. at 213 (agreeing that federal 

Continued 

sellers of debt management services.130

At this point, only a handful of states 

have adopted the Uniform Act, but 

NCCUSL believes that with recent 

modifications to the Act in 2008 more 

states will adopt it in 2009.131

Further, state regulators and 

Attorneys General have filed numerous 

law enforcement actions against debt 

settlement companies.132 Some states 

have sued these entities for alleged 

violations of state consumer protection 

laws banning unfair or deceptive acts 

and practices. For example, in one 

recent action, Texas sued a debt 

settlement entity under state consumer 

protection law for making deceptive 

claims that it could eliminate 

consumers’ debts in 36 months or less 

and reduce their overall amount by as 

much as 60%.133 Other states have 

brought lawsuits against companies for 

allegedly violating their debt 

management or settlement statutes.134 In 

an illustrative case, Colorado recently 

settled suits against several debt 

settlement entities under its debt 

management statute for, among other 

things, failing to register with the state, 

charging illegal fees, and/or failing to 

allow consumers to cancel contracts.135

C. Debt Negotiation 

In addition to credit counseling and 

debt settlement, the Commission has 

observed a third category of debt relief 

service which this Notice refers to as 

‘‘debt negotiation.’’ Debt negotiation 

companies offer to obtain interest rate 

reductions or other concessions to lower 

consumers’ monthly payment to 

creditors.136 Unlike DMPs or debt 

settlement, debt negotiation does not 

purport to obtain full balance payment 

plans or lump sum settlements of less 

than the full balance. Rather debt 

negotiators offer to obtain interest rate 

reductions or other concessions from 

creditors to make monthly payments 

more affordable. However, similarly to 

debt settlement companies, some debt 

negotiation entities charge significant 

up-front fees.137 Additionally, like some 

debt settlement companies, debt 

negotiators may represent or promise 

specific results, like a particular interest 

rate reduction or amount saved.138

The FTC has brought four actions 

against defendants for alleged deceptive 

debt negotiation practices.139 In each 

case, defendants relied on telemarketing 

to deliver alleged deceptive 

representations to consumers – i.e., that 

they could reduce consumers’ interest 

payments by specific percentages or 

minimum amounts, in exchange for a 

fee of hundreds of dollars. The 

Commission also alleged that some of 

these entities falsely purported to be 

affiliated, or have close relationships, 

with consumers’ creditors.140 Finally, in 

each case, the Commission charged 

defendants with violations of the TSR. 

III. Discussion of the Proposed Rule 

Based on its enforcement and 

outreach experience, including 

information from the Workshop, the 

Commission tentatively has concluded 

that additional legal restrictions are 

needed to address pervasive illegal 

conduct occurring in the sale of debt 

relief services.141 Thus, the Commission 


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legislation is necessary); NFCC (Binzel) Tr. at 33 

(‘‘[I]f debt settlement companies are going to be 

allowed to do business, they should be subjected to 

strong Federal legislation. At a minimum, the 

legislation should define the scope of the services 

that may be provided;. . . set caps on the range of 

fees that may be charged and ensure that the fees 

are commensurate with the services being provided; 

prohibit the collection of fees until actual services 

are provided; require full disclosure to consumers 

to inform them of the fees that are being charged, 

the potential consequence of utilizing debt 

settlement, the potential impact of debt settlement 

services on their credit history and the tax 

consequences of debt settlement’’); AADMO 

(Guimond) Tr. at 46 (‘‘AADMO does support federal 

legislation and state regulation that regulates both 

credit counseling and debt settlement, just not 

necessarily together’’). 

142 Outbound telemarketing of debt relief services 

is already subject to the TSR. See, e.g., FTC v. 

Express Consolidation, No. 06-cv-61851-WJZ (S.D. 

Fla. 2006) (alleging violation of TSR by defendant 

offering consumers assistance in obtaining lower 

credit card interest rates); FTC v. Debt Solutions, 

Inc., No. 06-0298 JLR (W.D. Wash. 2006) (alleging 

violations of the TSR by debt settlement company). 

Inbound telemarketing of debt relief services in 

response to general media advertisements currently 

is exempt from the Rule, 16 CFR 310.6(b)(5), as is 

inbound calling in response to direct mail 

advertisements that make the requisite disclosures 

required in Section 310.3(a)(1) of the Rule. 16 CFR 

310.6(b)(6). Inbound calls in response to direct mail 

advertisements that do not make these disclosures, 

however, are presently subject to the Rule. 16 CFR 

310.6(b)(6). 

143 See CFA (Plunkett) Tr. at 101-02 (‘‘It’s not like 

there isn’t some responsibility here on the part of 

the credit card industry for the fact that the debt 

settlement industry is surfacing and appears to be 

growing. Creditors do share some responsibility for 

this growth. As I mentioned, there’s demand and 

CFA has documented over the last decade that 

credit card issuers have reduced the concessions, 

the benefits that they offer to consumers in credit 

counseling. So, therefore, the demand for an 

alternative has been even stronger. And we’d like 

to see creditors work harder in their work-out 

programs, their individual one-on-one programs, to 

meet the needs of the consumers who clearly have 

a hardship and clearly need some form of a 

settlement.’’). 

144 See supra notes 35-38 and accompanying text; 

see also CFA (Plunkett) Tr. at 104 (‘‘One of the 

market-based solutions that’s very promising are the 

ongoing efforts by creditors and credit counseling 

agencies to develop what I think is a much more 

viable and a consumer-friendly alternative to 

bankruptcy and to, on the other extreme, a 

traditional debt management plan.’’). 

145 15 U.S.C. 6105(a). 

146 Section 5(a)(2) of the FTC Act states: ‘‘The 

Commission is hereby empowered and directed to 

prevent persons, partnerships, or corporations 

. . . from using unfair or deceptive acts or practices 

in or affecting commerce.’’ 15 U.S.C. 45(a)(2). 

Section 4 of the Act defines ‘‘corporation’’ to 

include: ‘‘any company, trust, so-called 

Massachusetts trust, or association, incorporated or 

unincorporated, which is organized to carry on 

business for its own profit or that of its 

members. . . .’’ 15 U.S.C. 44 (emphasis added). 

147 See TSR; Proposed Rule, 67 FR 4492, 4497 

(Jan. 30, 2002) (citing TSR; Statement of Basis and 

Purpose and Final Rule, 60 FR, 43842, 43843 (Aug. 

23, 1995)) ( ‘‘As the Commission stated when it 

promulgated the Rule, ‘[t]he Final Rule does not 

include special provisions regarding exemptions of 

parties acting on behalf of exempt organizations; 

where such a company would be subject to the FTC 

Act, it would be subject to the Final Rule as 

well.’’’); see also Nat’l Fed’n of the Blind v. FTC, 

420 F.3d 331, 334-35 (4th Cir. 2005). 

148 Pursuant to the USA PATRIOT Act 

amendments to the TSR in 2001, the Rule now 

reaches ‘‘not only the sale of goods or services, but 

also charitable solicitations by for-profit entities on 

behalf of nonprofit organizations.’’ TSR; Final 

Amended Rule, 68 FR 4580, 4585 (Jan. 29, 2003). 

149 Supra note 147. 

150 Specifically, in these actions, the Commission 

has secured injunctive relief and significant 

monetary judgments. See, e.g., FTC v. AmeriDebt, 

Inc., No. PJM 03-3317 (D. Md. 2005) (stipulated 

final judgment for $172 million suspended 

judgment, and barring defendants from making 

nonprofit claims, with $12.7 million returned to 

consumers as a result of the FTC action and $7- 

million as a result of class action settlements); see 

is proposing amendments to the TSR 

specifically to address debt relief 

services, the sale of which commonly 

involves telemarketing. The existing 

provisions of the TSR already apply to 

outbound calls made to induce the 

purchase of debt relief services and to 

any non-exempt inbound calls.142 The 

proposed amendments would bring all 

inbound debt relief calls in response to 

direct mail or general media 

advertisements under the Rule and 

would add tailored provisions to 

address specific concerns about 

deceptive and abusive practices 

prevalent in the marketing of such 

offers. 

While the Commission believes that 

the proposed amendments are an 

important step in the effort to prevent 

harm to consumers considering debt 

relief options, it believes that a 

comprehensive approach is needed to 

address the important consumer 

protection concerns at issue. Therefore, 

in addition to this rulemaking initiative, 

the Commission intends to continue law 

enforcement, as well as its consumer 

education efforts, to ensure that 

consumers considering debt relief make 

informed choices. Further, the 

Commission believes that creditors and 

debt collectors can do more to address 

the concerns at issue in this proceeding, 

such as developing innovative loss 

mitigation techniques.143 Creditors are 

uniquely positioned to play a role in 

resolving issues related to debt relief 

because they have direct relationships 

with consumers in financial distress. 

With traditional DMPs out of reach for 

many consumers and significant 

concerns about the efficacy of the debt 

settlement model, at least as it currently 

exists, the Commission encourages 

creditors to step up efforts to reach 

consumers directly and determine what, 

if any, debt relief options may be 

available. One positive development in 

this regard came with the recent 

announcement that the ten top credit 

card issuers are amenable to more 

flexible DMPs.144

The Commission invites written 

comments on the proposed Rule, and, in 

particular, answers to the specific 

questions set forth in Section VIII, to 

assist it in determining whether the 

proposed Rule provisions strike an 

appropriate balance between 

maximizing protections for consumers 

from deceptive and abusive conduct in 

the telemarketing of debt relief services, 

while avoiding the imposition of 

unnecessary compliance burdens on 

legitimate industry actors. 

A. Section 310.1: Scope 

Although no amendment is proposed 

with regard to the scope of the Rule, it 

is worth noting, for the benefit of those 

who may be unfamiliar with the TSR, 

that the Telemarketing Act dictates that 

the jurisdictional limits of the FTC Act 

apply to the TSR. Specifically, the Act 

states that ‘‘no activity which is outside 

of the jurisdiction of [the FTC Act] shall 

be affected by this chapter.’’145 One 

example of such an activity, which 

merits mention here, is the exemption of 

nonprofit entities from the jurisdiction 

of the FTC Act and, by extension, the 

TSR. This jurisdictional limitation is 

rooted in Sections 4 and 5 of the FTC 

Act which, by their terms, provide the 

Commission with jurisdiction only over 

persons, partnerships, or corporations 

organized to carry on business for their 

profit or that of their members.146

Thus, legitimate nonprofit credit 

counseling agencies that conduct 

telemarketing campaigns on their own 

behalf will not be subject to the 

amended Rule. As the Commission 

previously has stated, however, the TSR 

‘‘does apply to any third-party 

telemarketers [that exempt] entities 

might use to conduct telemarketing 

activities on their behalf.’’147 Thus, if a 

for-profit telemarketer is engaged on 

behalf of a nonprofit entity in a 

telemarketing campaign to offer a ‘‘debt 

relief service,’’ as defined in proposed 

Section 310.2(m), that telemarketer 

would be subject to the Rule.148

Additionally, the Commission has 

jurisdiction over sham nonprofits that 

operate as for-profit entities in 

practice.149

Indeed, the Commission’s law 

enforcement record shows that sham 

nonprofit CCAs have been a source of 

significant consumer injury. Although 

these entities purport to operate as 

nonprofits, their activities in fact earn 

profits for affiliated entities or 

individuals. The Commission has 

obtained robust injunctive and 

monetary relief in actions against these 

bogus nonprofit credit counselors for 

deceptive practices in violation of the 

FTC Act.150


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also, e.g., FTC v. Express Consolidation, No. 06-cv61851-WJZ (S.D. Fla. 2008) (stipulated final 

judgment for over $40 million); United States v. 

Credit Found. of Am., No. CV 06-3654 ABC(VBKx) 

(C.D. Cal. 2006) (stipulated final judgment of 

$926,754 in consumer redress and civil penalties, 

a $102,540 suspended judgment, and injunctive 

relief); FTC v. Integrated Credit Solutions, No. 06- 

806-SCB-TGW (M.D. Fla. 2006) (stipulated final 

judgment of $2,371,380 in consumer redress and 

ordering defendants to set aside $415,000 to refund 

enrollment fees); FTC v. Debt Mgmt. Found. Svcs., 

No. 04-1674-T-17-MSS (M.D. Fla. 2005)(stipulated 

suspended judgment for over $11 million and 

injunctive relief); FTC v. Nat’l Consumer Council, 

No. SACV04-0474CJC(JWJX) (C.D. Cal. 2005) 

(stipulated suspended judgment of $84.3 million 

and injunctive relief). 

151 Former Section 310.2(m) (definition of 

‘‘donor’’) and all subsequent definitions have been 

renumbered accordingly in the proposed amended 

Rule. 

152 The definition is focused on the provision of 

debt relief services, but Section VIII of this Notice 

includes questions to aid the Commission in 

determining whether this definition, and by 

extension, the coverage of the proposed 

amendments, should include ‘‘debt relief products’’ 

as well. 

153 The Commission has brought actions against 

entities and individuals alleging mortgage-related 

debt relief fraud using its authority under Section 

5 of the FTC Act. These cases allege false guarantees 

of success; false representations about refund 

policies; undisclosed up-front fees; 

misrepresentations regarding affiliations with 

nonprofit or government entities; and failure to 

deliver the promised services. See FTC v. Dinamica 

Financiera LLC, No. 09-CV-03554 CAS PJWx (C.D. 

Cal., filed May 19, 2009); FTC v. Cantkier, No. 1:09- 

cv-00894 (D.D.C. filed May 14, 2009); FTC v. 

Federal Loan Modification Law Center, LLP, Case 

No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 

3, 2009); FTC v. (http://bailout.hud-gov.us) and 

Ryan, Civil No. 1:09-00535 (HHK) (D.D.C. filed Mar. 

25, 2009); FTC v. Home Assure, LLC, Case No. 8:09- 

CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 2009); 

FTC v. New Hope Property LLC, Case No. 1:09-cv01203-JBS-JS (D.N.J. filed Mar. 17, 2009); FTC v. 

Hope Now Modifications, LLC, Case No. 1:09-cv01204-JBS-JS (D.N.J. filed Mar. 17, 2009); FTC v. 

National Foreclosure Relief, Inc., Case No. SACV09- 

117 DOC (MLGx) (C.D. Cal. filed Feb. 2, 2009); FTC 

v. United Home Savers, LLP, Case No. 8:08-cv01735-VMC-TBM (M.D. Fla. filed Sept. 3, 2008); 

FTC v. Foreclosure Solutions, LLC, No. 1:08-cv01075 (N.D. Ohio filed Apr. 28, 2008); FTC v. 

Mortgage Foreclosure Solutions, Inc., Case No. 8:08- 

cv-388-T-23EAJ (M.D. Fla. filed Feb. 26, 2008); FTC 

v. Nat’l Hometeam Solutions, Inc., Case No. 4:08- 

cv-067 (E.D. Tex. filed Feb. 26, 2008); see also FTC 

Press Release, Federal and State Agencies Crack 

Down on Mortgage Modification and Foreclosure 

Rescue Scams (Apr. 6, 2009), available at 

(www.ftc.gov/opa/2009/04/hud.shtm). 

154 See Omnibus Appropriations Act of 2009, 

Pub. L. No. 111-8, § 626, 123 Stat. 524 (Mar. 11, 

2009) (2009 Omnibus Appropriations Act). Further, 

to the extent that outbound telemarketing is used 

to further mortgage-related debt relief schemes, the 

Commission may use the existing provisions of the 

TSR, in addition to Section 5, to challenge the 

conduct if appropriate. 

155 See Advance Notice of Proposed Rulemaking: 

Mortgage Assistance Relief Services, 74 FR 26130 

(June 1, 2009). 

156 See generally 16 CFR 310.3. 

157 Most inbound calls placed by consumers in 

response to direct mail or general media advertising 

are exempt from the Rule. See 16 CFR 310.6(b)(5) 

& (6). Certain exceptions to the exemption have 

been created to require TSR compliance for the sale 

of products or services that have been the subject 

of significant fraudulent or deceptive telemarketing 

activity. The proposed amendments would create 

an exception to the direct mail and general media 

exemptions for the sale of debt relief services, 

requiring sellers and telemarketers of these services 

to comply with the Rule in both inbound and 

outbound calls. 

158 Another exemption provides that ‘‘[t]elephone 

calls initiated by a customer or donor that are not 

the result of any solicitation by a seller, charitable 

organization, or telemarketer’’ are exempt. 16 CFR 

310.6(a)(4). Thus, if a customer were to call a seller 

or telemarketer regarding debt relief services 

independent of any solicitation, such a call would 

not be subject to the proposed revised TSR. 

B. Section 310.2: Definitions 

The only proposed change to the 

definitions section of the Rule is the 

addition of newly renumbered Section 

310.2(m), which defines the term ‘‘debt 

relief service’’ to mean: 

any service represented, directly or by 

implication, to renegotiate, settle, or 

in any way alter the terms of payment 

or other terms of the debt between a 

consumer and one or more unsecured 

creditors or debt collectors, including, 

but not limited to, a reduction in the 

balance, interest rate, or fees owed by 

a consumer to an unsecured creditor 

or debt collector.151

The Commission intends that the 

definition of ‘‘debt relief service’’ 

encompass a broad swath of debt relief 

activities, including offers of debt 

settlement or negotiation services and 

debt management plans.152 The 

definition of ‘‘debt relief service’’ is, 

however, limited with regard to the 

underlying nature of the debt involved 

and would not reach offers regarding 

consumers’ secured debt, such as 

mortgage loans. Deceptive foreclosure 

rescue and mortgage loan modification 

schemes, which have proliferated as a 

result of the mortgage crisis, cause 

significant harm to homeowners already 

in financial distress.153 The Commission 

tentatively has determined not to 

address these types of transactions 

under the proposed amendments 

because it anticipates comprehensively 

regulating such conduct under its new 

mortgage loan rulemaking authority 

pursuant to the Omnibus 

Appropriations Act.154 On June 1, 2009, 

the Commission commenced a 

rulemaking proceeding to address 

deceptive or unfair practices in 

connection with mortgage assistance 

relief services (including loan 

modification and foreclosure rescue).155

That Notice sets forth the law 

enforcement and education efforts 

undertaken by the Commission and 

state enforcers and seeks comment 

about the appropriate contours of a 

mortgage relief rule. 

C. Section 310.3: Deceptive 

Telemarketing Acts or Practices 

Section 310.3 of the Rule addresses 

deceptive acts or practices in 

telemarketing. Specifically, this 

provision sets forth required disclosures 

that must be made in every 

telemarketing call; prohibits 

misrepresentations of material 

information; requires that a telemarketer 

obtain a customer’s express verifiable 

authorization by following specified 

procedures whenever a payment 

method other than a credit or debit card 

is used; prohibits false or misleading 

statements to induce a person to pay for 

goods or services or to induce a 

charitable contribution; holds liable 

anyone who provides substantial 

assistance to another in violating the 

Rule; and prohibits credit card 

laundering in telemarketing 

transactions.156

Outbound calls to solicit the purchase 

of debt relief services are already subject 

to the TSR, including the provisions of 

Section 310.3. The proposed 

amendments to Section 310.6, discussed 

in detail below, would also bring 

inbound debt relief calls within the 

ambit of the Rule.157 As a result, 

virtually all debt relief telemarketing 

transactions would be subject to the 

TSR if the proposed modifications to the 

Rule are adopted.158

As context for examining how the 

Rule, including the proposed 

modifications, applies to debt relief 

marketing practices, it is important to 

understand the fundamental nature of 

debt relief services and the ways in 

which they are commonly marketed. As 

discussed above in Section II, various 

types of debt relief services have 

different goals, and each employs 

different means of reaching those goals. 

A debt management plan, for example, 

is intended to enable a consumer to 

repay his or her full debt by making 

regular payments over a period of 3 to 

5 years. Debt settlement, on the other 

hand, envisions a consumer repaying 

only a fraction of each debt owed by 

making one lump sum payment to each 

creditor. Distinct from DMPs or debt 

settlement services, debt negotiators 

offer to obtain interest rate reductions or 

other concessions to lower consumers’ 

monthly payment to creditors. 

Nevertheless, there are some common 

techniques used to market these debt 

relief services. The following section 

explains how the existing provisions of 

the TSR and proposed amendments set 

forth in this NPRM would apply to debt 

relief services. 


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159 See 16 CFR 310.3(a)(1)(i)-(iii). In addition to 

these provisions, Section 310.3(a)(1) of the TSR also 

requires disclosures specific to offers involving 

prize promotions, credit card loss protection plans, 

and negative option plans. See 16 CFR 

310.3(a)(1)(iv)-(vii). 

160 See Debt Settlement USA (Craven) Tr. at 109 

(stating that all fees are disclosed to consumers in 

the telemarketing call); TASC (Young) Tr. at 155- 

156 (noting that fees should be disclosed on the 

phone and again in writing following the call). The 

Commission’s law enforcement experience suggests 

that in many cases, post hoc written disclosures 

contradict what telemarketers have told consumers. 

See, e.g., FTC v. Connelly, No. SA CV 06-701 DOC 

(RNBx), Opp. to FTC Mot. Summ. J., at 12 (Aug. 3, 

2006) (arguing that subsequent telephone calls 

would have ‘‘corrected any misconceptions the 

consumer had about the program based on 

[previous] correspondence’’). However, such 

contradictory post hoc disclosures do not 

adequately modify or qualify the claims made in the 

telemarketing sales pitch. See, e.g., Resort Car 

Rental System, Inc. v. FTC, 518 F.2d 962, 964 (9th 

Cir. 1975). 

161 See, e.g., FTC v. Better Budget Fin. Servs., Inc., 

No. 04-12326 (WG4) (D. Mass. 2004) (alleging that 

defendant obfuscated the total costs for the 

products and services by separately reeling off 

various fees, such as retainer fees, monthly fees, 

and fees correlated to the percentage of money that 

a customer saves using the services, without ever 

disclosing the total cost, which sometimes was as 

high as thousands of dollars); FTC v. Debt-Set, Inc., 

No. 1:07-cv-00558-RPM (D. Colo. 2007) (alleging 

that, in numerous instances, defendants represented 

that there would be no up-front fees or costs for 

their debt settlement program, when in fact the 

defendants required consumers to pay, through 

monthly payments, an up-front fee of 

approximately 8% of the consumers’ total 

unsecured debt); FTC v. Connelly, No. SA CV 06- 

701 DOC (RNBx) (C.D. Cal. 2006) (alleging that 

defendant failed to disclose to consumers that they 

would have to pay 45% of their total program fees 

up-front, before any payments would be made to 

the customers’ creditors). 

162 According to one industry participant, 

‘‘disclosure is often very inadequate, especially 

with regards to program fees.’’ Debt Settlement USA 

- Revised White Paper at 10. 

163 TASC, General Response (Dec. 1, 2008), at 2 

(stating that in the predominant flat fee model, the 

cost for debt settlement services ‘‘is calculated 

based on a percentage of debt enrolled into the 

program. The approximate median flat fee is 14% 

to 18% of the debt brought into the program 

depending on the amount of debt enrolled.’’). 

164 See, e.g., FTC v. AmeriDebt, Inc., No. PJM 03- 

3317 (D. Md. 2003) (alleging that, ‘‘[i]n response to 

the question, ‘How much will it cost me to be on 

the Debt Management Program,’ AmeriDebt’s 

website . . . stated, ‘Due to the fact that AmeriDebt 

is a nonprofit organization, we do not charge any 

advance fees for our service. We do request that 

clients make a monthly contribution to our 

organization to cover the costs involved in handling 

the accounts on a monthly basis.’’’ In fact, the 

Commission alleged that defendants retained all of 

consumers’ first monthly payment as a fee without 

notice to the consumer.). 

165 The Commission previously has explained the 

compliance obligations when marketing installment 

contracts, some of which are particularly applicable 

to debt relief services. Specifically, the Commission 

noted that ‘‘it is possible to state the cost of an 

installment contract in such a way that, although 

literally true, obfuscates the actual amount that the 

consumer is being asked to pay.’’ TSR; Proposed 

Rule, 67 FR 4492, 4502 (Jan. 30, 2002). It goes on 

to state that ‘‘[t]he Commission believes that the 

best practice to ensure the clear and conspicuous 

standard is met is to do the math for the consumer 

wherever possible. For example, where the contract 

entails 24 monthly installments of $8.99 each, the 

best practice would be to disclose that the 

consumer will be paying $215.76. In open-ended 

installment contracts, it may not be possible to do 

the math for the consumer. In such a case, 

particular care must be taken to ensure that the cost 

disclosure is easy for the consumer to understand.’’ 

Id. at n.92. (emphasis supplied, internal quotations 

omitted). 

1) Application of Section 310.3(a)(1) to 

Debt Relief Services: Disclosure 

Obligations 

The existing requirements of Section 

310.3(a)(1)(i)-(vii), while not subject to 

amendment in this proceeding, provide 

the framework for understanding the 

general disclosure obligations of sellers 

and telemarketers of debt relief services 

who are now (in the case of outbound 

telemarketing) or may be as a result of 

this rulemaking (in the case of most 

inbound telemarketing) subject to the 

TSR. The subparts that are most likely 

applicable to debt relief services – 

Sections 310.3(a)(1)(i), (ii), and (iii) – 

relate to disclosure of the total costs of 

services; all material restrictions, 

limitations or conditions to purchase, 

receive, or use the services; and the 

seller’s refund policy.159 Accordingly, it 

is important to examine how these 

provisions establish the general 

obligations of debt relief providers. 

Section 310.3(a)(1)(i) of the TSR 

prohibits a telemarketer from failing to 

disclose truthfully, in a clear and 

conspicuous manner, certain material 

information including ‘‘the total costs to 

purchase, receive, or use, and the 

quantity of, any goods or services that 

are the subject of the sales offer’’ before 

a customer pays for goods or services 

offered. Debt relief companies and 

industry association representatives 

contend that industry members disclose 

costs to consumers during telemarketing 

sales calls or after the call, in written 

disclosures.160 Yet, law enforcement 

actions allege, and consumers 

consistently complain, that the debt 

relief telemarketers say little, if 

anything, about fees or misrepresent the 

amount and timing of fee payments.161

As a result of these practices, consumers 

who enter into debt relief agreements 

often do so unaware of the total costs 

they will incur, which commonly 

amount to thousands of dollars. 

The Commission believes that 

disclosure of total costs is particularly 

crucial in the sale of debt relief 

services.162 This is especially true for 

debt settlement plans, for which the 

costs are often significant. According to 

TASC, the median fee under the 

predominant debt settlement model 

calls for a consumer to pay the 

equivalent of 14% to 18% of the debt 

enrolled in the program.163 Using this 

formula, a consumer with $20,000 in 

debt would pay between $2,800 and 

$3,600 for debt settlement services. 

Such large amounts of money are 

especially significant given that the 

typical consumer seeking debt relief is 

almost certainly experiencing serious 

financial distress and thus, is unable to 

afford existing financial obligations. 

Similarly, in the sale of debt 

management plans, disclosure of total 

costs is crucial to ensure that consumers 

understand what they will need to pay 

for the touted services. Indeed, in the 

cases brought against sham nonprofit 

credit counselors, consumers allegedly 

have been misled not only as to the total 

costs, but also as to the nature of monies 

paid because they are told that the only 

fees are ‘‘voluntary contributions’’ used 

to offset the operating expenses of the 

allegedly nonprofit service provider.164

Adherence to the requirements of 

Section 310.3(a)(1)(i) by all sellers and 

telemarketers of debt relief services will 

provide consumers with material 

information necessary to evaluate their 

offers.165

Section 310.3(a)(1)(ii) requires 

disclosure of ‘‘[a]ll material restrictions, 

limitations, or conditions to purchase, 

receive, or use the goods or services that 

are the subject of the sales offer.’’ A 

seller or telemarketer of debt relief 

services would be required, pursuant to 

this provision, to disclose that the debt 

relief services will only extend to 

unsecured debt, if that is the case. 

Similarly, if a debt relief provider places 

other limits on the services they provide 

– such as requiring that a consumer 

have a minimum amount of debt to be 

eligible or providing that only 

individual debts of a certain amount 

will be enrolled – this would need to be 

disclosed pursuant to Section 

310.3(a)(1)(ii). Such information would 

be material to consumers in determining 

whether the offered services would 

provide all, or merely some, of the debt 

relief they seek. 

Section 310.3(a)(1)(iii) of the TSR 

requires that ‘‘[i]f the seller has a policy 

of not making refunds, cancellations, 

exchanges, or repurchases,’’ disclosure 

of this policy must be made to 

consumers. Further, the provision 

requires that, ‘‘if the seller or 

telemarketer makes a representation 

about a refund, cancellation, exchange, 

or repurchase policy, a statement of all 

material terms and conditions of such 

policy’’ be made. This TSR provision 

signifies the Commission’s view that a 

seller’s unwillingness to provide 

refunds is a material term that a 

consumer must know about before 


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166 See, e.g., FTC v. Select Personnel Mgmt., Inc., 

No. 07-0529 (N.D. Ill. 2007); FTC v. Connelly, No. 

SA CV 06-701 DOC (RNBx) (C.D. Cal. 2006); FTC 

v. Debt Solutions, Inc., No. 06-0298 JLR (W.D. 

Wash. 2006); FTC v. Innovative Sys. Tech., Inc., No. 

CV04-0728 GAF JTLx (C.D. Cal. 2004); FTC v. Debt 

Mgmt. Found. Svcs., No. 04-1674-T-17-MSS (M.D. 

Fla. 2004). Commission staff has reviewed a sample 

of debt relief complaints received between April 1, 

2008, and March 31, 2009, included in the 

Commission’s Consumer Sentinel database. These 

complaints routinely allege that debt relief 

providers fail to give dissatisfied consumers 

refunds. 

167 Note that proposed Section 310.3(a)(1) 

provides that all of the disclosures required under 

that provision be made not only before the 

consumer pays, but also ‘‘before any services are 

rendered.’’ This change is intended to account for 

the fact that, under proposed Section 310.4(a)(5), 

debt relief services would be prohibited from 

requesting or receiving an advance fee and as a 

result would be providing services before the 

consumer has paid for them. Under proposed 

Section 310.3(a)(1), a debt relief service entity must 

provide a consumer with all required disclosures 

before it enrolls that consumer in a debt relief 

program and begins providing services. 

168 See American Express (Flores) Tr. 142-43 

(‘‘[American Express’] primary goal as a company 

is to work directly with our card members in 

resolving these sorts of issues. We don’t feel that 

there is anything, any service or benefit that a debt 

settlement company can offer one of our card 

members that we can’t offer ourselves directly.’’); 

ABA (O’Neill) Tr. at 96-97 (opining that debt 

settlement providers are unnecessary because 

consumers can obtain same options as the provider 

and noting that interposition of debt settlement 

providers hinders a creditor’s ability to inform 

consumers of their options). 

paying for goods or services. Similarly, 

if a seller or telemarketer chooses to tout 

the availability of a refund policy, that 

entity is affirmatively obliged to 

disclose the material terms and 

conditions of the policy. Application of 

this provision to sellers and 

telemarketers of debt relief services is 

particularly important given that data 

from law enforcement actions and 

consumer complaints indicate that, 

commonly, consumers either are not 

apprised that refunds are unavailable or 

are misled by material omissions 

regarding the full terms and conditions 

of these policies.166

2) Proposed Amendments to Section 

310.3(a)(1): Disclosure Obligations 

In addition to the application of the 

relevant provisions of the existing Rule, 

Section 310.3(a)(1) of the proposed Rule 

contains a new disclosure provision 

specifically applicable to the sale of 

debt relief services. Proposed Section 

310.3(a)(1)(viii) would prohibit a 

telemarketer of any debt relief service 

from failing to disclose, clearly and 

conspicuously before any services are 

rendered,167 six material pieces of 

information. These proposed 

disclosures have been tailored to 

address recurrent concerns that arise in 

Commission and state enforcement 

actions, and consumer complaints, 

regarding the practices of debt relief 

providers. Each of these proposed 

amendments is discussed immediately 

below. 

Proposed Section 310.3(a)(1)(viii)(A) 

would require telemarketers of debt 

relief services to disclose ‘‘the amount 

of time necessary to achieve the 

represented results, and to the extent 

that the offered service may include the 

making of a settlement offer to one or 

more of the customer’s creditors or debt 

collectors, the specific time by which 

the debt relief service provider will 

make such a bona fide settlement offer 

to each of the customer’s creditors or 

debt collectors.’’ Proposed Section 

310.3(a)(viii)(B) would require covered 

entities to disclose, ‘‘to the extent that 

the offered service may include the 

making of a settlement offer to one or 

more of the customer’s creditors or debt 

collectors, the amount of money or the 

percentage of each outstanding debt that 

the customer must accumulate before a 

debt relief service provider will make a 

bona fide settlement offer to each of the 

customer’s creditors or debt collectors.’’ 

These disclosures are intended to 

ensure that consumers have material 

information about how debt relief 

services operate, thereby enabling them 

to make an informed purchasing 

decision before paying for the offered 

services. 

The Commission’s law enforcement 

actions and consumer complaints show 

that consumers often do not understand 

the mechanics of debt relief. Indeed, 

some Workshop participants suggested 

that consumers are often unaware of 

their ability, independent of a third 

party, to initiate debt settlement 

negotiations.168 In particular, consumers 

may not understand the amount of time 

required to achieve the represented 

results or that there may be 

prerequisites to attaining debt relief. For 

example, consumers considering a DMP 

may not know that these plans often 

take three to five years to complete. In 

the case of debt settlement, consumers 

often fail to understand that certain 

conditions must be present in order for 

a debt settlement offer to be accepted. In 

particular, consumers misunderstand 

that settlement negotiations rarely, if 

ever, begin immediately upon 

enrollment. Indeed, debt settlement 

negotiations generally do not begin until 

the consumer has saved a significant 

portion – often 50%– of the total 

amount of a single debt enrolled in the 

program and is significantly delinquent. 

Only when both these conditions are 

met is it likely that a creditor or debt 

collector will find agreeing to settle the 

account is advantageous. 

Given this information deficit, the 

Commission intends that the disclosures 

in proposed Section 310.3(a)(1)(viii)(A) 

and (B) will put consumers on notice 

about the length of time it will take to 

achieve the represented results. In 

particular, the disclosures address the 

fact that the timing and likelihood of 

success may be, as is generally the case 

for debt settlement, entirely contingent 

on the consumer’s ability to accumulate 

sufficient funds and to become 

sufficiently delinquent for settlement. In 

the case of a consumer who has six 

outstanding accounts to be included in 

the debt settlement plan, each with 

balances of between $4,000 and $8,000, 

for example, a debt settlement provider 

would be required to explain the 

anticipated length of the entire program 

and also the specific time frame under 

which each debt included in the 

program is expected to be settled to 

comply with Section 310.3(a)(1)(viii)(A). 

In so doing, the debt relief provider 

must disclose the fact that negotiations 

will not take place with all creditors 

simultaneously, but rather seriatim, if 

such is the case. To comply with 

Section 310.3(a)(1)(viii)(B), the debt 

settlement provider or telemarketer 

would have to disclose the specific 

amount or percentage of money that 

must be accumulated before an offer of 

settlement could be made to the first 

creditor or debt collector and that 

additional monies would have to 

accumulate to make an offer to a second 

creditor or debt collector, and so on. 

These disclosures will help a 

consumer to understand not only the 

time commitment required for the plan 

to achieve its full effect, but also that 

each debt brought into the program 

would likely be settled one by one, and 

not as part of a single negotiation, if that 

is the case. Further, they will make clear 

that the debt relief is conditioned upon 

the consumer saving enough money to 

make a settlement offer. Awareness of 

these key facets of the debt relief 

program, together with the information 

required to be disclosed by proposed 

Section 310.3(a)(viii)(E) regarding 

failure to make timely payments, will 

provide the consumer with material 

information about the risks involved in 

failing to make timely payments to 

creditors for long periods of time, as 

settlement negotiations may not begin 

for months or even years, if ever. 

Proposed Section 310.3(a)(1)(viii)(C) 

would require telemarketers of debt 

relief services to disclose that ‘‘not all 

creditors or debt collectors will accept 

a reduction in the balance, interest rate, 

or fees a customer owes such creditor or 


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169 See, e.g., CFA (Plunkett) Tr. at 101 (‘‘[T]here 

is no guarantee . . . or reasonable chance of a 

guarantee of a reduction in the amount of debt 

owed by consumers who meet required conditions. 

In fact, some creditors insist that they won’t 

settle.’’); American Express (Flores) Tr. at 164 

(‘‘[O]ur policy is not to . . . accept settlements from 

debt settlement companies.’’); see also, e.g., Phil 

Britt , Debt Settlement Companies Largely Ignored 

by Banks, Inside ARM (Nov. 3, 2008)(noting 

statement by Discover Financial Services 

spokesman that ‘‘[w]e choose not to work with debt 

settlement companies’’), available at 

(www.insidearm.com/go/arm-news/debt-settlementcompanies-largely-ignored-by-banks). 

170 See e.g., FTC v. Group One Networks, Inc., No. 

8:09-cv-352-T-26-MAP (M.D. Fla. 2009) (amended 

complaint) (alleging defendants claimed to have 

close working relationships with over 50,000 

creditors); FTC v. Select Pers. Mgmt., No. 07- 0529 

(N.D. Ill. 2007) (alleging defendants claimed to be 

affiliated with consumers’ credit card companies); 

see also, e.g., FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR (W.D. Wash. 2006); FTC v. Better Budget 

Fin. Servs., Inc., No. 04-12326 (WG4), Mem. Supp. 

T.R.O. Mot. at 6 (D. Mass. 2004). 

171 The FDCPA governs, among other things, debt 

collectors’ communications with consumers and 

provides consumers the right to request that a debt 

collector cease communication. 15 U.S.C. 1692c. 

Creditors collecting their own debts, however, are 

not subject to this provision. See also supra Section 

II.B.1, and notes 86-88. 

172 See supra note 105 and accompanying text. 

173 See CFA (Plunkett) Tr. at 102 (noting that the 

length of time it takes to achieve settlement, 

combined with withheld payments, has a negative 

effect on consumers); see also Fair Isaac Corp, 

Understanding Your FICO Score, at 7 (noting that 

payment history is typically the most important 

factor used to determine a consumer’s FICO score), 

available at (www.myfico.com/Downloads/Files/ 

myFICO_UYFS_Booklet.pdf.) 

174 As frequently noted by the Commission, a 

consumer’s credit score can impact the availability 

of a wide variety of opportunities, including the 

ability to obtain loans, find employment, or even 

obtain affordable insurance. See, e.g., FTC , Need 

Credit or Insurance? Your Credit Score Helps 

Determine What You’ll Pay, available at 

(www.ftc.gov/bcp/edu/pubs/consumer/credit/ 

cre24.shtm). 

175 See, e.g., FTC v. Connelly, No. SA CV 06-701 

DOC (RNBx) (C.D. Cal. 2006); FTC v. Jubilee Fin. 

Servs., Inc., No. 02-6468 ABC (Ex) (C.D. Cal 2002). 

176 See FTC v. Debt-Set, Inc., No. 1:07-cv-00558- 

RPM, Mem. Supp. Mot. T.R.O. at 8-9 (D. Colo. Mar. 

20, 2007) (‘‘Defendants lead consumers to conclude 

that, once enrolled, the Defendants in turn will 

disburse consumers’ monthly payments to the 

appropriate creditors every month.’’). 

177 See Debt Settlement USA (Craven) Tr. at 91 

(‘‘Amounts greater than $600 in savings obtained 

through a settlement may be reported to the IRS. 

Again, this has to be disclosed to consumers.’’); 

American Credit Alliance (Franklin), Tr. at 223 

(‘‘Unless they get that early disclosure that they 

may have the tax consequence, they may opt for the 

debt collector.’’ The fact that some 

creditors and debt collectors will not 

participate in debt relief programs – 

whether to offer concessions or accept a 

lower balance repayment option – is 

likely unknown to consumers.169

Similarly, consumers may be unaware 

that even those creditors and debt 

collectors that do not have a blanket 

policy against debt relief will evaluate 

each consumer’s circumstances 

individually and may be unwilling to 

grant favorable terms to a consumer 

based on a variety of factors. Debt relief 

providers often tout their ability to 

obtain favorable outcomes for 

consumers, representing that they have 

special expertise or relationships with 

creditors and debt collectors that give 

them an edge in negotiations.170

Particularly in light of these claims in 

advertising and telemarketing pitches, 

and their significance to consumers, the 

Commission believes that disclosure of 

the fact that not all creditors or debt 

collectors will participate in debt relief 

plans is material to a consumer’s 

decision whether to pay for debt relief 

services. 

Proposed Section 310.3(a)(1)(viii)(D) 

would require disclosure ‘‘that pending 

completion of the represented debt 

relief services, the customer’s creditors 

or debt collectors may pursue collection 

efforts, including initiation of lawsuits.’’ 

Thus, to comply with this provision, a 

telemarketer of debt relief services 

would have to disclose that enrollment 

alone will not stop creditors’ collection 

efforts, including lawsuits. Indeed, 

creditors and debt collectors may 

continue to call a consumer pending 

resolution of the debt and even proceed 

with a lawsuit and later enforcement of 

any judgment, such as through 

garnishment.171 It is vital that 

telemarketers of debt relief services 

disclose this information because, in 

many instances, consumers who seek 

debt relief services are already behind 

on payments and are regularly contacted 

by creditors or collectors. Accordingly, 

they may be motivated to seek debt 

relief services, in part, as a means of 

stopping such contacts. Thus, the fact 

that debt relief services may fail to 

achieve this result is material to a 

consumer’s purchase decision. 

Proposed Section 310.3(a)(1)(viii)(E) 

would require disclosure that, ‘‘to the 

extent that any aspect of the debt relief 

service relies upon or results in the 

customer failing to make timely 

payments to creditors or debt collectors, 

that use of the debt relief service will 

likely adversely affect the customer’s 

creditworthiness, may result in the 

customer being sued by one or more 

creditors or debt collectors, and may 

increase the amount of money the 

customer owes to one or more creditors 

or debt collectors due to the accrual of 

fees and interest.’’ Given the harm that 

can accrue from missing even a few 

payments, the Commission believes that 

it is important to require a debt relief 

provider to disclose the likely adverse 

consequences of failing to make timely 

payments to creditors. This is especially 

important for consumers who are, in 

fact, able to make monthly payments, 

but who stop paying creditors and 

instead fund a settlement account – 

either because they are encouraged to do 

so or because they simply cannot afford 

to both make monthly payments and 

pay fees to the debt settlement 

company.172

If consumers stop paying their 

creditors, their creditworthiness will 

likely be harmed as a result.173 This fact 

is likely material to a consumer’s 

decision about whether to purchase debt 

settlement services because it imposes a 

significant cost on proceeding in this 

manner – the risk that a consumer’s 

ability to obtain credit in the future will 

be negatively impacted.174 Another 

serious and negative consequence that 

may result from a consumer’s decision 

to engage a debt relief service provider 

is the accrual of late fees or interest on 

their accounts. Finally, if payments are 

missed, the likelihood of being sued by 

one or more creditors may actually 

increase. 

The Commission recognizes that some 

consumers considering debt relief are 

unable to make payments, and may be 

subject to late fees or other charges in 

any event. However, the record shows 

that, in a significant number of 

instances, particularly in debt 

settlement programs, consumers are 

counseled to stop making payments to 

their creditors in order to facilitate 

settlement.175 In other cases, consumers 

are misled regarding the use to which 

their monthly payments will be put and 

erroneously believe that money the debt 

relief provider is making monthly 

payments to creditors when this is not 

the case.176 Thus, proposed Section 

310.3(a)(1)(viii)(E) is designed to ensure 

that, in cases where the debt relief 

service relies upon or results in the 

customer failing to make timely 

payments to creditors or debt collectors, 

the telemarketer of the debt relief 

service discloses the likely negative 

consequences – i.e., harm to 

creditworthiness, an increase in the 

amount owed and possible lawsuits. 

Finally, proposed Section 

310.3(a)(1)(viii)(F) would require that a 

telemarketer of debt relief services 

disclose ‘‘that savings a customer 

realizes from use of a debt relief service 

may be taxable income.’’ Participants at 

the Workshop noted that many 

consumers fail to understand that 

savings realized from a debt relief 

program may be considered taxable 

income.177 If savings realized from debt 


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– what sounds to be the better of the two, which 

would be the debt settlement, which might not be 

the best solution for them. So, there has to be some 

sort of a disclosure that says look, this is it. If you’re 

going to settle a debt for greater than $600, you’re 

going to have an IRS tax consequence this year.’’). 

178 IRS, Publication 525 - Taxable and 

Nontaxable Income (Feb. 19, 2009), at 19-20 

(‘‘Generally, if a debt you owe is canceled or 

forgiven, other than as a gift or bequest, you must 

include the canceled amount in your income.’’), 

available at (www.irs.gov/pub/irs-pdf/p525.pdf). 

179 See 16 CFR 310.3(a)(2)(i)-(iv), (vii). Section 

310.3(a)(2)(vii) of the TSR prohibits 

misrepresentations of ‘‘seller’s or telemarketer’s 

affiliation with, or endorsement or sponsorship by, 

any person or government entity.’’ 

180 Debt relief providers also sometimes request 

consumers’ billing information during the 

telemarketing sales call or pressure them to return 

payment authorization forms and signed contracts 

as quickly as possible following the call. See, e.g., 

FTC v. Debt-Set, Inc., No. 1:07-cv-00558-RPM (D. 

Colo. 2007) (alleging ‘‘[c]onsumers who agree to 

enroll . . . are sent an initial set of enrollment 

documents from Debt Set Colorado. During their 

telephone pitches, the defendants’ telemarkers also 

exhort consumers to fill out the enrollment 

documents and return the papers as quickly as 

possible . . . . Included in these documents are forms 

for the consumer to authorize direct withdrawals 

from the consumer’s checking account, to identify 

the amounts owed to various creditors, and a Client 

Agreement.’’). Consequently, unauthorized 

payments may automatically be taken from 

consumers’ accounts without their consent. The 

TSR currently prohibits telemarketers from charging 

consumers’ accounts without first obtaining express 

informed consent in all transactions, and it requires 

express verifiable authorization in cases where a 

consumer uses a payment method other than a 

credit or debit card. See 16 CFR 310.3(a)(3); 16 CFR 

310.4(a)(6). The proposed amended Rule would 

apply these existing requirements to inbound debt 

relief telemarketing calls, as well. 

181 Moreover, this decision is consistent with the 

inclusion elsewhere in the Rule of specific 

misrepresentations made in the sale of other goods 

or services. See, e.g., 16 CFR 310.3(a)(2)(v) 

(prohibiting certain misrepresentation in 

connection with prize promotions); 16 CFR 

310.3(a)(2)(vi) (prohibiting certain 

misrepresentations in connection with investment 

opportunities). 

182 Claims made by debt relief providers must be 

truthful and non-deceptive. To establish that a 

claim is deceptive in violation of Section 5 of the 

FTC Act, the Commission must prove that the 

representation, omission, or practice is likely to 

mislead consumers acting reasonably under the 

circumstances and is material. See In re Cliffdale 

Assocs., 103 F.T.C. 110 (1984). To be nondeceptive, specific, unqualified performance claims 

made by marketers of debt relief services must be 

true for the typical consumer who pays money to 

enroll in a debt relief service. See FTC v. Five-Star 

Auto Club, Inc., 97 F. Supp. 2d 502, 528-29 

(S.D.N.Y. 2000) (holding that, in the face of express 

earnings claims for multi-level marketing scheme, 

it was reasonable for consumers to have assumed 

the promised rewards were achieved by the typical 

Five Star participant). 

relief programs may be considered 

taxable income,178 then the financial 

benefits of such programs may be 

significantly limited. As a result, the 

Commission believes that this fact is 

material to a consumer’s decision about 

whether to pursue debt relief and 

should be disclosed to consumers. 

3) Application of Section 310.3(a)(2) to 

Debt Relief Services: Prohibited 

Misrepresentations 

Section 310.3(a)(2) prohibits a seller 

or telemarketer from making certain 

prohibited misrepresentations of 

material information. As with the 

analysis above relating to Section 

310.3(a)(1), the existing provisions of 

Section 310.3(a)(2) establish the general 

obligations of sellers and telemarketers 

of debt relief services who are now, or 

may be as a result of this rulemaking, 

subject to the TSR. The subparts of 

Section 310.3(a)(2) that are most likely 

applicable to debt relief services 

prohibit misrepresentations regarding 

the total costs of services; any material 

restriction to purchase, receive, or use 

the services; any limitation about any 

material aspect of the performance, 

efficacy, nature, or central 

characteristics of the services; the 

seller’s refund policy; and a seller’s or 

telemarketer’s affiliation with, or 

endorsement or sponsorship by, any 

person or government entity.179

Specifically, Section 310.3(a)(2)(i) of 

the TSR prohibits misrepresentations 

regarding the ‘‘total costs to purchase, 

receive, or use, and the quantity of, any 

goods or services that are the subject of 

a sales offer.’’ As with the parallel 

required disclosure of total costs 

contained in Section 310.3(a)(1)(i), and 

discussed above, the Commission 

believes the prohibition of 

misrepresentations regarding the cost of 

debt relief services is critical to ensure 

that consumers receive complete and 

truthful information regarding the 

monetary cost of the services offered. 

While in many cases telemarketers of 

debt relief services fail to disclose any 

information about the total costs 

involved, in other instances 

telemarketers misrepresent the costs.180

Deception involving the true costs of the 

services, which often are significant, is 

particularly harmful to consumers 

whose financial situation already is 

tenuous. Adherence to this requirement 

by all sellers and telemarketers of debt 

relief services is important to ensure 

that consumers have truthful and 

accurate information on which to base 

their decisions about whether to use 

such services. 

Section 310.3(a)(2)(ii) of the TSR 

prohibits misrepresentations regarding 

‘‘any material restriction, limitation, or 

condition to purchase, receive, or use 

goods or services that are the subject of 

a sales offer.’’ This provision, too, has a 

parallel required disclosure, found at 

Section 310.3(a)(1)(ii). Taken together 

with Section 310.3(a)(2)(iii), which 

prohibits misrepresentations regarding 

‘‘any material aspect of the performance, 

efficacy, nature, or central 

characteristics of goods or services that 

are the subject of a sales offer,’’ these 

provisions would ensure that the 

important aspects or features of offered 

debt relief services are not 

misrepresented to consumers in the 

course of a telemarketing transaction. 

Section 310.3(a)(2)(iv) of the TSR 

prohibits misrepresentations regarding 

‘‘any material aspect of the nature or 

terms of the seller’s refund, 

cancellation, exchange, or repurchase 

policies.’’ For the reasons enunciated 

above, in the section discussing the 

parallel disclosure of debt relief services 

sellers’ refund policies, this prohibited 

misrepresentation protects consumers 

by ensuring that they are not deceived 

regarding the existence or terms of a 

seller’s refund policies. Given the low 

success rates for all consumers who pay 

telemarketers for debt relief plans and 

the evidence showing consumers’ 

frustration regarding their inability to 

receive refunds for these plans, this 

provision provides essential protections 

in the context of debt relief. 

4) Proposed Amendments to Section 

310.3(a)(2): Prohibited 

Misrepresentations 

The proposed Rule contains a new 

misrepresentation prohibition to 

address specifically the sale of debt 

relief services. While these specific 

prohibited misrepresentations regarding 

debt relief services are arguably covered 

by the existing provision of Section 

310.3(a)(2), as well as the broad 

prohibition contained in Section 

310.3(a)(4) against ‘‘[m]aking a false or 

misleading statement to induce any 

person to pay for goods or services,’’ the 

Commission believes that expressly 

including them in the proposed 

amended Rule text provides the best 

opportunity for stakeholders to evaluate 

and comment on them.181 Further, the 

Commission believes that setting forth 

these requirements with specificity 

provides greater clarity to debt relief 

service providers subject to the TSR of 

their obligations to ensure their claims 

are truthful and non-deceptive.182

Accordingly, proposed Section 

310.3(a)(2)(x) would prohibit 

telemarketers of debt relief services from 

making misrepresentations regarding 

any material aspect of any debt relief 

service, including, but not limited to: 

∑ the amount of money or the 

percentage of the debt amount that a 

customer may save by using such 

service; 

∑ the amount of time necessary to 

achieve the represented results; 


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183 As noted above, the FTC has alleged deceptive 

debt settlement operations often promise to reduce 

consumer debt by large amounts. See, e.g., FTC v. 

Debt-Set, Inc., No. 1:07-cv-00558-RPM (D. Colo. 

2007) (promising to reduce amount owed to 50% 

to 60% of amount at time of enrollment); FTC v. 

Connelly, No. SA CV 06-701 DOC (RNBx) (C.D. Cal. 

2006) (promising to reduce overall amount owed by 

up to 40% to 60%). In other cases, the FTC has 

alleged that defendants made deceptive promises to 

lower consumer consumers’ monthly payments. 

See, e.g., FTC v. Express Consolidation, No. 06-cv61851-WJZ (S.D. Fla. 2006); United States v. Credit 

Found. of Am., No. CV 06-3654 ABC(VBKx) (C.D. 

Cal. 2006); FTC v. Debt Mgmt. Found. Svcs., Inc., 

No. 04-1674-T-17-MSS (M.D. Fla. 2004); FTC v. 

Integrated Credit Solutions, No. 06-806-SCB-TGW 

(M.D. Fla. 2006). 

184 See, e.g., FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR (W.D. Wash. 2006) (alleging that 

defendant misrepresented that consumers could 

pay off debt three to five times faster without 

increasing monthly payments); FTC v. Integrated 

Credit Solutions, No. 06-806-SCB-TGW (M.D. Fla. 

2006) (alleging that defendants misrepresented that 

debt relief would be achieved before consumers’ 

next billing cycle); FTC v. Better Budget Fin. Servs., 

Inc., No. 04-12326 (WG4) (D. Mass. 2004)(alleging 

defendant told consumers it could shorten period 

of time to pay off debts). 

185 See supra notes 102-104; CFA (Plunkett) Tr. 

at 102 (‘‘It appears to be a crap shoot. It’s not like 

settlement doesn’t occur, but it does appear – there 

does appear to be significant evidence that these 

firms are greatly exaggerating the number of 

settlements that do occur.’’). 

186 See, e.g., FTC v. AmeriDebt, Inc., No. PJM 03- 

3317 (D. Md. 2003); FTC v. Debt Mgmt. Found. 

Svcs., No. 04-1674-T-17-MSS (M.D. Fla. 2004); FTC 

v. Integrated Credit Solutions, No. 06-806-SCB-TGW 

(M.D. Fla. 2006); FTC v. Express Consolidation, No. 

06-cv-61851-WJZ (S.D. Fla. 2006). 

187 See Consumer Protection Issues in the Credit 

Counseling Industry: Hearing Before the Permanent 

Subcommittee on Investigations Senate Committee 

on Governmental Affairs, 108 th Cong. 2d Sess. 

(2004) (Testimony of the FTC) (‘‘[S]ome CCAs 

appear to use their 501(c)(3) status to convince 

consumers to enroll in their DMPs and pay fees or 

make donations. These CCAs may, for example, 

claim that consumers’ ‘donations’ will be used 

simply to defray the CCA’s expenses. Instead, the 

bulk of the money may be passed through to 

individuals or for-profit entities with which the 

CCAs are closely affiliated. Tax-exempt status also 

may tend to give these fraudulent CCAs a veneer 

of respectability by implying that the CCA is 

serving a charitable or public purpose. Finally, 

some consumers may believe that a ‘non-profit’ 

CCA will charge lower fees than a similar forprofit.’’), available at (www.ftc.gov/os/2004/03/ 

040324testimony.shtm). 

∑ the amount of money or the 

percentage of each outstanding debt that 

the customer must accumulate before 

the provider of the debt relief service 

will initiate attempts with the 

customer’s creditors debt collectors to 

negotiate, settle, or modify the terms of 

customer’s debt; 

∑ the effect of the service on a 

customer’s creditworthiness; 

∑ the effect of the service on 

collection efforts of the consumer’s 

creditors or debt collectors; 

∑ the percentage or number of 

customers who attain the represented 

results; and 

∑ whether a service is offered or 

provided by a nonprofit entity. 

Proposed Section 310.3(a)(2)(x) 

contains a prohibition on 

misrepresentations about ‘‘the amount 

of money or the percentage of the debt 

amount that a customer may save by 

using such service,’’ which is intended 

to ensure that consumers are not misled 

regarding the potential financial benefits 

of various debt relief services. The 

Commission’s law enforcement 

experience and consumer complaints 

show that a pivotal claim made in most 

debt relief telemarketing pitches is that 

the offered plan can save the consumer 

money, either by lowering monthly 

payments or by eliminating debt 

altogether.183 Thus, this prohibition will 

help ensure that consumers are not 

misled regarding this fundamental 

characteristic of the offered services. 

Proposed Section 310.3(a)(2)(x) would 

also prohibit telemarketers of debt relief 

services from misrepresenting ‘‘the 

amount of time necessary to achieve the 

promised results’’ and ‘‘the amount of 

money or the percentage of each 

outstanding debt that the customer must 

accumulate before the provider of the 

debt relief service will initiate attempts 

with the customer’s creditors debt 

collectors to negotiate, settle, or modify 

the terms of customer’s debt.’’ As set 

forth in detail above in the discussion 

of Proposed Section 310.3(a)(1)(viii)(A) 

and (B), consumers often have little 

understanding of the mechanics of the 

debt collection process and are often 

deceived about the fact that many 

sellers collect fees up-front before any 

funds are saved to be used as payments 

to creditors. As a result it would take 

months, or even years, for a final 

resolution of all of a consumer’s debts 

to be achieved. Often, however, 

telemarketers of these services tell 

consumers that results can be achieved 

more quickly.184 Consumers seeking 

debt relief are often in exigent 

circumstances, having exhausted their 

financial resources and are eager to end 

their debt problems. The Commission 

believes that this prohibition against 

misrepresenting the time necessary to 

achieve the promised results will serve 

two key purposes. First, it will prevent 

consumer confusion about the time 

commitment necessary to attain results, 

and second, it will act as a check on 

unscrupulous practices by purveyors of 

debt relief services who might otherwise 

misrepresent the speed with which 

results can be achieved in order to 

induce a consumer to enroll in a debt 

relief plan. 

Another provision of proposed 

Section 310.3(a)(2)(x) would prohibit 

misrepresentations regarding ‘‘the effect 

of the service on a customer’s 

creditworthiness.’’ Like the disclosure 

required by proposed Section 

310.3(a)(1)(viii)(E), discussed above, this 

provision is designed to ensure that 

consumers are not misled about the 

negative effects that will likely result if 

they fail to make timely payments to 

their creditors. 

Proposed Section 310.3(a)(2)(x) would 

also prohibit a telemarketer from 

misrepresenting the ‘‘effect of the 

service on collection efforts of the 

consumer’s creditors or debt collectors.’’ 

This provision, like the disclosure 

required by proposed Section 

310.3(a)(1)(viii)(D), discussed above, 

would ensure that consumers are not 

misled regarding the effect that 

enrollment in a debt relief plan may 

have on collection efforts. 

Another prohibited misrepresentation 

relates to ‘‘the percentage of customers 

who attain the represented results.’’ As 

noted above, success rates for debt relief 

services appear to be low, even 

according to industry-provided data.185

Given this fact, the Commission believes 

that it is imperative that telemarketers of 

debt relief services not mislead 

consumers regarding the likelihood of 

success if they enroll in such services. 

In particular, this provision would 

operate to curb misrepresentations that 

state or imply that more customers have 

attained the promised results than is 

truly the case. 

Finally, proposed Section 

310.3(a)(2)(x) would prohibit 

telemarketers of debt relief services from 

misrepresenting ‘‘whether a service is 

offered or provided by a nonprofit 

entity.’’ This provision is particularly 

relevant to entities that masquerade as 

nonprofits, but in fact operate for their 

own profit, or that of related entities. 

The Commission has brought law 

enforcement actions against such 

entities, each of which represented that 

it operated as a nonprofit and could 

provide debt relief services – often 

involving credit counseling or debt 

negotiation – to consumers.186 As the 

Commission has stated in testimony 

before the Permanent Subcommittee on 

Investigations of the Senate Committee 

on Governmental Affairs, significant 

harm to consumers may accrue from 

misrepresentations regarding an entity’s 

nonprofit status.187

5) Application of Section 310.3(a)(4): 

Prohibited False or Misleading 

Statements 

In addition to the prohibited 

misrepresentations contained in Section 

310.3(a)(2), Section 310.3(a)(4) of the 

TSR prohibits covered telemarketers 


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188 16 CFR 310.3(a)(4). 

189 See, e.g., FTC v. Nat’l Consumer Council, No. 

SACV04-0474 CJC(JWJX) (C.D. Cal. 2004). 

190 See, e.g., id.; FTC v. Group One Networks, 

Inc., Case No. 8:09-cv-352-T-26-MAP (M.D. Fla. 

2009) (amended complaint). 

191 See, e.g., FTC v. Debt Mgmt. Found. Svcs., 

Inc., No. 04-1674-T-17-MSS (M.D. Fla. 2004). 

192 See, e.g., FTC v. Group One Networks, Inc., 

Case No. 8:09-cv-352-T-26-MAP (M.D. Fla. 2009) 

(amended complaint). 

193 15 U.S.C. 6102(a)(1) (emphasis added). 

194 16 CFR 310.4(a) (this category includes the 

following acts or practices: threats, intimidation, or 

the use of profane or obscene language; requesting 

or receiving an advance fee for credit repair or 

recovery services or the arrangement of a loan or 

other extension of credit when the telemarketer 

guarantees or represents a high likelihood of 

success; disclosing or receiving, for consideration, 

unencrypted consumer account numbers for use in 

telemarketing; causing billing information to be 

submitted for payment, directly or indirectly, 

without the express informed consent of the 

customer or donor; and failure to transmit Caller ID 

information). 

195 16 CFR 310.4(b). 

196 16 CFR 310.4(c). 

197 16 CFR 310.4(d). 

198 16 CFR 310.4(e). 

199 See TSR; Proposed Rule, 67 FR 4492 (Jan. 30, 

2002). 

200 See id. at 4510-4511. 

201 15 U.S.C. 6102(a)(3) (these three delineated 

practices are for any telemarketer to: (1) 

‘‘[u]ndertake a pattern of unsolicited telephone calls 

which the reasonable consumer would consider 

coercive or abusive of such consumers right to 

privacy; (2) make unsolicited phone calls to 

consumers during certain hours of the day or night; 

and (3) fail to promptly and clearly disclose to the 

person receiving the call that the purpose of the call 

is to sell goods or services and make such other 

disclosures as the Commission deems appropriate, 

including the nature and price of the goods and 

services.). 

202 See TSR; Proposed Rule, 67 FR at 4510. 

203 See id. 

204 The ordinary meaning of abusive is (1) 

wrongly used; perverted; misapplied; catachrestic; 

(2) given to or tending to abuse, (which is in turn 

defined as improper treatment or use; application 

to a wrong or bad purpose). See Webster’s 

International Dictionary, Unabridged (1949). 

205 See TSR; Proposed Rule, 67 FR at 4511. 

206 15 U.S.C. 45(n) (codifying the Commission’s 

unfairness analysis); see also Letter from the FTC 

to Hon. Wendell Ford and Hon. John Danforth, 

Committee on Commerce, Science and 

Transportation, United States Senate, Commission 

Statement of Policy on the Scope of Consumer 

Unfairness Jurisdiction, reprinted in In re Int’l 

Harvester Co., 104 F.T.C. 949, 1079, 1074 n.3 (1984) 

(‘‘Unfairness Policy Statement’’). 

from ‘‘[m]aking a false or misleading 

statement to induce any person to pay 

for goods or services or to induce a 

charitable contribution.’’188 Thus, this 

provision acts as a catch-all prohibition 

of misrepresentations and other 

deceptive statements, some of which are 

also captured by specific subsections of 

Section 310.3(a)(2). Accordingly, it 

prohibits a number of false 

representations commonly observed in 

the debt relief services industry, 

including some specifically set forth in 

proposed amended Section 

310.3(a)(2)(x) above. 

By way of illustration, the FTC has 

brought cases against debt relief service 

providers alleging violations of this 

provision for misleading statements 

made in connection with outbound 

telemarketing, including statements that 

the entity: 

∑ will obtain a favorable settlement of 

the consumer’s debt promptly or in a 

specific period of time;189

∑ will stop or lessen creditors’ 

collection efforts against the 

consumer;190

∑ will secure concessions, such as 

interest rates, by specific amounts or 

percentages;191

∑ that the provider has a close 

relationship with the creditor;192

Under the proposed amended Rule, 

debt relief service providers would be 

prohibited from making these sorts of 

misleading statements, and others 

prohibited by existing Section 

310.3(a)(4), in not only outbound, but 

also inbound telemarketing transactions. 

D. Section 310.4: Abusive Telemarketing 

Acts or Practices 

The Commission proposes to amend 

Section 310.4 to prohibit a debt relief 

service provider from requesting or 

receiving any fee until it has provided 

the customer with documentation that a 

particular debt has, in fact, been 

renegotiated, settled, reduced, or 

otherwise altered. An overview of the 

requirements of the Section and a 

discussion of the proposed amendment 

follow. 

1) Background 

The Telemarketing Act authorizes the 

Commission to promulgate rules 

‘‘prohibiting deceptive telemarketing 

acts or practices and other abusive 

telemarketing acts or practices.’’193

Section 310.4 of the TSR sets forth 

telemarketing acts or practices deemed 

abusive, together with provisions to 

curb the deleterious effects these acts or 

practices may have on consumers. 

Compliance with the existing provisions 

of Section 310.4 already is required for 

outbound telemarketing calls offering 

debt relief services and would be 

required for inbound calls as well if the 

proposed amendments to Section 

310.6(a)(5) and (a)(6) are adopted. 

The Rule delineates five categories of 

abusive conduct: (1) abusive conduct 

generally;194 (2) conduct related to the 

pattern of calls, including the Rule’s Do 

Not Call provisions;195 (3) violations of 

the Rule’s calling time restrictions;196

(4) failure to make required oral 

disclosures in the sale of goods or 

services;197 and (5) failure to make 

required oral disclosures in charitable 

solicitations.198 The first of these 

categories is at issue in this proceeding. 

As discussed at considerable length in 

the January 2002 NPRM,199 issued 

pursuant to the initial review of the 

TSR, the Commission has articulated an 

analytical framework for implementing 

its authority to proscribe abusive 

telemarketing acts or practices.200 The 

Telemarketing Act directs the 

Commission to include in the TSR 

provisions to address three specific 

practices denominated by Congress as 

‘‘abusive.’’201 However, the Act ‘‘does 

not limit the Commission’s authority to 

address abusive practices beyond these 

three practices legislatively determined 

to be abusive.’’202

In determining which conduct should 

be characterized by the TSR as abusive, 

the Commission noted that each of the 

statutorily-denominated abusive 

practices implicate consumers’ 

privacy.203 Nevertheless, the plain 

meaning of the term ‘‘abusive’’ suggests 

that no such inherent limitation in the 

meaning of the term constrains the 

Commission in crafting the Rule.204

Thus, to give full effect to the statutory 

mandate to protect consumers from 

harmful telemarketing practices, the 

Commission has used its authority to 

prohibit abusive practices related to 

telemarketing of credit repair services, 

recovery services, and advance fee 

loans. Although not rooted in privacy 

protection, each of these services had 

been the subject of significant numbers 

of law enforcement actions and 

consumer complaints and resulted in 

demonstrated consumer harm. 

As explained in the 2002 NPRM, 

‘‘[w]hen the Commission seeks to 

identify practices as abusive that are 

less distinctly within [the ambit of 

privacy], the Commission now thinks it 

appropriate and prudent to do so within 

the purview of its traditional unfairness 

analysis as developed in Commission 

jurisprudence.’’205 Thus, in considering 

any amendment to Section 310.4 of the 

TSR not relating to consumers’ privacy 

rights, the Commission will determine 

whether the conduct at issue meets the 

criteria for unfairness. To make such a 

showing, the Commission must 

demonstrate that: 1) the conduct at issue 

causes substantial injury to consumers; 

2) the harm resulting from the conduct 

is not outweighed by any countervailing 

benefits; and 3) the harm is not 

reasonably avoidable.206

2) Advance Fees for Debt Relief Services 

as an Abusive Practice 

It appears that requesting or receiving 

payment of a fee for any debt relief 

service before the seller has provided 


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207 In addition to the ban on advance fees for 

credit repair in the TSR, the Credit Repair 

Organizations Act expressly prohibits any credit 

repair organization from charging or receiving ‘‘any 

money or other valuable consideration for the 

performance of any service which the credit repair 

organization has agreed to perform for any 

consumer before such service is fully performed.’’ 

15 U.S.C. 1679b(b). 

208 See TSR; Final Rule, 68 FR 4580, 4614 (Jan. 

29, 2003). 

209 See id. 

210 See id. 

211 See id. 

212 See CFA (Plunkett) Tr. at 106 (‘‘[T]here is 

really no service that’s being offered until there is 

a settlement. And just like credit repair 

organizations are forbidden under the Credit Repair 

Organizations Act from charging up-front fees for 

services, we think there should be a prohibition on 

up-front fees for services here because the major 

service that’s being promised, the only service 

consumers really want is a settlement. If you can’t 

get a settlement, you shouldn’t have to pay a fee.’’); 

see also NFCC (Binzel) Tr. at 33 (arguing that debt 

settlement companies should be subject to strong 

federal regulation, including a prohibition on the 

collection of fees until actual services are provided); 

NFCC (Binzel) Tr. at 40 (endorsing the idea that the 

government should intervene to prohibit debt 

settlement companies from collecting fees until 

services have been provided); SCDCA (Lybarker) Tr. 

at 223 (positing that there should not be any sort 

of payment until activity begins on the account); 

National Consumer Law Center, Inc., An 

Investigation of Debt Settlement Companies: An 

Unsettling Business for Consumers (2005), at 9 (‘‘It 

is possible that the fee arrangements described 

above would be justifiable if the companies actually 

earned those fees. Unfortunately, it is not easy to 

determine what the companies actually do to earn 

these fees. As noted above, the debt settlement trade 

association (USOBA) and companies we called have 

either refused to speak with us or provided vague 

responses.’’). 

213 The injury caused by up-front fees applies 

particularly to debt settlement. However, it appears 

that, like debt settlement, other debt relief services, 

such as for-profit credit counseling services, 

commonly take consumers’ money in advance for 

services that are almost never provided. For that 

reason, the proposed Rule’s advance fee ban reaches 

all providers of debt relief services. 

214 See FTC v. Nat’l Consumer Council, Inc., No. 

SACV04-0474 CJC(JWJX) (C.D. Cal. 2004); see also 

supra notes 102-104 (setting forth the low rates of 

success characteristic of cases brought by the FTC 

and the states against debt relief providers and 

explaining that little probative empirical evidence 

has been offered by industry members to the 

contrary). 

215 Press Release, Attorney General Cuomo Sues 

Debt Settlement Companies for Deceiving and 

Harming Consumers (May 20, 2009), available at 

(www.oag.state.ny.us/media_center/2009/may/ 

may19b_09.html). 

216 See supra notes 103-104. 

217 See, e.g., FTC v. Integrated Credit Solutions, 

No. 06-806-SCB-TGW (M.D. Fla. 2006); FTC v. Nat’l 

Consumer Council, No. SACV04-0474 CJC(JWJX) 

(C.D. Cal. 2004); FTC v. AmeriDebt, Inc., No. PJM 

03-3317 (D. Md. 2003). 

218 See, e.g., FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR, App. for T.R.O. (W.D. Wash. Mar. 6, 

2006) at 15 (‘‘Approximately four months’ worth of 

consumer data obtained from Defendants show that 

they failed to achieve interest rate reductions [to the 

promised rate] on 99.5 percent of the accounts 

reviewed and failed to achieve any interest rate 

reductions at all in 80.4 percent of the accounts.’’);. 

see also FTC v. Group One Networks, Inc., No. 8:09- 

cv-352-T-26-MAP (M.D. Fla. 2009) (amended 

complaint); FTC v. Select Pers. Mgmt., No. 07- 0529 

(N.D. Ill. 2007). The Commission acknowledges that 

debt negotiation services were not the focus of the 

FTC’s September 2008 Workshop and, therefore, 

that the current record with regard to this category 

of service is based largely on the agency’s law 

enforcement actions against debt negotiation 

entities. Accordingly, the Commission invites 

comments, including any data, demonstrating the 

ability (or lack thereof) of debt negotiation entities 

to secure the results they represent to consumers. 

the customer with documentation that 

the promised services have been 

rendered meets the criteria for 

unfairness, as is the case with credit 

repair services, recovery services, and 

advance fee loans, each of which is 

subject to an advance fee ban under the 

TSR.207 With respect to these services, 

the Commission found that 

telemarketers commonly take 

consumers’ money for services that the 

seller has no intention of providing and 

in fact does not provide.208 Each of 

these services had been the subject of 

large numbers of consumer complaints 

and enforcement actions, and in each 

case caused substantial injury to 

consumers.209 Taking money without 

providing anything in return caused 

substantial harm to consumers without 

any countervailing benefits to 

consumers or competition.210 Finally, 

having no way to know these offered 

services were illusory, consumers had 

no reasonable means to avoid the harm 

that resulted from accepting the 

offers.211 Thus, an advance fee ban for 

such services was found to meet the test 

for unfairness. 

At the Workshop, consumer advocates 

and others argued that unless and until 

a debt is settled, the job is incomplete 

and it is therefore unfair for a provider 

to request or receive a fee.212 These 

participants generally agreed that a ban 

on the receipt of fees for debt settlement 

services prior to the performance of 

those services is essential to effect 

consumer protection in this area. 

Pending the receipt of public comment, 

the Commission agrees with this view, 

and information currently available to 

the Commission indicates that other 

debt relief services, including debt 

negotiation and for-profit credit 

counseling, should similarly be subject 

to such a ban. The analysis supporting 

the Commission’s current view is set 

forth below. 

Substantial Injury to Consumers. As 

an initial matter, the information 

available to the Commission from its 

complaint data, its law enforcement 

experience, as well as state enforcement 

efforts, the Workshop record, and 

additional independent research 

conducted by Commission staff 

indicates that collecting up-front fees for 

debt relief services causes substantial 

injury to consumers.213 Consumers 

suffer monetary harm – often in the 

hundreds or thousands of dollars – 

when they pay in advance for services 

that, in most cases, are never provided. 

Further, in the case of debt settlement, 

in order to pay these high fees, 

consumers typically need to (and are 

frequently encouraged to) stop paying 

their creditors and therefore suffer 

lasting injury to their creditworthiness. 

These main categories of harm caused 

are detailed below as follows: 

(1) The low likelihood of success. At 

the most fundamental level, it appears 

that a ban on advance fees may be 

justified in the telemarketing of debt 

relief services because the information 

currently available on the debt relief 

industry indicates that, in the vast 

majority of cases, consumers are 

required to pay in advance for services 

that, in most cases, are never rendered. 

The information obtained through FTC 

law enforcement actions against debt 

relief providers suggests that most 

consumers do not receive the promised 

debt relief services. For example, in one 

FTC case only 1.4% of consumers 

enrolled in a debt settlement plan by the 

defendants obtained the promised 

results.214 The New York Attorney 

General recently filed cases against two 

debt settlement companies alleging that, 

respectively, these entities were 

providing the represented services to 

only 1% and 1/3% of their 

consumers.215 This information is not 

sufficiently rebutted by industry data to 

the limited extent it has been 

provided.216 Accordingly, based on the 

current record available, the prevailing 

debt settlement business model requires 

consumers to pay in advance for 

services that, according to available 

data, in most cases, are never provided 

to the vast majority of consumers. 

Similarly, in other types of debt relief 

services, including for-profit credit 

counseling and debt negotiation, it 

appears that advance fees are taken and 

the represented services are never 

provided in the majority of cases. A 

primary concern regarding for-profit 

credit counseling is that, after fees are 

taken, the represented counseling 

services are often not provided and, 

instead, consumers are placed in DMPs 

without regard to whether such plans 

will be an appropriate means of 

providing them debt relief.217 In cases 

the Commission has brought against 

providers of debt negotiation services, 

advance fees are taken, but claims that 

credit card interest rates can be reduced 

turn out to be false.218


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219 See supra notes 89-92 and accompanying text. 

220 See, e.g., FTC v. Debt Solutions, Inc., No. 06- 

0298 JLR (W.D. Wash. 2006) (alleging that 

consumers paid an advance fee of between $329 

and $629 before any debt negotiation was 

attempted); FTC v. Integrated Credit Solutions, No. 

06-806-SCB-TGW (M.D. Fla. 2006) (alleging that 

defendants charged between $99 and $499 as an 

initial fee for credit counseling services that were 

not, in fact, provided). 

221 See, e.g., FTC v. Edge Solutions, No. CV-07- 

4087 (E.D.N.Y Oct. 1, 2007) (complaint alleging that 

‘‘[c]ontrary to Defendants’ representations,’’ 

consumers in numerous instances ‘‘have in fact 

increased the amount of their debt by incurring late 

fees, finance charges and overdraft charges, causing 

their financial situation to worsen. In numerous 

instances, as a result of Defendants’ services, 

consumers’ credit reports include significant 

negative information such as late payments, chargeoffs, collections, and garnishments.’’); see also FTC 

v. Debt-Set, Inc., No. 07-558, Mem. Supp. Mot. 

T.R.O. at 16-19 (D. Colo. Mar. 20, 2007) (alleging 

that ‘‘[c]onsumers’ financial condition deteriorates 

precipitously with hundreds, if not thousands, of 

dollars in monthly payments lost to Defendants’’); 

FTC v. Express Consolidation, No. 06-cv-61851- 

WJZ, Pls. Mem. Law Supp. T.R.O. at 17 (S.D. Fla. 

Dec. 11, 2006) (alleging consumers paid up-front 

fees and that savings claims ‘‘falsely report benefit 

to the consumer from plans that actually will make 

the consumer worse off’’); FTC v. Better Budget Fin. 

Servs., Inc., No. 04-12326 (WG4), Pls. Mem. Law 

Supp. T.R.O. at 8-9 (D. Mass. 2004) (alleging that 

‘‘[t]ypically, consumers leave the program after 

finding that defendants have never contacted their 

creditors, nor done anything to stop creditors from 

making harassing calls to consumers, as promised. 

When consumers do terminate their contracts, they 

often find that their overall debt has actually 

increased because they owe interest and late fees 

due to not paying creditors as required by 

defendants’ program. Many consumers, prior to 

entering the program, were able to pay their credit 

accounts on time, but find that enrolling in 

defendants’ debt management scheme caused their 

financial situation to deteriorate. Some consumers 

find their financial situation has deteriorated to the 

point of their being forced to file bankruptcy.’’). 

222 TASC (Young) Tr. at 183 (arguing that fees 

should be ‘‘spread out over no less than half of the 

length of the program’’ so the consumer can save 

money to pay creditors). 

223 See, e.g., Conn. Gen. Stat. § 36A-655 et seq.; 

La. Rev. Stat. § RS 14:331 et seq., & 37:2581, et seq.; 

N.D. Gen. Stat. § 13-06-01-03 & 13-07-01-07; Wyo. 

Stat. § 33-14-101 et seq. 

224 See, e.g., N.C. Gen. Stat § 14-423 et seq. 

225 See, e.g., supra note 125. To the extent that 

state laws permit, rather than mandate, that fees for 

debt relief services be collected before the promised 

goods or services are documented as provided, 

there is no conflict with the proposed Rule, and 

thus, no preemption. See 16 CFR 310.7(b) (‘‘Nothing 

contained in this Section shall prohibit any attorney 

general or other authorized state official from 

proceeding in state court on the basis of an alleged 

violation of any civil or criminal statute of such 

state.’’). 

226 See supra notes 121, 125; see, e.g., Illinois 

Attorney General, Press Release, Attorney General 

Madigan Sues Two Debt Settlement Firms (May 4, 

2009) (encouraging ‘‘consumers in financial trouble 

to consider credit counseling instead of debt 

settlement services’’ and ‘‘to look for credit 

counseling services that charge modest fees and 

provide true financial and budget counseling based 

on a consumer’s personal circumstances’’), 

available at (www.illinoisattorneygeneral.gov/ 

pressroom/2009_05/20090504.pdf). 

227 Unfairness Policy Statement at 1073 (‘‘The 

Commission also takes account of the various costs 

that a remedy would entail. These include not only 

the costs to the parties directly before the agency, 

but also the burdens on society in general in the 

form of increased paperwork, increased regulatory 

burdens on the flow of information, reduced 

incentives to innovation and capital formation, and 

similar matters.’’); see also J. Howard Beales, The 

FTC’s Use of Unfairness Authority: Its Rise, Fall, 

and Resurrection, available at (www.ftc.gov/ 

speeches/beales/unfair0603.shtm) (noting that 

‘‘[g]enerally, it is important to consider both the 

costs of imposing a remedy (such as the cost of 

requiring a particular disclosure in advertising) and 

any benefits that consumers enjoy as a result of the 

practice, such as the avoided costs of more stringent 

authorization procedures and the value of consumer 

convenience.’’). 

228 Id. at 1075 (‘‘As we have indicated before, the 

Commission believes that considerable attention 

should be devoted to the analysis of whether 

substantial net harm has occurred, not only because 

that is part of the unfairness test, but also because 

the focus on injury is the best way to ensure that 

the Commission acts responsibly and uses its 

resources wisely.’’). 

229 See, e.g., TASC (Young) Tr. at 186-87. 

(2) The significant burden on 

consumers of front-loaded fees. As 

discussed above in Section II, of the 

three basic fee models in the debt 

settlement industry, the front-end fee 

model is the most prevalent. Under this 

model, as much as 40% or more of the 

fee is collected within the first three or 

four months of enrollment, with the 

remaining fee collected over a twelvemonth period.219 Collecting fees in 

advance of providing the represented 

services also appears to be the most 

common business model in for-profit 

credit counseling and debt 

negotiation.220

As discussed above, substantial harm 

accrues when debt relief providers 

charge fees and then fail to provide the 

represented services. The practice of 

charging substantial up-front fees, as is 

the case with many debt relief services, 

is inherently inconsistent with the 

purported goal of the services. 

Specifically, debt settlement providers 

represent settlement as a way to pay off 

unsecured debts with a one-time lump 

sum payment. However, given that 

consumers to whom they market are 

typically already delinquent or in 

danger of becoming delinquent on their 

payments to creditors, the practice of 

taking substantial up-front fees before 

any monies are saved for the purported 

settlement forces many consumers – 

who cannot pay both the debt 

settlement provider and their creditors – 

to stop making payments to creditors. 

Additionally, once consumers realize 

that the telemarketers have kept their 

initial payments as a large up-front fee, 

many then drop out of the program, 

often with higher balances, among other 

detrimental results, thereby suffering 

substantial injury.221 At the Workshop, 

even a representative from the industry 

group, TASC, expressed concern about 

the front-end fee model.222

In this regard, it is telling that nearly 

all states have now adopted laws that 

regulate the provision of some or all 

debt relief services, and some of these 

directly address the ability of a debt 

relief service provider to take an upfront fee. Several of these laws ban forprofit debt settlement entirely,223 while 

others prohibit the charging of up-front 

fees.224 However, at present a larger 

number of states instead allow debt 

relief service providers to charge a small 

up-front or set-up fee (i.e., less than one 

hundred dollars), and then some 

combination of the following: (1) 

subsequent flat monthly fees for service; 

or (2) a choice between flat monthly fees 

for service or some set percentage (i.e., 

a percentage of the total debt enrolled in 

the program or a percentage of the 

amount by which the consumer’s debt is 

reduced).225

The record indicates that the harm to 

consumers from advance fees for debt 

relief services is substantial because 

they pay in advance for services that it 

appears are only rarely rendered. 

Further, the record suggests that 

substantial fees – such as those 

commonly charged for debt settlement – 

are particularly onerous because they 

may actually impede the ultimate goal 

of attaining debt relief for the consumer. 

In addition, the recognition by state 

legislatures of the need to regulate these 

fees indicates that federal regulation of 

fees for debt relief services may be 

justified.226

Potential Countervailing Benefits. The 

second prong of the unfairness test 

requires a determination of whether the 

harm to consumers is outweighed by 

countervailing benefits to consumers or 

competition.227 The inclusion of this 

criteria signals the recognition that costs 

and benefits attach to most business 

practices. As the Commission 

previously has stated, it will ‘‘not find 

that a practice unfairly injures 

consumers unless it is injurious in its 

net effects.’’228

Representatives of the debt relief 

industry have advanced several 

arguments as to the countervailing 

benefits of charging advance fees. First, 

they have stated that cash flow is a 

benefit of the up-front fee structure 

prevalent in the industry and that 

disallowing this fee method would limit 

new entrants to the industry. 

Specifically, debt settlement industry 

representatives argue that allowing only 

back-end fees would be an 

unsustainable business model and that 

no new companies would enter the 

market, which would reduce 

competition.229


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230 See TASC, Study on the Debt Settlement 

Industry (2007), at 6 (‘‘Debt settlement companies 

do not simply negotiate the debts at the beginning 

of the contract and act as a repayment collection 

clearinghouse for the creditors, as is the case with 

credit counseling agencies. Debt settlement 

companies must negotiate and actively monitor the 

creditor’s activities with respect to their client’s 

accounts throughout the length of the program.’’). 231 See Debt Settlement USA (Craven) Tr. at 113. 232 See, e.g., TASC (Young) Tr. at 185. 

233 Some states already impose licensing and 

bonding requirements on companies and thus 

require some capitalization. See, e.g., Kan. Stat. 

Ann. § 50-1116, et seq.; Me. Rev. Stat. Ann. Tit. 17 

§ 701, et seq. & tit. 32 §§ 6171-82, 1101-03; S.C. 

Code Ann. § 37-7-101, et seq. 

234 As TASC has commented: ‘‘One of the 

primary costs is the client acquisition. . . . Since the 

concept of debt settlement is not well-known to the 

public, debt settlement companies must spend more 

time, effort and money marketing their services. 

The lead cost for acquiring one debt settlement 

client ranges from $300 to $400. Once the intake 

costs associated with contacting the potential 

clients and the overhead costs are factored into the 

lead costs, the cost to acquire and set up a single 

debt settlement client can range from approximately 

$425 to $1,000. The data reveals that most debt 

settlement companies report this cost at $700 to 

$1,000 range. This necessitates debt settlement 

companies to charge a greater portion of fees during 

the initial phase of the program.’’ TASC, Study on 

the Debt Settlement Industry (2007), at 4. 

235 Unfairness Policy Statement at 1073. 

236 Id. 

237 See Summary of Prepared Remarks of 

Commissioner Roscoe B. Starek, III, FTC, 

Advertising and Promotion Law 1997 (July 25, 

1997) (‘‘In assessing whether injury is reasonably 

avoidable, the Commission looks at how susceptible 

the affected audience may be to the act or practice 

in question.’’). 

238 See supra note 161. 

Second, one debt settlement industry 

association claims that their fees are 

required to pay for labor or services 

engaged in before settlement occurs.230

The debt relief provider must obtain 

information about the consumer’s debts, 

familiarize themselves with the 

consumer’s finances, and call creditors 

and/or debt collectors to ascertain 

whether debt relief is possible for the 

consumer. According to one participant 

at the Commission’s workshop, such an 

effort can involve numerous phone calls 

to the creditor.231 If the creditor or debt 

collector agrees to provide some kind of 

debt relief, the telemarketers must 

coordinate the execution of the debt 

relief, which may include, for example, 

arranging the debt management plan 

terms, ensuring the savings or transfer of 

funds for settlement, and receipt of 

appropriate documentation of 

completed services. These operating 

costs must be recovered for the firm to 

remain solvent, and under the 

prevailing model whereby these 

providers operate on a for profit basis, 

the costs are likely recovered 

substantially in the form of up-front 

fees. 

Third, industry representatives have 

expressed concern that if they complete 

services before receiving payment, they 

may become one of their clients’ 

creditors.232 Because their customer 

base, to a large extent, is comprised of 

financially distressed consumers with 

limited ability to pay their current 

debts, they argue that ensuring that the 

debt relief firm can obtain payment for 

services dictates that the fees are 

collected up-front. 

Based on the evidence in the record 

at this time, it appears that insufficient 

empirical data have been presented to 

substantiate that these purported 

benefits outweigh what appears to be 

substantial harm to consumers. With 

regard to the possible curtailment of 

competition if an advance fee ban is 

imposed, the Commission acknowledges 

that, at least conceivably, such a 

prohibition could increase the costs 

incurred by any legitimate providers of 

debt relief services, make it impossible 

for some firms to continue to exist, and 

reduce the ability of new firms to enter 

the market. For example, additional 

capitalization, in the form of borrowing 

or investment, may be necessary for 

firms who would otherwise have relied 

upon advance fees for cash flow.233 If 

existing providers’ costs are increased, 

they could be forced to increase the 

prices they charge consumers for their 

services in order to remain solvent. 

However, the record lacks empirical 

data on whether debt relief companies 

actually provide the debt relief as 

represented to consumers. In fact, the 

federal and state law enforcement 

record demonstrates that few, if any 

consumers who pay upfront fees, 

receive any benefits from the advance 

fee practice. Thus, any increase in costs 

resulting from the advance fee ban 

would be unlikely to outweigh the 

consumer injury resulting from the 

current fee practice. 

Moreover, while the Commission 

acknowledges that debt relief services 

may have labor and operating costs, it 

notes that the actual benefit of allowing 

entities to recover these costs largely 

rests on their ability to deliver 

represented results – an ability that still 

remains largely unsupported by the 

record. In addition, industry has 

conceded that a large portion of its 

purported operating costs are actually 

devoted to marketing, and not provision 

of services to consumers.234 Finally, the 

proposed Rule’s allowance for 

legitimate, third-party escrow services is 

intended to ensure that debt relief 

service entities will be able to obtain 

payment if, and once, they have 

completed their represented services. 

Reasonably Avoidable Harm. The 

third and final prong of the unfairness 

analysis precludes a finding of 

unfairness in cases where the injury is 

one that consumers can reasonably 

avoid.235 The extent to which a 

consumer may reasonably avoid injury 

is determined in part by whether the 

consumer can make an informed choice. 

In this regard, the Unfairness Policy 

Statement explains: 

Normally we expect the marketplace 

to be self-correcting, and we rely on 

consumer choice – the ability of 

individual consumers to make their 

own private purchasing decisions 

without regulatory intervention – to 

govern the market. We anticipate that 

consumers will survey the available 

alternatives, choose those that are 

most desirable, and avoid those that 

are inadequate or unsatisfactory. 

However, it has long been recognized 

that certain types of sales techniques 

may prevent consumers from 

effectively making their own 

decisions, and that corrective action 

may then become necessary. Most of 

the Commission’s unfairness matters 

are brought under these 

circumstances. They are brought, not 

to second-guess the wisdom of 

particular consumer decisions, but 

rather to halt some form of seller 

behavior that unreasonably creates or 

takes advantage of an obstacle to the 

free exercise of consumer 

decisionmaking.236

Consumers seeking debt relief 

services are unable reasonably to avoid 

the injury caused by the payment of upfront fees because business practices 

prevalent among debt relief service 

providers make it impossible for 

consumers to know the offered services 

are illusory. Relying on the 

representations made in advertisements 

and in telemarketing calls, these 

vulnerable consumers expect to receive 

the promised services from those who 

purport to be experts and have no way 

of knowing that the promised services 

are almost never provided.237 Further, 

deceptive representations and 

inadequate disclosures about fees and 

their timing leave consumers unaware 

that the bulk of fees will be collected as 

up-front payments.238 As a result, in 

many instances, consumers do not even 

anticipate that they will be paying fees 

before settlements are achieved. 

Thus, the Commission proposes a ban 

on advance fees for the provision of debt 

relief services. As described above, the 

practice appears to meet the statutory 

test for unfairness because it appears to 

cause significant harm to consumers 

that is not outweighed by countervailing 

benefits to consumers or competition, 


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239 The provisions currently contained in 

310.4(a)(5) - 310.4(a)(7) will be renumbered to 

accommodate the new section 310.4(a)(5) and will 

shift to 310.4(a)(6) - 310.4(a)(8), respectively. 

240 Accordingly, if a consumer has more than one 

debt enrolled in a debt settlement program, 

amended Section 310.4(a)(5) would allow the debt 

settlement entity to collect the fee associated with 

each individual debt once it has settled that debt. 

241 As noted in Section II, CCAs commonly 

charge consumers not only an initial setup fee, but 

also periodic – usually monthly – fees throughout 

the consumer’s enrollment in the DMP after the 

consumer is enrolled. Proposed amended Rule 

Section 310.4(a)(5) would prohibit CCAs from 

charging periodic fees before the consumer has 

enrolled in a DMP, but would not prevent 

subsequent periodic fees taken for servicing the 

account. 

242 Although proposed amended Rule Section 

310.4(a)(5) would prohibit a debt negotiator from 

charging any fee until it has achieved the 

represented results, if multiple accounts are to be 

negotiated a proportional fee may be charged as 

work on each account is completed. 

243 See, e.g., USOBA at 8 (‘‘After the final 

payment is processed by the creditor or collection 

agency, a request for a confirmation letter is made 

showing the settlement agreement amount has been 

paid, along with the settlement agreement and 

copies of payments to the creditor or collection 

agency which serve as a record that the account has 

been satisfied and no outstanding balance is 

owed.’’). 

244 See 16 CFR 310.4(a)(4). 

245 16 CFR 310.5. 

and the harm is not reasonably 

avoidable. 

Accordingly, proposed amended Rule 

Section 310.4(a)(5) would prohibit: 

Requesting or receiving payment of 

any fee or consideration from a person 

for any debt relief service until the 

seller has provided the customer with 

documentation in the form of a 

settlement agreement, debt 

management plan, or other such valid 

contractual agreement, that the 

particular debt has, in fact, been 

renegotiated, settled, reduced, or 

otherwise altered.239

The focus of the provision is to 

prevent a seller or telemarketer from 

charging a fee in advance of completion 

of represented services. 

The Commission intends for this 

proposed amendment to apply to all of 

the debt relief services described in this 

Notice and encompassed by proposed 

amended provision 310.2(m). With 

regard to debt settlement, proposed 

amended Section 310.4(a)(5) is intended 

to prohibit up-front fees, and require 

debt settlement entities to provide the 

represented services – that is, to settle 

a consumer’s debt – before collecting 

any fee in connection with that debt.240

The Commission does not intend that 

the advance fee ban be interpreted to 

prohibit a consumer from using 

legitimate escrow services – services 

where funds are controlled by the 

consumer – to save money in 

anticipation of settlement, including 

money that may eventually be used to 

pay a debt relief service provider. Such 

monies held in escrow are the 

consumer’s property, held by a 

fiduciary. However, the proposed 

advance fee ban would prohibit any 

debt relief provider from taking any fee 

or consideration from funds held in 

escrow until such time as the 

represented services are delivered. At 

such time, a fee proportional to the 

work completed may be requested by 

the debt settlement provider. In the 

context of for-profit credit counseling, 

the proposed amended Rule would 

require that the provider successfully 

provide the consumer with the 

represented services, such as counseling 

and enrollment in a DMP – with the 

consent of both the consumer and his or 

her creditors – before charging any 

fees.241 In the context of debt 

negotiation, the proposed amended Rule 

would require that the debt negotiation 

provider successfully negotiate an 

agreement between the consumer and 

his or her creditor(s) to provide the 

concession or result represented by the 

debt negotiation entity (e.g., a lower 

interest rate, lower monthly payments, 

etc.).242

Moreover, in light of the abuses 

observed in the debt relief services 

industry, the proposed rule would 

require providers to give consumers 

proof that they have received the debt 

relief services as contracted for or 

promised. In the case of debt settlement, 

this would require delivery of proof to 

the customer that the accounts subject 

to debt settlement have, indeed, been 

successfully settled.243 The Commission 

has learned that, presently, many 

creditors prepare a written instrument 

referred to as a ‘‘settlement in full’’ to 

memorialize the settlement of a debt in 

connection with a debt settlement 

service provider. The Commission 

intends for proposed amended Rule 

Section 310.4(a)(5) to encompass not 

only the ‘‘settlement in full’’ document, 

but also such other legally-binding 

documents as may be presently used by 

other debt relief services or adapted in 

the future. For, example, in the case of 

for-profit credit counseling, an executed 

DMP, accepted by each of the 

consumers creditors as well as the 

consumer, would evidence that the 

proffered services had been successfully 

completed. With regard to debt 

negotiation, documentation that, for 

example, a creditor has agreed to lower 

the interest rate for a particular credit 

card would suffice. These documents 

would serve as objective proof to the 

consumer that the promises or 

contracted services have, indeed, been 

provided. 

Section VIII of this Notice solicits 

comments regarding this provision. 

Specifically, as set forth in the questions 

in Section VIII, the Commission seeks 

input regarding an advance fee ban for 

the debt relief industry that parallels the 

advance fee loan ban.244 Under that 

alternative formulation, sellers or 

telemarketers of debt relief services 

would be prohibited from requesting or 

receiving payment of any fee or 

consideration for debt relief services 

only when the seller or telemarketer has 

guaranteed or represented a high 

likelihood of success in obtaining or 

arranging the promised debt relief for a 

person. In Section VIII, the Commission 

seeks comments on the relative merits of 

the two versions of the advance fee ban, 

other possible alternatives, and the 

impact on industry of this proposed 

amendment. 

E. Section 310.5: Recordkeeping 

Section 310.5 of the Rule describes 

the types of records sellers or 

telemarketers must keep, and the time 

period for retention. Specifically, this 

provision requires that telemarketers 

must keep for a period of 24 months: all 

substantially different advertising, 

brochures, scripts, and promotional 

materials; information about prize 

recipients; information about customers, 

including what they purchased, when 

they made their purchase and how 

much they paid for the goods or services 

they purchased; information about 

employees; and all verifiable 

authorizations or records of express 

informed consent or express agreement 

required to be provided or received 

under this Rule.245

Although the provisions of this 

section remain unchanged in the 

proposed Rule, the operation of the 

other proposed amendments may result 

in some providers of debt relief services 

being subject to this provision of the 

TSR for the first time. As a result, the 

Commission believes it prudent to 

direct the attention of interested parties 

to the recordkeeping provision of the 

Rule, 16 CFR 310.5. Further, the 

Commission solicits comments with 

regard to the impact of this provision on 

the business operations of providers of 

debt relief services and responses to the 

specific questions regarding this 

provision in Section VIII of this Notice. 


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246 One such exemption involves the sale of 

franchises and business opportunities. See 16 C.F.R. 

310.6(b)(2). When originally promulgated in 1995, 

the TSR included an exemption for the sale of 

franchises and business opportunities subject to the 

Commission’s Rule entitled ‘‘Disclosure 

Requirements and Prohibitions Concerning 

Franchising and Business Opportunity Ventures,’’ 

16 C.F.R. Part 436. See TSR; Statement of Basis and 

Purpose and Final Rule, 60 FR 43842, 43859 (Aug. 

23, 1995). However, in 2007, the Commission took 

the final step to separate the rule requirements 

applicable to franchises from those applicable to 

business opportunity ventures. Disclosure 

Requirements and Prohibitions Concerning 

Franchising and Business Opportunities; Final 

Rule, 72 FR 15444 Mar. 30, 2007. Part 436 now 

covers only franchises, while a newly-numbered 

Part 437 preserves the text of the original rule in 

so far as it covers business opportunity ventures. 

The bifurcation of the original Franchise Rule 

necessitates a non-substantive modification to the 

language of TSR Section 310.6(b)(2) to clarify that 

sales of franchises subject to the Franchise Rule, 16 

C.F.R. Part 436, and business opportunities subject 

to the Business Opportunities Rule, 16 C.F.R. Part 

437, are exempt from the TSR. Any business 

venture not covered either by Part 436 or Part 437 

remains outside the scope of the exemption set 

forth at TSR § 310.6(b)(2). 

In addition, the Commission is conducting a 

separate proceeding to consider amendments to 

what is now designated Part 437, the Business 

Opportunity Rule. See Business Opportunity Rule; 

Proposed Rule, 73 FR 16110 (Mar. 26, 2008). The 

proposed amendments would embody a more 

streamlined regulatory approach and require far 

fewer disclosures, while broadening the coverage of 

the Business Opportunity rule to reach ventures 

previously regulated by neither the Franchise Rule 

nor the Business Opportunity Rule. If rules along 

these lines are adopted, the Commission would 

need to evaluate whether the final Business 

Opportunity Rule would obviate the need for the 

protections of the TSR. 

247 Section 310.6(b)(3) would continue to exempt 

telemarketing of debt relief services where the sale 

of services is not completed, and payment or 

authorization of payment is not required until after 

a face-to-face sales presentation by the seller from 

compliance with most provisions of the Rule. 

248 The bifurcation of the Franchise Rule, see 

supra note 246, necessitates a non-substantive 

modification to the language of Sections 310.6(b)(5) 

and (6). Specifically, the general media and direct 

mail exemptions to the Rule (Sections 310.6(b)(5) 

and (6), respectively) are amended to make clear 

that those exemptions do not apply to calls initiated 

by a customer or donor in response to an 

advertisement relating to business opportunities 

other than business arrangements covered by the 

Franchise Rule or the Business Opportunity Rule. 

249 Each of these categories is excepted from the 

exemptions for both general media and direct mail 

advertising. In addition, prize promotions are 

excepted from the direct mail exemption. 

250 See, e.g., FTC v. MCS Programs, LLC, No. C09- 

5380RJB (W.D. Wash 2009); FTC v. Group One 

Networks, Inc., Case No. 8:09-cv-352-T-26-MAP 

(M.D. Fla. 2009) (amended complaint); FTC v. Edge 

Solutions, Inc., No. CV-07-4087 (E.D.N.Y. 2007); 

FTC v. Express Consolidation, No. 06-cv-61851-WJZ 

(S.D. Fla. 2006); FTC v. Debt-Set, Inc., No. 1:07-cv00558-RPM (D. Colo. 2007); FTC v. Select Personnel 

Mgmt., Inc., No. 07-0529 (N.D. Ill. 2007); FTC v. 

Integrated Credit Solutions, Inc., No. 06-806-SCBTGW (M.D. Fla. 2006); FTC v. Connelly, No. SA CV 

06-701 DOC (RNBx) (C.D. Cal. 2006); United States 

v. Credit Found. of Am., No. CV 06-3654 

ABC(VBKx) (C.D. Cal. 2006); FTC v. Debt Solutions, 

Inc., No. 06-0298 JLR (W.D. Wash. 2006); FTC v. 

Debt Mgmt. Found. Svcs., Inc., No. 04-1674-T-17- 

MSS (M.D. Fla. 2004); FTC v. Nat’l Consumer 

Council, No. SACV04-0474 CJC(JWJX) (C.D. Cal. 

2004); FTC v. Better Budget Fin. Servs., Inc., No. 04- 

12326 (WG4) (D. Mass. 2004); FTC v. Innovative 

Sys. Tech., Inc., No. CV04-0728 GAF JTLx (C.D. Cal. 

2004); FTC v. AmeriDebt, Inc., No. PJM 03-3317 (D. 

Md. 2003); FTC v. Jubilee Fin. Servs., Inc., No. 02- 

6468 ABC (Ex) (C.D. Cal 2002). 

251 See Birnbaum, Jane, Debt Relief Can Cause 

Headaches of Its Own, N.Y. Times, Feb. 9, 2008. 

F. Section 310.6: Proposed Modification 

to General Media and Direct Mail 

Exemptions for Debt Relief Services 

Section 310.6 sets forth the Rule’s 

exemptions, which are designed to 

ensure that legitimate businesses are not 

unduly burdened by the Rule. Each is 

justified by one of four factors: (1) 

whether Congress intended a particular 

activity to be exempt from the Rule; (2) 

whether the conduct or business in 

question is already the subject of 

extensive federal or state regulation;246

(3) whether the conduct at issue lends 

itself easily to the forms of abuse or 

deception the Telemarketing Act was 

intended to address; and (4) whether the 

risk that fraudulent sellers or 

telemarketers would avail themselves of 

the exemption outweighs the burden to 

legitimate industry of compliance with 

the Rule. 

Based on its law enforcement 

experience and the information gleaned 

from the Workshop, the Commission 

proposes to modify the general media 

exemption and the direct mail 

exemption (Sections 310.6(b)(5) and 

310.6(b)(6)) to make them unavailable to 

telemarketers of debt relief services.247

This treatment would parallel the 

existing exceptions for investment 

opportunities, business opportunities 

other than business arrangements 

covered by the Franchise Rule,248 credit 

card loss protection plans, credit repair 

services, recovery services, and advance 

fee loans.249 Like debt relief services, 

each of those services has been the 

subject of significant numbers of 

deceptive telemarketing campaigns that 

capitalize on mass media or general 

advertising to entice their victims to 

place an inbound telemarketing call. 

The Commission, using its authority 

under Section 5 of the FTC Act, has 

devoted significant law enforcement 

resources to combating deceptive and 

unfair practices by debt relief services 

providers over the last several years.250

All indications are that the industry is 

growing. Industry statistics suggest that 

the number of firms offering debt 

settlement services has increased in 

recent years from 300 to over 1,000.251

It is reasonable to assume that this trend 

will continue, given that increasing 

numbers of consumers are in financial 

distress and thus ripe for solicitation by 

debt relief providers. The growth in the 

industry has been accompanied by a rise 

in the volume of complaints about 

deceptive, unfair, and abusive practices 

involving debt settlement. Recognizing 

that telemarketing fraud perpetrated by 

debt relief services providers is a 

prevalent and growing phenomenon, the 

Commission proposes to make the 

general media advertising exemption 

and the direct mail exemption 

unavailable to sellers and telemarketers 

of debt relief services. Otherwise, the 

Commission believes that the proposed 

amended Rule’s focus on debt relief 

services may create some incentive for 

unscrupulous sellers to market these 

programs via general media advertising 

or direct mail specifically to ensure that 

their efforts are exempt from the Rule’s 

coverage. The proposed modification to 

the exemptions will ensure that sellers 

and telemarketers who market these 

goods and services would be required to 

abide by the Rule regardless of the 

medium used to advertise their services. 

The Commission solicits comments 

with regard to the impact of these 

proposed amendments to Section 310.6 

and responses to the specific questions 

regarding this provision in Section VIII 

of this Notice. 

IV. Public Forum 

FTC staff will conduct a public forum 

to discuss the issues raised in this 

NPRM and the written comments 

received in response to this Notice. The 

Commission will post the date, time, 

and location of the public forum on its 

website no later than 30 days after the 

publication of this NPRM. The purpose 

of the forum is to afford Commission 

staff and interested parties an 

opportunity to discuss issues raised by 

the proposal and in the comments and, 

in particular, to examine publicly any 

areas of significant controversy or 

divergent opinion that are raised in the 

written comments. The forum is not 

intended to achieve a consensus among 

participants or between participants and 

Commission staff with respect to any 

issue raised in the comments. 

Commission staff will consider the 

views and suggestions made during the 

forum, in conjunction with the written 

comments, in formulating its final 

recommendation to the Commission 

regarding amendment of the TSR. 

The forum will be open to the public, 

and there is no fee for attendance. For 

admittance to the building, all attendees 

will be required to show a valid photo 

identification, such as a driver’s license. 

Pre-registration is not required for 

attendees. Members of the public and 

the press who cannot attend in person 

may view a live webcast of the forum on 

the FTC’s website. The proceedings will 


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252 See 16 CFR 1.26(b)(5). 

253 5 U.S.C. 601-612. 

254 The RFA definition of ‘‘small entity’’ refers to 

the definition provided in the Small Business Act, 

which defines a ‘‘small-business concern’’ as a 

business that is ‘‘independently owned and 

operated and which is not dominant in its field of 

operation.’’ 15 U.S.C. 632(a)(1). 

255 5 U.S.C. 603. 

256 5 U.S.C. 604. 

257 5 U.S.C. 605. 

258 In response to a request for comments issued 

in conjunction with the Workshop, the Commission 

received no empirical data regarding the revenues 

of debt relief companies generally, or debt 

settlement companies specifically. One Workshop 

commenter opined, without attribution, that the 

vast majority of debt settlement companies have 

fewer than 100 employees. See Able Debt 

Settlement at 6 (‘‘[o]f the thousand plus or minus 

companies whose business activities are related to 

debt settlement, the estimates for the numbers of 

companies and the numbers of individuals either 

working for or affiliated with them are as follows: 

Two percent consist of more than 100 individuals; 

Eight percent consist of 25 to 100 individuals; and 

the remaining Ninety percent consist of less than 

25 individuals.’’). 

259 16 CFR 310.2(cc) (in the proposed amended 

Rule, this definition is renumbered as Section 

310.2(dd)). 

260 Directly covered entities under the proposed 

amended Rule are classified as small businesses 

under the Small Business Size Standards 

component of the North American Industry 

Classification System (‘‘NAICS’’) as follows: All 

Other Professional, Scientific and Technical 

Services (NAICS code 541990) with no more than 

$7.0 million dollars in average annual receipts (no 

employee size limit is listed). See SBA, Table of 

Small Business Size Standards Matched to North 

American Industry Classification System codes 

(Aug. 22, 2008), available at (www.sba.gov/idc/ 

groups/public/documents/sba_homepage/ 

serv_sstd_tablepdf.pdf) 

261 See Able Debt Settlement at 6. 

be transcribed, and the transcript will be 

placed on the public record. 

The forum venue will be accessible to 

persons with disabilities. If you need an 

accommodation related to a disability, 

call Carrie McGlothin at (202) 326-3388. 

Such requests should include a detailed 

description of the accommodations 

needed and a way to contact you if we 

need more information. Please provide 

advance notice of any needs for such 

accommodations. 

Commission staff will select a limited 

number of parties from among those 

who submit requests to participate to 

represent the significant interests 

affected by the issues raised in the 

Notice. These parties will participate in 

an open discussion of the issues, 

including asking and answering 

questions based on their respective 

comments. In addition, the forum will 

be open to the general public. 

To the extent possible, Commission 

staff will select parties to represent the 

following interests: providers of debt 

relief services; telemarketers, lead 

generators, and aggregators; consumer 

advocacy groups; federal and state law 

enforcement and regulatory authorities; 

and any other interests that Commission 

staff may identify and deem appropriate 

for representation. FTC staff will select 

panelists based on the following criteria: 

1) the party has expertise in or 

knowledge of the issues that are the 

focus of the workshop; 2) the party’s 

participation would promote a balance 

of interests represented at the workshop; 

and 3) the party has been designated by 

one or more interested parties (who 

timely file requests to participate) as a 

party who shares the interests of the 

designator(s). Members of the general 

public who attend the workshop may 

have an opportunity to make brief oral 

statements presenting their views on 

issues raised in the NPRM. Oral 

statements by members of the general 

public will be limited on the basis of the 

time available and the number of 

persons who wish to make statements. 

Parties interested in participating as 

panelists must submit written 

comments addressing the issues raised 

in the NPRM, in addition to a formal 

written request to participate in the 

form and manner described above. 

Parties must include in their request a 

brief statement setting forth their 

expertise or knowledge of the issues on 

which the workshop will focus, as well 

as their contact information, including, 

if available: a telephone number, 

facsimile number, and e-mail address to 

enable the FTC to notify requesters 

whether they have been selected to 

participate. 

V. Communications by Outside Parties 

to the Commissioners or Their Advisors 

Written communications and 

summaries or transcripts of oral 

communications respecting the merits 

of this proceeding from any outside 

party to any Commissioner or 

Commissioner’s advisor will be placed 

on the public record.252

VI. Regulatory Flexibility Act 

The Regulatory Flexibility Act of 1980 

(‘‘RFA’’)253 requires a description and 

analysis of proposed and final rules that 

will have a significant economic impact 

on a substantial number of small 

entities.254 The RFA requires an agency 

to provide an Initial Regulatory 

Flexibility Analysis (‘‘IRFA’’)255 with 

the proposed Rule and a Final 

Regulatory Flexibility Analysis 

(‘‘FRFA’’)256 with the final rule, if any. 

The Commission is not required to make 

such analyses if a rule would not have 

such an economic effect.257

The Commission does not have 

sufficient empirical data at this time 

regarding the debt relief industry to 

determine whether the proposed 

amendments to the Rule may impact a 

substantial number of small entities as 

defined in the RFA.258 It is also unclear 

whether the proposed amended Rule 

would have a significant economic 

impact on small entities. Thus, to obtain 

more information about the impact of 

the proposed rule on small entities, the 

Commission has decided to publish the 

following IRFA pursuant to the RFA and 

to request public comment on the 

impact on small businesses of its 

proposed amended Rule. 

A. Description of the Reasons Why 

Action by the Agency is Being 

Considered 

As described in Section III, above, the 

proposed amendments are intended to 

address consumer protection concerns 

regarding telemarketing of debt relief 

services and are based on evidence in 

the record to date suggesting that 

deceptive and abusive acts are pervasive 

in telemarketing of debt relief services 

to consumers. 

B. Succinct Statement of the Objectives 

of, and Legal Basis for, the Proposed 

Amended Rule 

The objective of the proposed 

amended Rule is to curb deceptive and 

abusive practices occurring in the 

telemarketing of debt relief services. The 

legal basis for the proposed 

amendments is the Telemarketing Act. 

C. Description and Estimate of the 

Number of Small Entities to Which the 

Proposed Amended Rule Will Apply 

The proposed amendments to the 

Rule will affect sellers and telemarketers 

of debt relief services engaged in 

‘‘telemarketing,’’ as defined by the Rule 

to mean ‘‘a plan, program, or campaign 

which is conducted to induce the 

purchase of goods or services or a 

charitable contribution, by use of one or 

more telephones and which involves 

more than one interstate telephone 

call.’’259 Staff estimates that the 

proposed amended Rule will apply to 

approximately 2000 entities. 

Determining a precise estimate of how 

many of these are small entities, or 

describing those entities further, is not 

readily feasible because the staff is 

unaware of published data that reports 

annual revenue figures for debt relief 

service providers.260 Further, the 

Commission’s requests for information 

about the number and size of debt 

settlement companies yielded virtually 

no information.261 The Commission 

invites comment and information on 

this issue. 


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262 See Proposed Rule Section 310.3(a)(1)(viii). 

263 See supra notes 120-125. 

264 44 U.S.C. 3501-3521. 

265 See 5 CFR 1320.3(c). 

266 ‘‘Respondents’’ denote already existing 

entities that have or will have, as a result of this 

proceeding, recordkeeping and/or disclosure 

obligations under the TSR. 

267 See 16 CFR 310.3(a)(1); 16 CFR 310.5. 

268 To err in favor of being over inclusive, staff 

assumes that every entity that sells debt relief 

services does so using telemarketing. 

D. Description of the Projected 

Reporting, Recordkeeping and Other 

Compliance Requirements of the 

Proposed rule, Including an Estimate of 

the Classes of Small Entities which will 

be Subject to the Requirement and the 

Type of Professional Skills Necessary for 

Preparation of the Report or Record 

The proposed amended Rule would 

impose disclosure and recordkeeping 

burden within the meaning of the PRA, 

as set forth in Section VII of this NPRM. 

The Commission is seeking clearance 

from the OMB for these requirements, 

and the Commission’s Supporting 

Statement submitted as part of that 

process is being made available on the 

public record of this rulemaking. 

Specifically, the proposed amended 

Rule would require specific disclosures 

in telemarketing of debt relief 

services,262 and it would subject 

inbound debt relief service 

telemarketing to the Rule’s 

requirements, including the existing 

disclosure and recordkeeping 

provisions. In addition, the proposed 

amended Rule would prohibit a seller or 

telemarketer of debt relief services from 

requesting or receiving a fee in advance 

of providing the offered services. 

The classes of small entities affected 

by the amendments include 

telemarketers or sellers engaged in acts 

or practices covered by the Rule. The 

types of professional skills required to 

comply with the Rule’s recordkeeping, 

disclosure, or other requirements would 

include attorneys or other skilled labor 

needed to ensure compliance. As noted 

in the PRA analysis below, the total 

estimated cost burden for all entities 

subject to the proposed rule will be 

approximately $967,436. The 

Commission seeks further comment on 

the costs and burdens of small entities 

in complying with the requirements of 

the proposed amended Rule. 

E. Identification, to the Extent 

Practicable, of all Relevant Federal 

Rules which may Duplicate, Overlap or 

Conflict with the Proposed Amended 

Rule 

The FTC has not identified any other 

federal statutes, rules, or policies 

currently in effect which may duplicate, 

overlap or conflict with the proposed 

rule. However, several state laws do 

regulate debt relief services.263 The 

Commission invites comment and 

information regarding any potentially 

duplicative, overlapping, or conflicting 

federal statutes, rules, or policies. 

F. Description of any Significant 

Alternatives to the Proposed Rule 

In drafting the proposed amended 

rule, the Commission has made every 

effort to avoid unduly burdensome 

requirements for entities. The 

Commission believes that the proposed 

amendments that are specific to the debt 

relief services industry – including the 

newly proposed disclosures, prohibited 

misrepresentations, and the advance fee 

ban – are necessary in order to protect 

consumers considering the purchase of 

debt relief services. Similarly, at this 

time the Commission is proposing to 

extend the coverage of the existing 

provisions of the Rule to inbound 

telemarketing of debt relief services. 

This amendment is designed to ensure 

that in all telemarketing transactions to 

sell debt relief services, consumers 

receive the benefit of the Rule’s 

protections. For each of these proposed 

amendments, the Commission has 

attempted to tailor the provision to the 

concerns evidenced by the record to 

date. On balance, the Commission 

believes that the benefits to consumers 

of each outweighs the costs to industry 

of implementation. 

The Commission considered, but 

decided against, providing an 

exemption for small entities in the 

proposed amended Rule. The 

protections afforded to consumers from 

the proposed amendments are equally 

important regardless of the size of the 

debt relief service provider with whom 

they transact. Indeed, small debt relief 

service providers possess no intrinsic 

characteristics that would warrant 

exempting them from provisions, such 

as the proposed debt relief disclosures. 

The information provided in the 

disclosures is material to the consumer 

regardless of the size of the entity 

offering the services. Similarly, the 

protections afforded to consumers by 

the advance fee ban are equally 

necessary regardless of the size of the 

entity providing the services. Thus, the 

Commission believes that creating an 

exemption for small businesses from 

compliance with the proposed 

amendments would be contrary to the 

goals of the amendments because it 

would arbitrarily limit their reach to the 

detriment of consumers. 

Nonetheless, the Commission has 

taken care in developing the proposed 

amendments to set performance 

standards, which establish the objective 

results that must be achieved by 

regulated entities, but do not establish a 

particular technology that must be 

employed in achieving those objectives. 

For example, the Commission does not 

specify the form in which records 

required by the TSR must be kept. 

The Commission seeks comments on 

the ways in which the rule could be 

modified to reduce any costs or burdens 

for small entities. 

VII. Paperwork Reduction Act 

The Commission is submitting this 

proposed amended Rule and a 

Supporting Statement to OMB for 

review under the Paperwork Reduction 

Act (‘‘PRA’’).264 The recordkeeping and 

disclosure requirements under the 

proposed amendments to the TSR 

discussed above constitute ‘‘collections 

of information’’ for purposes of the 

PRA.265 Accordingly, the Commission is 

providing PRA burden estimates for 

those requirements, which are set forth 

below. 

The proposed amendments would 

require specific new disclosures in the 

sale of a ‘‘debt relief service,’’ as that 

term is defined in proposed Section 

310.2(m), which would result in PRA 

burden for all entities – both new and 

existing respondents266 – that engage in 

telemarketing of these services. In 

addition, if the proposed amendments 

are adopted, new respondents would be 

subject to the existing provisions of the 

TSR, including its general sales 

disclosures and recordkeeping 

provisions.267 Specifically, as a result of 

the proposed exceptions to the general 

media and direct mail exemptions, 

entities that currently engage 

exclusively in inbound telemarketing of 

debt relief services, and thus are likely 

exempt under the current Rule, would 

be covered by the amended Rule. The 

PRA burden of these requirements will 

depend on various factors, including the 

number of covered firms and the 

percentage of such firms that conduct 

inbound or outbound telemarketing. 

The definition of ‘‘debt relief service’’ 

in the proposed Rule would include 

debt settlement companies, for-profit 

credit counselors, and debt negotiation 

companies. Commission staff estimates 

that approximately 2,000 entities sell 

debt relief services and thus would be 

covered by the Commission’s proposed 

Rule.268 This includes existing entities 

already subject to the TSR for which 

there would be new recordkeeping or 

disclosure requirements (‘‘existing 


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269 Outbound telemarketing and non-exempt 

inbound telemarketing of debt relief services are 

currently subject to the TSR. Non-exempt inbound 

telemarketing would include calls to debt relief 

service providers by consumers in response to 

direct mail advertising that does not contain 

disclosures required by Section 310.3(a)(1) of the 

Rule. See 16 CFR 310.6(b)(6) (providing an 

exemption for ‘‘[t]elephone calls initiation by a 

customer . . . in response to a direct mail solicitation 

. . . that clearly, conspicuously, and truthfully 

discloses all material information listed in 

§ 310.3(a)(1) of this Rule . . . .’’). 

270 Inbound telemarketing calls in response to 

advertisements in any medium other than direct 

mail solicitation are generally exempt from the 

Rule’s coverage under the ‘‘general media 

exemption.’’ 16 CFR 310.6(b)(5). Inbound 

telemarketing calls in response to direct mail 

advertisements are also exempt to the extent that 

the direct mail pieces ‘‘clearly, conspicuously, and 

truthfully disclose[] all material information listed 

in § 310.3(a)(1) of this Rule.’’ 16 CFR 310.6(b)(6). 

271 See Streitfeld, David, Debt Settlers Offer 

Promises But Little Help, N.Y. Times, Apr. 19, 2009 

(stating, without attribution, that ‘‘[a]s many as 

2,000 settlement companies operate in the United 

States, triple the number of a few years ago’’); 

Birnbaum, Jane, Debt Relief Can Cause Headaches 

of Its Own, N.Y. Times, Feb. 9, 2008 (noting that 

‘‘[a] thousand such [debt settlement] companies 

exist nationwide, up from about 300 a couple of 

years ago, estimated David Leuthold, vice president 

of the Association of Settlement Companies, which 

has 70 members and is based in Madison, Wis.’’); 

Able Debt Settlement at 5 (‘‘At the time of this FTC 

Workshop there are nearly a thousand debt 

settlement companies within the US and a few 

companies servicing US consumers from outside 

the US with operations in Canada, Mexico, 

Argentina, India and Malaysia.’’); see also SIC Code 

72991001 (‘‘Debt Counseling or Adjustment Service, 

Individuals’’): 1,598 entities. 

272 According to industry sources consulted by 

Commission staff, there are believed to be fewer 

than 100 for-profit credit counseling firms operating 

in the United States. 

273 See Direct Marketing Association Statistical 

Fact Book 17 (30 th ed. 2008). 

274 According to the DMA, 21.2% of annual U.S. 

advertising expenditures for direct marketing is 

through direct mail; the remaining 78.8% is through 

all other forms of general media (e.g., newspapers, 

television, Internet, Yellow Pages). See Id. at 11. 

Thus, applying these percentages to the above 

estimate of 1,024 inbound telemarketers, 217 

entities (21.2%) advertise by direct mail and 807 

(78.8%) use general media. 

275 The apportionment of one-third is a 

longstanding assumption stated in past FTC 

analyses of PRA burden for the TSR. See, e.g., 

Agency Information Collection Activities, 74 FR 

25540, 25543 (May 28, 2009); Agency Information 

Collection Activities, 71 FR 28698, 28700 (May 17, 

2006). No comments have been received to date 

with an alternative apportionment or reasons to 

modify it. 

276 16 CFR 310.6(b)(6). 

277 See, e.g., Agency Information Collection 

Activities, 74 FR at 25542; Agency Information 

Collection Activities, 71 FR at 28699. 

278 Id. 

respondents’’),269 as well as existing 

entities that newly will be subject to the 

TSR (‘‘new respondents’’).270 Staff has 

arrived at this estimate by using 

available figures obtained through 

research and from industry sources of 

the number of debt settlement 

companies271 and the number of forprofit credit counselors.272 Although 

these inputs suggest that an estimate of 

2,000 entities might be overstated, staff 

has used it in its burden calculations in 

an effort to account for all entities that 

would be subject to the proposed 

amendments, including debt negotiation 

companies, for which no reliable 

external estimates are available. 

Burden Statement: 

Estimated Additional Annual Hours 

Burden: 42,580 hours 

As explained below, the estimated 

annual burden for recordkeeping 

attributable to the proposed Rule 

amendments, averaged over a 

prospective 3-year PRA clearance, is 

29,886 hours for all industry members 

affected by the Rule. Although the first 

year of compliance will entail setting up 

compliant recordkeeping systems, 

burden will decline in succeeding years 

as they will then have such systems in 

place. The estimated burden for the 

disclosures that the Rule requires, 

including the newly proposed 

disclosures relating to debt relief 

services, is 12,694 hours for all affected 

industry members. Thus, the total PRA 

burden is 42,580 hours. 

A. Number of Respondents 

Based on its estimate that 2,000 

entities sell debt relief services, and that 

each of these entities engages in 

telemarketing as defined by the TSR, 

staff estimates that 879 new respondents 

will be subject to the Rule as a result of 

the proposed amendments. The latter 

figure is derived by a series of 

calculations, beginning with an estimate 

of the number of these entities that 

conduct inbound versus outbound 

telemarketing of debt relief services. 

This added estimate is needed to 

determine how many debt relief service 

providers are existing respondents and 

how many are new respondents, the 

distinction being relevant because their 

respective PRA burdens will differ. 

Staff is unaware of any source that 

directly states the number of outbound 

or inbound debt relief telemarketers; 

instead, estimates of these numbers are 

extrapolated from external data. 

According to the DMA, 21% of all direct 

marketing in 2007 was by inbound 

telemarketing and 20% was by 

outbound telemarketing.273 Using this 

relative weighting, staff estimates that 

the number of inbound debt relief 

telemarketers is 1,024 (2,000 x 21 ÷ (20 

+ 21)) and the number of outbound 

telemarketers is 976 (2,000 x 20 ÷ (20 + 

21). 

Of the estimated 1,024 entities 

engaged in inbound telemarketing of 

debt relief services, an estimated 217 

entities conduct inbound debt relief 

telemarketing through direct mail; the 

remaining 807 entities do so through 

general media advertising and would 

thus far largely be exempt from the 

Rule’s current requirements.274 Of the 

217 entities using direct mail, staff 

estimates that 72, approximately onethird, make the disclosures necessary to 

exempt them from the Rule’s existing 

requirements.275 Thus, an estimated 879 

entities (807 + 72) are new respondents 

that will be newly subject to the TSR 

and its PRA burden, including burden 

derived from the new debt relief 

disclosures. 

The remaining 145 entities (217 - 72) 

conducting inbound telemarketing for 

debt relief through direct mail would be 

existing respondents because they 

receive inbound telemarketing calls in 

response to direct mail advertisements 

that do not make the requisite 

disclosures to qualify for the direct mail 

exemption.276 The estimated 976 

entities conducting outbound 

telemarketing of debt relief services are 

already subject to the TSR and thus, too, 

would be existing respondents. 

Accordingly, an estimated 1,121 

telemarketers selling debt relief services 

would be subject only to the additional 

PRA burden imposed by the newly 

proposed debt relief disclosures in 

proposed amended Rule Section 

310.3(a)(1)(viii). 

B. Recordkeeping Hours 

Staff estimates that in the first year 

following promulgation of the proposed 

amended Rule, it will take 100 hours for 

each of the 879 new respondents 

identified above to set up compliant 

recordkeeping systems. This estimate is 

consistent with the amount of time 

allocated in other PRA analyses that 

have addressed new entrants, i.e., newly 

formed entities subject to the TSR.277

The recordkeeping burden for these 

entities in the first year following the 

proposed amended Rule’s adoption is 

87,900 hours (879 new respondents x 

100 hours each). In subsequent years, 

when TSR-compliant recordkeeping 

systems will, presumably, have already 

been established, the burden for these 

entities should parallel the one hour of 

ongoing recordkeeping burden staff has 

previously estimated for existing 

respondents under the Rule.278 Thus, 

annualized over a prospective three-year 

PRA clearance period, cumulative 

annual recordkeeping burden for the 

879 new respondents would be 29,886 

hours (87,900 hours in Year 1: 879 

hours for each of Years 2 and 3). Burden 


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279 Agency Information Collection Activities, 74 

FR at 25542 (‘‘The Commission staff also estimates 

that 75 new entrants per year would need to spend 

100 hours each developing a recordkeeping system 

that complies with the TSR for an annual total of 

7,500 burden hours.’’). The term ‘‘new entrant’’ 

denotes an entity that has not yet, but may in the 

future come into being. 

280 Id. 

281 See, e.g., id. (‘‘Staff believes that in the 

ordinary course of business a substantial majority 

of sellers and telemarketers make the disclosures 

the Rule requires because to do so constitutes good 

business practice.’’). 

282 16 CFR 1320.3(b)(2). 

283 See, e.g., Agency Information Collection 

Activities, 74 FR at 25543; Agency Information 

Collection Activities, 71 FR at 28699. Accordingly, 

staff has continued to estimate that the hours 

burden for most of the Rule’s disclosure 

requirements is 25 percent of the total hours 

associated with disclosures of the type the TSR 

requires. 

284 By extension upsells on these initial calls 

would not be applicable. Moreover, staff believes 

that few, if any, upsells on initial outbound and 

inbound calls would be for debt relief. 

285 See Woolsey, Ben and Schulz, Matt, Credit 

Card Statistics, industry facts, debt statistics, 

available at (www.creditcards.com/credit-cardnews/credit-card-industry-facts-personal-debtstatistics-1276.php). 

286 FRB, Federal Reserve Statistical Release: 

Charge Offs and Delinquency Rates on Loans and 

Leases at Commercial Banks, available at 

(www.federalreserve.gov/releases/chargeoff/ 

delallsa.htm) (reporting a 6.5% delinquency rate for 

credit cards for the first quarter of 2009). 

287 Supra note 274. 

288 Id. 

289 See Agency Information Collection Activities, 

74 FR at 25542. 

accruing to new entrants, 100 hours 

apiece to set up new recordkeeping 

systems compliant with the Rule, has 

already been factored into the FTC’s 

existing clearance from OMB for an 

estimated 75 entrants per year, and is 

also incorporated within the FTC’s 

latest pursuit of renewed clearance for 

the TSR under OMB Control No. 3084- 

0097.279

Staff believes that the 1,121 existing 

respondents identified above will not 

have recordkeeping burden associated 

with setting up compliant 

recordkeeping systems. These entities 

are already required to comply with the 

Rule, and thus should already have 

recordkeeping systems in place. As 

noted above, these existing respondents 

will each require approximately one 

hour per year to file and store records 

required by the TSR. Here, too, 

however, this recordkeeping task is 

already accounted for in the FTC’s 

existing PRA clearance totals and 

included within the latest request for 

renewed OMB clearance for the TSR.280

C. Disclosure Hours 

As has been stated in prior FTC 

analyses for the TSR under the PRA, 

staff believes that in the ordinary course 

of business a substantial majority of 

sellers and telemarketers make the 

disclosures the Rule requires because 

doing so constitutes good business 

practice.281 To the extent this is so, the 

time and financial resources needed to 

comply with disclosure requirements do 

not constitute ‘‘burden.’’282 Moreover, 

some state laws require the same or 

similar disclosures as the Rule 

mandates. Thus, the disclosure hours 

burden attributable to the Rule is far less 

than the total number of hours 

associated with the disclosures overall. 

Staff continues to assume that most of 

the disclosures the Rule requires would 

be made in at least 75 percent of 

telemarketing calls even absent the 

Rule.283

To determine the number of outbound 

and inbound calls regarding debt relief 

services, staff has combined external 

data with internal assumptions. Staff 

assumes that outbound calls to sell and 

inbound calls to buy debt relief services 

are made only to and by consumers who 

are delinquent on one or more credit 

cards.284 For simplicity, and lacking 

specific information to the contrary, 

staff further assumes that each such 

consumer or household will receive one 

outbound call and place one inbound 

call for these services. 

According to recently published 

figures, 78% of U.S. households, or 91.1 

million households, had one or more 

credit cards at the end of 2008.285 The 

Federal Reserve Board reported in May 

2009 that the delinquency rate for credit 

cards had risen to 6.5%.286 Applying 

this rate to the stated number of 

households, 91.1 million, yields 

5,921,500 consumers who will receive 

and place a call for debt relief services 

in a given year. 

Because outbound calls are already 

subject to the existing provisions of the 

TSR, each such call will entail only the 

incremental PRA burden resulting from 

the new debt relief disclosures. For 

inbound calls, however, there will be 

new respondents in addition to existing 

ones, and associated underlying 

distinctions between current 

exemptions applicable to direct 

marketing via direct mail and those for 

general media (discussed further below). 

Accordingly, separate estimates are 

necessary for inbound debt relief calls 

attributable to each. 

To determine the number of inbound 

debt relief calls attributable to general 

media advertising versus direct mail 

advertising, staff relied upon the DMA 

estimate that 21.2% of direct marketing 

is done by direct mail287 and 78.8% of 

direct marketing is done by general 

media methods.288 Applying these 

percentages to the above-noted estimate 

of 5,921,500 inbound debt relief calls 

translates to 4,666,142 calls resulting 

from general media advertising and 

1,255,358 calls arising from direct mail. 

Staff then estimated that 1/3 of inbound 

direct mail debt relief calls, or 418,453 

such calls, are currently exempt from 

the TSR because they are in response to 

direct mail advertising that makes the 

requisite Section 310.3(a)(1) disclosures. 

The remaining 2/3, or 836,905 inbound 

direct mail calls, are non-exempt. 

1) Existing respondents’ disclosure 

burden 

As discussed above in this NPRM, the 

proposed amended Rule includes a new 

provision, Section 310.3(a)(1)(viii), 

which includes six disclosures specific 

to providers of debt relief services. Staff 

estimates that reciting these disclosures 

in each sales call pertaining to debt 

relief services will take 12 seconds. 

For outbound calls, the disclosure 

burden for existing entities from the 

new debt relief disclosures is 4,935 

hours [5,921,500 outbound calls 

involving debt relief x 12 seconds each 

(for new debt relief disclosures) x 25% 

TSR burden]. 

Similarly, currently non-exempt 

inbound calls – inbound calls placed as 

a result of direct mail solicitations that 

do not include the Section 310.3(a)(1) 

disclosures – will only entail the 

incremental PRA burden resulting from 

the new debt relief disclosures. As 

noted above, this totals 836,905 such 

calls each year. The associated 

disclosure burden for these calls would 

be 697 hours (836,905 non-exempt 

direct mail inbound calls x 12 seconds 

for debt relief disclosures x 25% burden 

from TSR). 

Thus, the total disclosure burden 

under the proposed amended Rule for 

all existing respondents is 5,632 hours 

(4,935 hours for entities conducting 

outbound calls + 697 hours for entities 

conducting inbound, non-exempt 

telemarketing). 

2) New respondents’ disclosure burden 

New respondents – those currently 

exempt from the Rule’s coverage as a 

result of the direct mail or general 

media exemptions for inbound calls – 

will incur disclosure burden not only 

for the debt relief disclosures in 

proposed Section 310.3(a)(1)(viii), but 

also for the existing general disclosures 

for which such entities will newly be 

responsible.289

As noted above, inbound calls 

responding to debt relief services 

advertised in general media are 


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290 This is so because, at present, no limitation 

or exemption would limit use of the general media 

exemption by those selling debt relief services via 

inbound telemarketing. See 16 CFR 310.6(b)(5) (the 

general media exemption, unlike the direct mail 

exemption, is not conditional and does not 

presently except from its coverage debt relief 

services). 

291 This rounded figure is derived from the mean 

hourly earnings shown for computer support 

specialists found in the National Compensation 

Survey: Occupational Earnings in the United States 

2007, U.S. Department of Labor released August 

2008, Bulletin 2704, Table 3 (‘‘Full-time civilian 

workers,’’ mean and median hourly wages). See 

(www.bls.gov/ncs/ncswage2007.htm). 

292 As discussed above, existing respondents 

should already have compliant recordkeeping 

systems and thus are not included in this 

calculation. 

293 This rounded figure is derived from the mean 

hourly earnings shown for telemarketers found in 

the National Compensation Survey: Occupational 

Earnings in the United States 2007, U.S. 

Department of Labor released August 2008, Bulletin 

2704, Table 3 (‘‘Full-time civilian workers,’’ mean 

and median hourly wages). See (www.bls.gov/ncs/ 

ncswage2007.htm). 

294 Staff believes that remaining non-labor costs 

would largely be incurred by affected entities, 

regardless, in the ordinary course of business and/ 

or marginally be above such costs. 

currently exempt from the Rule.290 The 

disclosure burden for these calls would 

be 20 seconds each [8 seconds for 

existing Section 310.3(a)(1) disclosures 

+ 12 seconds for debt relief disclosures]. 

Applying this unit measure to the 

estimated 4,666,142 inbound debt relief 

calls arising from general media 

advertising, the cumulative disclosure 

burden is 6,481 hours per year 

(4,666,142 inbound debt relief calls in 

response to general media advertising x 

20 seconds x 25% burden from TSR). 

Applying the previously stated 

estimates and assumptions, the 

disclosure burden for new respondents 

attributable to currently exempt 

inbound calls tied to direct mail (i.e., 

currently exempt when the requisite 

Section 310.3(a)(1) disclosures are 

made), is 581 hours per year (418,453 

exempt inbound direct mail calls x 20 

seconds x 25% burden from TSR). 

Thus, the total disclosure burden 

attributable to the revised proposed 

Rule is 12,694 hours (4,935 + 697 + 

6,481 + 581). 

Estimated Annual Labor Cost: 

$905,726 

Estimated Annual Non-Labor Cost: 

$61,716 

D. Recordkeeping Labor and Non-Labor 

Costs 

1) Labor Costs 

Assuming a cumulative burden of 

87,900 hours in Year 1 (of a prospective 

3-year PRA clearance for the TSR) to set 

up compliant recordkeeping systems for 

existing debt relief service providers 

newly subject to the Rule (879 new 

respondents x 100 hours each in Year 1 

only), and applying to that a skilled 

labor rate of $25/hour,291 labor costs 

would approximate $2,197,500 in the 

first year of compliance for new 

respondents.292 As discussed above, 

however, in succeeding years, 

recordkeeping associated with the Rule 

will only require 879 hours, 

cumulatively, per year. Applied to a 

clerical wage rate of $14/hour, this 

would amount to $12,306 in each of 

those years. Thus, the estimated annual 

labor costs for recordkeeping associated 

with the revised proposed Rule, 

averaged over a prospective 3-year 

clearance period, is $740,704. 

2) Non-Labor Costs 

Staff believes that the capital and 

start-up costs associated with the TSR’s 

information collection requirements are 

de minimis. The Rule’s recordkeeping 

requirements mandate that companies 

maintain records, but not in any 

particular form. While those 

requirements necessitate that affected 

entities have a means of storage, 

industry members should have that 

already regardless of the Rule. Even if 

an entity finds it necessary to purchase 

a storage device, the cost is likely to be 

minimal, especially when annualized 

over the item’s useful life. 

Affected entities need some storage 

media such as file folders, electronic 

storage media or paper in order to 

comply with the Rule’s recordkeeping 

requirements. Although staff believes 

that most affected entities would 

maintain the required records in the 

ordinary course of business, staff 

estimates that the previously 

determined 879 new respondents newly 

subject to the revised proposed Rule 

will spend an annual amount of $50 

each on office supplies as a result of the 

Rule’s recordkeeping requirements, for a 

total recordkeeping cost burden of 

$43,950. 

E. Disclosure Labor & Non-Labor Costs 

1) Labor Costs 

The estimated annual labor cost for 

disclosures for under the revised 

proposed Rule is $165,022. This total is 

the product of applying an assumed 

hourly wage rate of $13293 to the earlier 

stated estimate of 12,694 hours 

pertaining to general and specific 

disclosures in initial outbound and 

inbound calls. 

2) Non-Labor Costs 

Estimated outbound disclosure hours 

(4,935) per above multiplied by an 

estimated commercial calling rate of 6 

cents per minute ($3.60 per hour) equals 

$17,766 in phone-related costs.294

The Commission invites comments 

on: (1) whether the proposed collection 

of information is necessary for the 

proper performance of the functions of 

the FTC, including whether the 

information will have practical utility; 

(2) the accuracy of the FTC’s estimate of 

the burden of the proposed collection of 

information; (3) ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of 

collecting information on those who 

respond, including through the use of 

appropriate automated, electronic, 

mechanical, or other technological 

collection techniques or other forms of 

information technology, e.g., permitting 

electronic submission of responses. 

VIII. Questions for Comment 

The Commission seeks comment on 

various aspects of the proposed Rule. 

Without limiting the scope of issues on 

which it seeks comment, the 

Commission is particularly interested in 

receiving comments on the questions 

that follow. In responding to these 

questions, include detailed, factual 

supporting information whenever 

possible. 

A. General Questions for Comment 

Please provide comment on each 

aspect of the proposed Rule, including 

answers to the following questions. 

(1) How would the proposed Rule 

impact different entities or the provision 

of different types of debt relief services? 

Please provide as much detail as 

possible. Useful information would 

include information about the services 

provided by particular entities or types 

of entities, and how different entities 

perform their services. 

a. In particular, do entities differ in 

how they currently collect their fees, 

e.g., what payments are required before 

the services are begun, what payments 

are required while services are being 

provided, and what payments are not 

collected until after the work is 

completed? Which providers of debt 

relief services currently require 

consumers to make some payment 

before services are completely 

provided? Which entities do and do not 

require such payments? How much of 

the total fee do the various providers 

charge prior to completion of the 

services being offered? 

b. How do the various types of entities 

measure their success in providing the 

represented services and what level of 

success are they able to achieve? (Please 


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provide data to support these 

representations.) 

(2) What would be the effect of the 

proposed Rule changes (including any 

benefits and costs), if any, on 

consumers? Would the benefits to 

consumers differ depending on the 

service offered or the type of provider 

offering it, and if so, how? What 

evidence is there that consumers are or 

are not misled in the promotion and sale 

of different types of goods or services or 

by different providers? Please provide as 

much detail as possible. 

(3) What would be the impact of the 

proposed Rule changes (including any 

benefits and costs), if any, on industry? 

(4) What changes, if any, should be 

made to the proposed Rule to increase 

benefits to consumers and competition? 

(5) What changes, if any, should be 

made to the proposed Rule to decrease 

any unnecessary cost to industry or 

consumers? 

(6) How would the proposed Rule 

affect small business entities with 

respect to costs, profitability, 

competitiveness, and employment? 

B. Questions on Proposed Specific 

Provisions 

Section 310.2 – Definitions 

(1) Does the definition of ‘‘debt relief 

service’’ in proposed Section 310.2(m) 

adequately describe the scope of the 

proposed Rule’s coverage? If not, how 

should it be modified? Is the proposed 

definition accurate? Are there 

alternative definitions that the 

Commission should consider? Should 

additional terms be defined, and, if so, 

how? What would be the costs and 

benefits of each suggested definition? 

(2) Are there reasons to broaden the 

definition of ‘‘debt relief service’’ to 

include the word ‘‘product’’? Would the 

addition of ‘‘products’’ allow the Rule to 

reach additional deceptive and abusive 

practices engaged in by sellers and 

telemarketers of debt relief products and 

services? Are there reasons to include 

‘‘products’’ to ensure that the scope of 

the definition is appropriately broad to 

anticipate likely changes in the 

marketplace? Why or why not? 

(3) The definition of ‘‘debt relief 

service’’ in proposed Section 310.2(m) 

would apply to ‘‘any service 

represented, directly or by implication, 

to renegotiate, settle, or in any way alter 

the terms of payment or other terms of 

the debt between a consumer and one or 

more unsecured creditors or debt 

collectors.’’ (emphasis added). The 

Commission has so limited the 

provision in anticipation of covering 

mortgage loan modification and 

foreclosure rescue services under its 

new rulemaking authority with respect 

to mortgage loans. As a result of this 

determination, with a few exceptions, 

only outbound telemarketing calls to 

sell mortgage loan modification or 

foreclosure rescue debt relief services 

would be covered by the TSR. Is this 

determination appropriate? Why or why 

not? 

(4) Should any entities encompassed 

by the definition in proposed Section 

310.2(m) be excluded or exempted from 

this definition? If so, which entities? 

Why or why not? 

Section 310.3 –Deceptive telemarketing 

acts or practices 

(1) The proposed amended Rule 

contemplates extending coverage of the 

existing TSR disclosure and 

misrepresentation provisions contained 

in Section 310.3(a) to inbound debt 

relief sales calls (as defined in the 

proposal). Would this adequately 

address the harms to consumers that 

occur in the sale of debt relief services? 

Why or why not? 

(2) Proposed Section 310.3(a)(1)(viii) 

has six required disclosures. For each 

disclosure, please provide comment on 

the following questions: 

a. Is this disclosure appropriate to 

address harms to consumers that occur 

in the sale of debt relief services? If not, 

why or why not? How could the 

proposed amended Rule be modified to 

better address such harms? 

b. Should this provision be applicable 

to all providers of debt relief services, or 

should this provision be tailored to 

apply only to certain debt relief 

providers? Why or why not? If so, which 

entities should be covered? 

c. What would be the benefits to 

consumers of this proposed 

requirement? 

d. What burdens would be imposed 

on providers of debt relief services if 

this requirement were adopted? 

e. As a practical matter, how would 

providers comply with the requirement? 

Would it be necessary to provide 

disclosures that were specific to the 

situation of an individual consumer or 

could the requirement be satisfied with 

a generic disclosure that would be given 

to all of the provider’s potential 

customers? What would such a 

disclosure look like? 

f. Are there changes that could be 

made to lessen the burdens without 

reducing the benefits to consumers? 

(3) Are there other disclosures that 

should be included in the Rule to 

address harmful practices in the sale of 

debt relief services? If so, provide the 

suggested disclosure and discuss the 

relative costs and benefits to industry 

and consumers of such a requirement. 

(4) Proposed Section 310.3(a)(2)(x) 

prohibits misrepresentations of any 

material aspect of a debt relief services, 

and provides specific examples of such 

prohibited misrepresentations. Is each 

specified misrepresentation sufficiently 

widespread to justify inclusion in the 

Rule? 

(5) Are there other prohibited 

misrepresentations that should be 

specified in the Rule to address harmful 

practices in the sale of debt relief 

services? If so, why? 

(6) Does the proposed Rule need to be 

modified in any way to better address 

any misrepresentations or omissions, 

and if so, what should those 

modifications be? 

Section 310.4 – Abusive telemarketing 

acts or practices 

(1) What has been the experience in 

states that have regulated the fees that 

debt relief providers can charge – for 

example, allowing a limited initial or 

set-up fee, and then limiting the fees 

that can be charged while the services 

are being provided? Have providers of 

debt relief services been able to comply 

with these restrictions and still operate 

successfully in those states? What kinds 

of providers have been able to do so? 

Would it be appropriate for the 

Commission to consider such an 

approach? Why or why not? If providers 

were permitted to collect such limited 

fees, what fees should be permitted and 

what limits should be established on 

them? 

(2) To what extent does proposed 

Section 310.4(a)(5) prevent harm to 

consumers that would not be eliminated 

by the disclosure requirements in 

proposed Section 310.3(a)(1) and 

misrepresentation prohibitions in 

proposed Section 310.3(a)(2)? 

Alternatively, if you believe that 

proposed Section 310.4(a)(5) would not 

prevent any additional harms, please 

explain why. 

(3) Proposed Section 310.4(a)(5) 

provides that payment may not be 

requested or received until a seller 

provides a customer with 

‘‘documentation in the form of a 

settlement agreement, debt management 

plan, or other such valid contractual 

agreement, that the particular debt has, 

in fact, been renegotiated, settled, 

reduced, or otherwise altered.’’ Is it 

appropriate to require provision of these 

documents before a covered entity can 

request or receive payment of any fee or 

consideration? In addition to those 

listed in the proposed amended Rule or 

described this Notice, are there other 

documents that typically evidence the 

completion of a debt relief service? Do 

such documents adequately 


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demonstrate that a consumer’s debt has 

been successfully renegotiated, settled, 

reduced, or otherwise altered? Is one 

type of document preferable to another? 

(4) Should any type or portion of fees 

charged by entities offering debt relief 

services be exempted from Section 

310.4(a)(5)? If so, which fees – either by 

type of entity providing the service or 

by type of fee – should be exempted, 

and why? Will entities that offer a 

measurably beneficial service to 

consumers be adversely affected by this 

proposed Section? Why or why not? 

Will covered providers find it is no 

longer possible to provide particular 

types of services if this requirement is 

imposed? Which services will it no 

longer be economic to provide and why 

will it no longer be economic to provide 

them? 

(5) Would an alternative formulation 

of an advance fee ban, such as the one 

in Section 310.4(a)(4) of the existing 

Rule (prohibiting requesting or receiving 

a fee in advance only when the seller or 

telemarketer has guaranteed or 

represented a high likelihood of success 

in obtaining or arranging the promised 

services), be more appropriate than a 

ban conditioned on the provision of the 

promised goods or services? Why or 

why not? 

(6) Are there alternatives to an 

advance fee ban exist that would 

sufficiently address the problem of low 

success rates in the debt settlement 

industry? If so, please explain. 

(7) As noted, the Commission does 

not intend that the advance fee ban be 

interpreted to prohibit a consumer from 

using legitimate escrow services – 

services controlled by the consumer – to 

save money in anticipation of 

settlement. Is it appropriate to allow the 

use of such escrow services? Why or 

why not? 

Section 310.5 – Recordkeeping 

requirements 

(1) No changes to Section 310.5 are 

included in the proposed Rule, but the 

application of the Rule to inbound debt 

relief calls would require some sellers 

and telemarketers to comply with these 

requirements for the first time. What 

would be the costs and benefits to 

industry and consumers of this result? 

Section 310.6 – Exemptions 

(1) Proposed Sections 310.6(b)(5) and 

310.6(b)(6) modify the general media 

and direct mail inbound call 

exemptions to make them unavailable to 

telemarketers of debt relief services. Is 

there a sufficient basis for this 

modification? Why or why not? 

Regulatory Flexibility Act 

(1) As noted in this NPRM, it is not 

readily feasible to determine a precise 

estimate of how many small entities will 

be subject to the proposed Rule. Please 

provide any information which would 

assist in making this determination. 

(2) Identify any statutes or rules that 

may conflict with the proposed Rule 

requirements, as well as any other state, 

local, or industry rules or policies that 

require covered entities to implement 

practices that comport with the 

requirements of the proposed Rule. 

(3) Do the prohibited practices in the 

proposed Rule impose a significant 

impact upon a substantial number of 

small entities? If so, what modifications 

to the proposed Rule should the 

Commission consider to minimize the 

burden on small entities? 

IX. Proposed Rule 

List of Subjects in 16 CFR Part 310 

Telemarketing, Trade Practices 

■ Therefore, as stated in the preamble, 

the Federal Trade Commission proposes 

to revise part 310 of title 16, Code of 

Federal Regulations, to read as follows: 

PART 310—TELEMARKETING SALES 

RULE 

Section Contents 

§ 310.1 Scope of regulations of this part. 

§ 310.2 Definitions. 

§ 310.3 Deceptive telemarketing acts or 

practices. 

§ 310.4 Abusive telemarketing acts or 

practices. 

§ 310.5 Recordkeeping requirements. 

§ 310.6 Exemptions. 

§ 310.7 Actions by states and private 

persons. 

§ 310.8 Fee for access to the National Do 

Not Call Registry. 

§ 310.9 Severability. 

Authority: 15 U.S.C. 6101-6108. 

§ 310.1 Scope of regulations of this part. 

This part implements the 

Telemarketing and Consumer Fraud and 

Abuse Prevention Act, 15 U.S.C. 6101- 

6108, as amended. 

§ 310.2 Definitions. 

(a) Acquirer means a business 

organization, financial institution, or an 

agent of a business organization or 

financial institution that has authority 

from an organization that operates or 

licenses a credit card system to 

authorize merchants to accept, transmit, 

or process payment by credit card 

through the credit card system for 

money, goods or services, or anything 

else of value. 

(b) Attorney General means the chief 

legal officer of a state. 

(c) Billing information means any data 

that enables any person to access a 

customer’s or donor’s account, such as 

a credit card, checking, savings, share or 

similar account, utility bill, mortgage 

loan account, or debit card. 

(d) Caller identification service means 

a service that allows a telephone 

subscriber to have the telephone 

number, and, where available, name of 

the calling party transmitted 

contemporaneously with the telephone 

call, and displayed on a device in or 

connected to the subscriber’s telephone. 

(e) Cardholder means a person to 

whom a credit card is issued or who is 

authorized to use a credit card on behalf 

of or in addition to the person to whom 

the credit card is issued. 

(f) Charitable contribution means any 

donation or gift of money or any other 

thing of value. 

(g) Commission means the Federal 

Trade Commission. 

(h) Credit means the right granted by 

a creditor to a debtor to defer payment 

of debt or to incur debt and defer its 

payment. 

(i) Credit card means any card, plate, 

coupon book, or other credit device 

existing for the purpose of obtaining 

money, property, labor, or services on 

credit. 

(j) Credit card sales draft means any 

record or evidence of a credit card 

transaction. 

(k) Credit card system means any 

method or procedure used to process 

credit card transactions involving credit 

cards issued or licensed by the operator 

of that system. 

(l) Customer means any person who is 

or may be required to pay for goods or 

services offered through telemarketing. 

(m) Debt relief service means any 

service represented, directly or by 

implication, to renegotiate, settle, or in 

any way alter the terms of payment or 

other terms of the debt between a 

consumer and one or more unsecured 

creditors or debt collectors, including, 

but not limited to, a reduction in the 

balance, interest rate, or fees owed by a 

consumer to an unsecured creditor or 

debt collector. 

(n) Donor means any person solicited 

to make a charitable contribution. 

(o) Established business relationship 

means a relationship between a seller 

and a consumer based on: 

(1) the consumer’s purchase, rental, or 

lease of the seller’s goods or services or 

a financial transaction between the 

consumer and seller, within the 

eighteen (18) months immediately 

preceding the date of a telemarketing 

call; or 

(2) the consumer’s inquiry or 

application regarding a product or 


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295 When a seller or telemarketer uses, or directs 

a customer to use, a courier to transport payment, 

the seller or telemarketer must make the disclosures 

required by § 310.3(a)(1) before sending a courier to 

pick up payment or authorization for payment, or 

directing a customer to have a courier pick up 

payment or authorization for payment. 

296 For offers of consumer credit products subject 

to the Truth in Lending Act, 15 U.S.C. 1601 et seq., 

and Regulation Z, 12 CFR 226, compliance with the 

disclosure requirements under the Truth in Lending 

Act and Regulation Z shall constitute compliance 

with § 310.3(a)(1)(i) of this Rule. 

service offered by the seller, within the 

three (3) months immediately preceding 

the date of a telemarketing call. 

(p) Free-to-pay conversion means, in 

an offer or agreement to sell or provide 

any goods or services, a provision under 

which a customer receives a product or 

service for free for an initial period and 

will incur an obligation to pay for the 

product or service if he or she does not 

take affirmative action to cancel before 

the end of that period. 

(q) Investment opportunity means 

anything, tangible or intangible, that is 

offered, offered for sale, sold, or traded 

based wholly or in part on 

representations, either express or 

implied, about past, present, or future 

income, profit, or appreciation. 

(r) Material means likely to affect a 

person’s choice of, or conduct regarding, 

goods or services or a charitable 

contribution. 

(s) Merchant means a person who is 

authorized under a written contract 

with an acquirer to honor or accept 

credit cards, or to transmit or process for 

payment credit card payments, for the 

purchase of goods or services or a 

charitable contribution. 

(t) Merchant agreement means a 

written contract between a merchant 

and an acquirer to honor or accept 

credit cards, or to transmit or process for 

payment credit card payments, for the 

purchase of goods or services or a 

charitable contribution. 

(u) Negative option feature means, in 

an offer or agreement to sell or provide 

any goods or services, a provision under 

which the customer’s silence or failure 

to take an affirmative action to reject 

goods or services or to cancel the 

agreement is interpreted by the seller as 

acceptance of the offer. 

(v) Outbound telephone call means a 

telephone call initiated by a 

telemarketer to induce the purchase of 

goods or services or to solicit a 

charitable contribution. 

(w) Person means any individual, 

group, unincorporated association, 

limited or general partnership, 

corporation, or other business entity. 

(x) Preacquired account information 

means any information that enables a 

seller or telemarketer to cause a charge 

to be placed against a customer’s or 

donor’s account without obtaining the 

account number directly from the 

customer or donor during the 

telemarketing transaction pursuant to 

which the account will be charged. 

(y) Prize means anything offered, or 

purportedly offered, and given, or 

purportedly given, to a person by 

chance. For purposes of this definition, 

chance exists if a person is guaranteed 

to receive an item and, at the time of the 

offer or purported offer, the telemarketer 

does not identify the specific item that 

the person will receive. 

(z) Prize promotion means: 

(1) A sweepstakes or other game of 

chance; or 

(2) An oral or written express or 

implied representation that a person has 

won, has been selected to receive, or 

may be eligible to receive a prize or 

purported prize. 

(aa) Seller means any person who, in 

connection with a telemarketing 

transaction, provides, offers to provide, 

or arranges for others to provide goods 

or services to the customer in exchange 

for consideration. 

(bb) State means any state of the 

United States, the District of Columbia, 

Puerto Rico, the 

Northern Mariana Islands, and any 

territory or possession of the United 

States. 

(cc) Telemarketer means any person 

who, in connection with telemarketing, 

initiates or receives telephone calls to or 

from a customer or donor. 

(dd) Telemarketing means a plan, 

program, or campaign which is 

conducted to induce thepurchase of 

goods or services or a charitable 

contribution, by use of one or more 

telephones and which involves more 

than one interstate telephone call. The 

term does not include the solicitation of 

sales through the mailing of a catalog 

which: contains a written description or 

illustration of the goods or services 

offered for sale; includes the business 

address of the seller; includes multiple 

pages of written material or 

illustrations; and has been issued not 

less frequently than once a year, when 

the person making the solicitation does 

not solicit customers by telephone but 

only receives calls initiated by 

customers in response to the catalog and 

during those calls takes orders only 

without further solicitation. For 

purposes of the previous sentence, the 

term ‘‘further solicitation’’ does not 

include providing the customer with 

information about, or attempting to sell, 

any other item included in the same 

catalog which prompted the customer’s 

call or in a substantially similar catalog. 

(ee) Upselling means soliciting the 

purchase of goods or services following 

an initial transaction during a single 

telephone call. The upsell is a separate 

telemarketing transaction, not a 

continuation of the initial transaction. 

An ‘‘external upsell’’ is a solicitation 

made by or on behalf of a seller different 

from the seller in the initial transaction, 

regardless of whether the initial 

transaction and the subsequent 

solicitation are made by the same 

telemarketer. An ‘‘internal upsell’’ is a 

solicitation made by or on behalf of the 

same seller as in the initial transaction, 

regardless of whether the initial 

transaction and subsequent solicitation 

are made by the same telemarketer. 

§ 310.3 Deceptive telemarketing acts or 

practices. 

(a) Prohibited deceptive telemarketing 

acts or practices. It is a deceptive 

telemarketing act or practice and a 

violation of this Rule for any seller or 

telemarketer to engage in the following 

conduct: 

(1) Before a customer pays 295 for 

goods or services offered, and before any 

services are rendered, failing to disclose 

truthfully, in a clear and conspicuous 

manner, the following material 

information: 

(i) The total costs to purchase, receive, 

or use, and the quantity of, any goods 

or services that are the subject of the 

sales offer;296

(ii) All material restrictions, 

limitations, or conditions to purchase, 

receive, or use the goods or services that 

are the subject of the sales offer; 

(iii) If the seller has a policy of not 

making refunds, cancellations, 

exchanges, orrepurchases, a statement 

informing the customer that this is the 

seller’s policy; or, if the seller or 

telemarketer makes a representation 

about a refund, cancellation, exchange, 

or repurchase policy, a statement of all 

material terms and conditions of such 

policy; 

(iv) In any prize promotion, the odds 

of being able to receive the prize, and, 

if the odds are not calculable in 

advance, the factors used in calculating 

the odds; that no purchase or payment 

is required to win a prize or to 

participate in a prize promotion and 

that any purchase or payment will not 

increase the person’s chances of 

winning; and the no-purchase/nopayment method of participating in the 

prize promotion with either instructions 

on how to participate or an address or 

local or toll-free telephone number to 

which customers may write or call for 

information on how to participate; 

(v) All material costs or conditions to 

receive or redeem a prize that is the 

subject of the prize promotion; 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 42019 

297 Truth in Lending Act, 15 U.S.C. 1601 et seq., 

and Regulation Z, 12 CFR part 226. 

298 Electronic Fund Transfer Act, 15 U.S.C. 1693 

et seq., and Regulation E, 12 CFR part 205. 

299 For purposes of this Rule, the term 

‘‘signature’’ shall include an electronic or digital 

form of signature, to the extent that such form of 

signature is recognized as a valid signature under 

applicable federal law or state contract law. 

(vi) In the sale of any goods or 

services represented to protect, insure, 

or otherwise limit a customer’s liability 

in the event of unauthorized use of the 

customer’s credit card, the limits on a 

cardholder’s liability for unauthorized 

use of a credit card pursuant to 15 

U.S.C. 1643; 

(vii) If the offer includes a negative 

option feature, all material terms and 

conditions of the negative option 

feature, including, but not limited to, 

the fact that the customer’s account will 

be charged unless the customer takes an 

affirmative action to avoid the charge(s), 

the date(s) the charge(s) will be 

submitted for payment, and the specific 

steps the customer must take to avoid 

the charge(s); and 

(viii) In the sale of any debt relief 

service, 

(A) the amount of time necessary to 

achieve the represented results, and to 

the extent that the offered service may 

include the making of a settlement offer 

to one or more of the customer’s 

creditors or debt collectors, the specific 

time by which the debt relief service 

provider will make such a bona fide 

settlement offer to each of the 

customer’s creditors or debt collectors; 

(B) to the extent that the offered 

service may include the making of a 

settlement offer to one or more of the 

customer’s creditors or debt collectors, 

the amount of money or the percentage 

of each outstanding debt that the 

customer must accumulate before a debt 

relief service provider will make a bona 

fide settlement offer to each of the 

customer’s creditors or debt collectors; 

(C) that not all creditors or debt 

collectors will accept a reduction in the 

balance, interest rate, or fees a customer 

owes such creditor or debt collector; 

(D) that pending completion of the 

represented debt relief services, the 

customer’s creditors or debt collectors 

may pursue collection efforts, including 

initiation of lawsuits; 

(E) to the extent that any aspect of the 

debt relief service relies upon or results 

in the customer failing to make timely 

payments to creditors or debt collectors, 

that use of the debt relief service will 

likely adversely affect the customer’s 

creditworthiness, may result in the 

customer being sued by one or more 

creditors or debt collectors, and may 

increase the amount of money the 

customer owes to one or more creditors 

or debt collectors due to the accrual of 

fees and interest; and 

(F) that savings a customer realizes 

from use of a debt relief service may be 

taxable income. 

(2) Misrepresenting, directly or by 

implication, in the sale of goods or 

services any of the following material 

information: 

(i) The total costs to purchase, receive, 

or use, and the quantity of, any goods 

or services that are the subject of a sales 

offer; 

(ii) Any material restriction, 

limitation, or condition to purchase, 

receive, or use goods or services that are 

the subject of a sales offer; 

(iii) Any material aspect of the 

performance, efficacy, nature, or central 

characteristics of goods or services that 

are the subject of a sales offer; 

(iv) Any material aspect of the nature 

or terms of the seller’s refund, 

cancellation, exchange, or repurchase 

policies; 

(v) Any material aspect of a prize 

promotion including, but not limited to, 

the odds of being able to receive a prize, 

the nature or value of a prize, or that a 

purchase or payment is required to win 

a prize or to participate in a prize 

promotion; 

(vi) Any material aspect of an 

investment opportunity including, but 

not limited to, risk, liquidity, earnings 

potential, or profitability; 

(vii) A seller’s or telemarketer’s 

affiliation with, or endorsement or 

sponsorship by, any person or 

government entity; 

(viii) That any customer needs offered 

goods or services to provide protections 

a customer already has pursuant to 15 

U.S.C. 1643; 

(ix) Any material aspect of a negative 

option feature including, but not limited 

to, the fact that the customer’s account 

will be charged unless the customer 

takes an affirmative action to avoid the 

charge(s), the date(s) the charge(s) will 

be submitted for payment, and the 

specific steps the customer must take to 

avoid the charge(s); or 

(x) Any material aspect of any debt 

relief service, including, but not limited 

to, the amount of money or the 

percentage of the debt amount that a 

customer may save by using such 

service; the amount of time necessary to 

achieve the represented results; the 

amount of money or the percentage of 

each outstanding debt that the customer 

must accumulate before the provider of 

the debt relief service will initiate 

attempts with the customer’s creditors 

debt collectors to negotiate, settle, or 

modify the terms of customer’s debt; the 

effect of the service on a customer’s 

creditworthiness; the effect of the 

service on collection efforts of the 

consumer’s creditors or debt collectors; 

the percentage or number of customers 

who attain the represented results; and 

whether a debt relief service is offered 

or provided by a non-profit entity. 

(3) Causing billing information to be 

submitted for payment, or collecting or 

attempting to collect payment for goods 

or services or a charitable contribution, 

directly or indirectly, without the 

customer’s or donor’s express verifiable 

authorization, except when the method 

of payment used is a credit card subject 

to protections of the Truth in Lending 

Act and Regulation Z,297 or a debit card 

subject to the protections of the 

Electronic Fund Transfer Act and 

Regulation E.298 Such authorization 

shall be deemed verifiable if any of the 

following means is employed: 

(i) Express written authorization by 

the customer or donor, which includes 

the customer’s or donor’s signature; 299

(ii) Express oral authorization which 

is audio-recorded and made available 

upon request to the customer or donor, 

and the customer’s or donor’s bank or 

other billing entity, and which 

evidences clearly both the customer’s or 

donor’s authorization of payment for the 

goods or services or charitable 

contribution that are the subject of the 

telemarketing transaction and the 

customer’s or donor’s receipt of all of 

the following information: 

(A) The number of debits, charges, or 

payments (if more than one); 

(B) The date(s) the debit(s), charge(s), 

or payment(s) will be submitted for 

payment; 

(C) The amount(s) of the debit(s), 

charge(s), or payment(s); 

(D) The customer’s or donor’s name; 

(E) The customer’s or donor’s billing 

information, identified with sufficient 

specificity such that the customer or 

donor understands what account will be 

used to collect payment for the goods or 

services or charitable contribution that 

are the subject of the telemarketing 

transaction; 

(F) A telephone number for customer 

or donor inquiry that is answered 

during normal business hours; and 

(G) The date of the customer’s or 

donor’s oral authorization; or 

(iii) Written confirmation of the 

transaction, identified in a clear and 

conspicuous manner as such on the 

outside of the envelope, sent to the 

customer or donor via first class mail 

prior to the submission for payment of 

the customer’s or donor’s billing 

information, and that includes all of the 

information contained in 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
42020 Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 

§§ 310.3(a)(3)(ii)(A)-(G) and a clear and 

conspicuous statement of the 

procedures by which the customer or 

donor can obtain a refund from the 

seller or telemarketer or charitable 

organization in the event the 

confirmation is inaccurate; provided, 

however, that this means of 

authorization shall not be deemed 

verifiable in instances in which goods or 

services are offered in a transaction 

involving a free-to-pay conversion and 

preacquired account information. 

(4) Making a false or misleading 

statement to induce any person to pay 

for goods or services or to induce a 

charitable contribution. 

(b) Assisting and facilitating. It is a 

deceptive telemarketing act or practice 

and a violation of this Rule for a person 

to provide substantial assistance or 

support to any seller or telemarketer 

when that person knows or consciously 

avoids knowing that the seller or 

telemarketer is engaged in any act or 

practice that violates §§ 310.3(a), (c) or 

(d), or § 310.4 of this Rule. 

(c) Credit card laundering. Except as 

expressly permitted by the applicable 

credit card system, it is a deceptive 

telemarketing act or practice and a 

violation of this Rule for: 

(1) A merchant to present to or 

deposit into, or cause another to present 

to or deposit into, the credit card system 

for payment, a credit card sales draft 

generated by a telemarketing transaction 

that is not the result of a telemarketing 

credit card transaction between the 

cardholder and the merchant; 

(2) Any person to employ, solicit, or 

otherwise cause a merchant, or an 

employee, representative, or agent of the 

merchant, to present to or deposit into 

the credit card system for payment, a 

credit card sales draft generated by a 

telemarketing transaction that is not the 

result of a telemarketing credit card 

transaction between the cardholder and 

the merchant; or 

(3) Any person to obtain access to the 

credit card system through the use of a 

business relationship or an affiliation 

with a merchant, when such access is 

not authorized by the merchant 

agreement or the applicable credit card 

system. 

(d) Prohibited deceptive acts or 

practices in the solicitation of charitable 

contributions. It is a fraudulent 

charitable solicitation, a deceptive 

telemarketing act or practice, and a 

violation of this Rule for any 

telemarketer soliciting charitable 

contributions to misrepresent, directly 

or by implication, any of the following 

material information: 

(1) The nature, purpose, or mission of 

any entity on behalf of which a 

charitable contribution is being 

requested; 

(2) That any charitable contribution is 

tax deductible in whole or in part; 

(3) The purpose for which any 

charitable contribution will be used; 

(4) The percentage or amount of any 

charitable contribution that will go to a 

charitable organization or to any 

particular charitable program; 

(5) Any material aspect of a prize 

promotion including, but not limited to: 

the odds of being able to receive a prize; 

the nature or value of a prize; or that a 

charitable contribution is required to 

win a prize or to participate in a prize 

promotion; or 

(6) A charitable organization’s or 

telemarketer’s affiliation with, or 

endorsement or sponsorship by, any 

person or government entity. 

§ 310.4 Abusive telemarketing acts or 

practices. 

(a) Abusive conduct generally. It is an 

abusive telemarketing act or practice 

and a violation of this Rule for any 

seller or telemarketer to engage in the 

following conduct: 

(1) Threats, intimidation, or the use of 

profane or obscene language; 

(2) Requesting or receiving payment 

of any fee or consideration for goods or 

services represented to remove 

derogatory information from, or 

improve, a person’s credit history, credit 

record, or credit rating until: 

(i) The time frame in which the seller 

has represented all of the goods or 

services will be provided to that person 

has expired; and 

(ii) The seller has provided the person 

with documentation in the form of a 

consumer report from a consumer 

reporting agency demonstrating that the 

promised results have been achieved, 

such report having been issued more 

than six months after the results were 

achieved. Nothing in this Rule should 

be construed to affect the requirement in 

the Fair Credit Reporting Act, 15 U.S.C. 

1681, that a consumer report may only 

be obtained for a specified permissible 

purpose; 

(3) Requesting or receiving payment 

of any fee or consideration from a 

person for goods or services represented 

to recover or otherwise assist in the 

return of money or any other item of 

value paid for by, or promised to, that 

person in a previous telemarketing 

transaction, until seven (7) business 

days after such money or other item is 

delivered to that person. This provision 

shall not apply to goods or services 

provided to a person by a licensed 

attorney; 

(4) Requesting or receiving payment 

of any fee or consideration in advance 

of obtaining a loan or other extension of 

credit when the seller or telemarketer 

has guaranteed or represented a high 

likelihood of success in obtaining or 

arranging a loan or other extension of 

credit for a person; 

(5) Requesting or receiving payment 

of any fee or consideration from a 

person for any debt relief service until 

the seller has provided the customer 

with documentation in the form of a 

settlement agreement, debt management 

plan, or other such valid contractual 

agreement, that the particular debt has, 

in fact, been renegotiated, settled, 

reduced, or otherwise altered. 

(6) Disclosing or receiving, for 

consideration, unencrypted consumer 

account numbers for use in 

telemarketing; provided, however, that 

this paragraph shall not apply to the 

disclosure or receipt of a customer’s or 

donor’s billing information to process a 

payment for goods or services or a 

charitable contribution pursuant to a 

transaction; 

(7) Causing billing information to be 

submitted for payment, directly or 

indirectly, without the express informed 

consent of the customer or donor. In any 

telemarketing transaction, the seller or 

telemarketer must obtain the express 

informed consent of the customer or 

donor to be charged for the goods or 

services or charitable contribution and 

to be charged using the identified 

account. In any telemarketing 

transaction involving preacquired 

account information, the requirements 

in paragraphs (a)(6)(i) through (ii) of this 

section must be met to evidence express 

informed consent. 

(i) In any telemarketing transaction 

involving preacquired account 

information and a free-to-pay 

conversion feature, the seller or 

telemarketer must: 

(A) obtain from the customer, at a 

minimum, the last four (4) digits of the 

account number to be charged; 

(B) obtain from the customer his or 

her express agreement to be charged for 

the goods or services and to be charged 

using the account number pursuant to 

paragraph (a)(6)(i)(A) of this section; 

and, 

(C) make and maintain an audio 

recording of the entire telemarketing 

transaction. 

(ii) In any other telemarketing 

transaction involving preacquired 

account information not described in 

paragraph (a)(6)(i) of this section, the 

seller or telemarketer must: 

(A) at a minimum, identify the 

account to be charged with sufficient 

specificity for the customer or donor to 

understand what account will be 

charged; and 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 42021 

300 For purposes of this Rule, the term 

‘‘signature’’ shall include an electronic or digital 

form of signature, to the extent that such form of 

signature is recognized as a valid signature under 

applicable federal law or state contract law. 

301 For purposes of this Rule, the term 

‘‘signature’’ shall include an electronic or digital 

form of signature, to the extent that such form of 

signature is recognized as a valid signature under 

applicable federal law or state contract law. 

(B) obtain from the customer or donor 

his or her express agreement to be 

charged for the goods or services and to 

be charged using the account number 

identified pursuant to paragraph 

(a)(6)(ii)(A) of this section; or 

(8) Failing to transmit or cause to be 

transmitted the telephone number, and, 

when made available by the 

telemarketer’s carrier, the name of the 

telemarketer, to any caller identification 

service in use by a recipient of a 

telemarketing call; provided that it shall 

not be a violation to substitute (for the 

name and phone number used in, or 

billed for, making the call) the name of 

the seller or charitable organization on 

behalf of which a telemarketing call is 

placed, and the seller’s or charitable 

organization’s customer or donor service 

telephone number, which is answered 

during regular business hours. 

(b) Pattern of calls. 

(1) It is an abusive telemarketing act 

or practice and a violation of this Rule 

for a telemarketer to engage in, or for a 

seller to cause a telemarketer to engage 

in, the following conduct: 

(i) Causing any telephone to ring, or 

engaging any person in telephone 

conversation, repeatedly or 

continuously with intent to annoy, 

abuse, or harass any person at the called 

number; 

(ii) Denying or interfering in any way, 

directly or indirectly, with a person’s 

right to be placed on any registry of 

names and/or telephone numbers of 

persons who do not wish to receive 

outbound telephone calls established to 

comply with § 310.4(b)(1)(iii); 

(iii) Initiating any outbound telephone 

call to a person when: 

(A) that person previously has stated 

that he or she does not wish to receive 

an outbound telephone call made by or 

on behalf of the seller whose goods or 

services are being offered or made on 

behalf of the charitable organization for 

which a charitable contribution is being 

solicited; or 

(B) that person’s telephone number is 

on the ‘‘do-not-call’’ registry, 

maintained by the Commission, of 

persons who do not wish to receive 

outbound telephone calls to induce the 

purchase of goods or services unless the 

seller 

(i) has obtained the express 

agreement, in writing, of such person to 

place calls to that person. Such written 

agreement shall clearly evidence such 

person’s authorization that calls made 

by or on behalf of a specific party may 

be placed to that person, and shall 

include the telephone number to which 

the calls may be placed and the 

signature 300 of that person; or 

(ii) as an established business 

relationship with such person, and that 

person has not stated that he or she does 

not wish to receive outbound telephone 

calls under paragraph (b)(1)(iii)(A) of 

this section; or 

(iv) Abandoning any outbound 

telephone call. An outbound telephone 

call is‘‘abandoned’’ under this section if 

a person answers it and the telemarketer 

does not connect the call to a sales 

representative within two (2) seconds of 

the person’s completed greeting. 

(v) Initiating any outbound telephone 

call that delivers a prerecorded message, 

other than a prerecorded message 

permitted for compliance with the call 

abandonment safe harbor in 

§ 310.4(b)(4)(iii), unless: 

(A) in any such call to induce the 

purchase of any good or service, the 

seller has obtained from the recipient of 

the call an express agreement, in 

writing, that: 

(i) The seller obtained only after a 

clear and conspicuous disclosure that 

the purpose of the agreement is to 

authorize the seller to place prerecorded 

calls to such person; 

(ii) The seller obtained without 

requiring, directly or indirectly, that the 

agreement be executed as a condition of 

purchasing any good or service; 

(iii) Evidences the willingness of the 

recipient of the call to receive calls that 

deliver prerecorded messages by or on 

behalf of a specific seller; and 

(iv) Includes such person’s telephone 

number and signature; 301 and 

(B) In any such call to induce the 

purchase of any good or service, or to 

induce a charitable contribution from a 

member of, or previous donor to, a nonprofit charitable organization on whose 

behalf the call is made, the seller or 

telemarketer: 

(i) Allows the telephone to ring for at 

least fifteen (15) seconds or four (4) 

rings before disconnecting an 

unanswered call; and 

(ii) Within two (2) seconds after the 

completed greeting of the person called, 

plays a prerecorded message that 

promptly provides the disclosures 

required by § 310.4(d) or (e), followed 

immediately by a disclosure of one or 

both of the following: 

(A) In the case of a call that could be 

answered in person by a consumer, that 

the person called can use an automated 

interactive voice and/or keypressactivated opt-out mechanism to assert a 

Do Not Call request pursuant to 

§ 310.4(b)(1)(iii)(A) at any time during 

the message. The mechanism must: 

(1) Automatically add the number 

called to the seller’s entity-specific Do 

Not Call list; 

(2) Once invoked, immediately 

disconnect the call; and 

(3) Be available for use at any time 

during the message; and 

(B) In the case of a call that could be 

answered by an answering machine or 

voicemail service, that the person called 

can use a toll-free telephone number to 

assert a Do Not Call request pursuant to 

§ 310.4(b)(1)(iii)(A). The number 

provided must connect directly to an 

automated interactive voice or keypressactivated opt-out mechanism that: 

(1) Automatically adds the number 

called to the seller’s entity-specific Do 

Not Call list; 

(2) Immediately thereafter disconnects 

the call; and 

(3) Is accessible at any time 

throughout the duration of the 

telemarketing campaign; and 

(iii) Complies with all other 

requirements of this part and other 

applicable federal and state laws. 

(C) Any call that complies with all 

applicable requirements of this 

paragraph (v) shall not be deemed to 

violate § 310.4(b)(1)(iv) of this part. 

(D) This paragraph (v) shall not apply 

to any outbound telephone call that 

delivers a prerecorded healthcare 

message made by, or on behalf of, a 

covered entity or its business associate, 

as those terms are defined in the HIPAA 

Privacy Rule, 45 CFR 160.103. 

(2) It is an abusive telemarketing act 

or practice and a violation of this Rule 

for any person to sell, rent, lease, 

purchase, or use any list established to 

comply with § 310.4(b)(1)(iii)(A), or 

maintained by the Commission 

pursuant to § 310.4(b)(1)(iii)(B), for any 

purpose except compliance with the 

provisions of this Rule or otherwise to 

prevent telephone calls to telephone 

numbers on such lists. 

(3) A seller or telemarketer will not be 

liable for violating § 310.4(b)(1)(ii) and 

(iii) if it can demonstrate that, as part of 

the seller’s or telemarketer’s routine 

business practice: 

(i) It has established and implemented 

written procedures to comply with 

§ 310.4(b)(1)(ii) and (iii); 

(ii) It has trained its personnel, and 

any entity assisting in its compliance, in 

the procedures established pursuant to 

§ 310.4(b)(3)(i); 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
42022 Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 

302 This provision does not affect any seller’s or 

telemarketer’s obligation to comply with relevant 

state and federal laws, including but not limited to 

the TCPA, 47 U.S.C. 227, and 47 CFR part 64.1200. 

303 For offers of consumer credit products subject 

to the Truth in Lending Act, 15 U.S.C. 1601 et seq., 

and Regulation Z, 12 CFR 226, compliance with the 

recordkeeping requirements under the Truth in 

Lending Act, and Regulation Z, shall constitute 

compliance with § 310.5(a)(3) of this Rule. 

(iii) The seller, or a telemarketer or 

another person acting on behalf of the 

seller or charitable organization, has 

maintained and recorded a list of 

telephone numbers the seller or 

charitable organization may not contact, 

in compliance with § 310.4(b)(1)(iii)(A); 

(iv) The seller or a telemarketer uses 

a process to prevent telemarketing to 

any telephone number on any list 

established pursuant to § 310.4(b)(3)(iii) 

or 310.4(b)(1)(iii)(B), employing a 

version of the ‘‘do-not-call’’ registry 

obtained from the Commission no more 

than thirty-one (31) days prior to the 

date any call is made, and maintains 

records documenting this process; 

(v) The seller or a telemarketer or 

another person acting on behalf of the 

seller or charitable organization, 

monitors and enforces compliance with 

the procedures established pursuant to 

§ 310.4(b)(3)(i); and 

(vi) Any subsequent call otherwise 

violating § 310.4(b)(1)(ii) or (iii) is the 

result of error. 

(4) A seller or telemarketer will not be 

liable for violating § 310.4(b)(1)(iv) if: 

(i) The seller or telemarketer employs 

technology that ensures abandonment of 

no more than three (3) percent of all 

calls answered by a person, measured 

over the duration of a single calling 

campaign, if less than 30 days, or 

separately over each successive 30-day 

period or portion thereof that the 

campaign continues. 

(ii) The seller or telemarketer, for each 

telemarketing call placed, allows the 

telephone to ring for at least fifteen (15) 

seconds or four (4) rings before 

disconnecting an unanswered call; 

(iii) Whenever a sales representative 

is not available to speak with the person 

answering the call within two (2) 

seconds after the person’s completed 

greeting, the seller or telemarketer 

promptly plays a recorded message that 

states the name and telephone number 

of the seller on whose behalf the call 

was placed302; and 

(iv) The seller or telemarketer, in 

accordance with § 310.5(b)-(d), retains 

records establishing compliance with 

§ 310.4(b)(4)(i)-(iii). 

(c) Calling time restrictions. Without 

the prior consent of a person, it is an 

abusive telemarketing act or practice 

and a violation of this Rule for a 

telemarketer to engage in outbound 

telephone calls to a person’s residence 

at any time other than between 8:00 a.m. 

and 9:00 p.m. local time at the called 

person’s location. 

(d) Required oral disclosures in the 

sale of goods or services. It is an abusive 

telemarketing act or practice and a 

violation of this Rule for a telemarketer 

in an outbound telephone call or 

internal or external upsell to induce the 

purchase of goods or services to fail to 

disclose truthfully, promptly, and in a 

clear and conspicuous manner to the 

person receiving the call, the following 

information: 

(1) The identity of the seller; 

(2) That the purpose of the call is to 

sell goods or services; 

(3) The nature of the goods or 

services; and 

(4) That no purchase or payment is 

necessary to be able to win a prize or 

participate in a prize promotion if a 

prize promotion is offered and that any 

purchase or payment will not increase 

the person’s chances of winning. This 

disclosure must be made before or in 

conjunction with the description of the 

prize to the person called. If requested 

by that person, the telemarketer must 

disclose the no-purchase/no-payment 

entry method for the prize promotion; 

provided, however, that, in any internal 

upsell for the sale of goods or services, 

the seller or telemarketer must provide 

the disclosures listed in this section 

only to the extent that the information 

in the upsell differs from the disclosures 

provided in the initial telemarketing 

transaction. 

(e) Required oral disclosures in 

charitable solicitations. It is an abusive 

telemarketing act or practice and a 

violation of this Rule for a telemarketer, 

in an outbound telephone call to induce 

a charitable contribution, to fail to 

disclose truthfully, promptly, and in a 

clear and conspicuous manner to the 

person receiving the call, the following 

information: 

(1) The identity of the charitable 

organization on behalf of which the 

request is being made; and 

(2) That the purpose of the call is to 

solicit a charitable contribution. 

§ 310.5 Recordkeeping requirements. 

(a) Any seller or telemarketer shall 

keep, for a period of 24 months from the 

date the record is produced, the 

following records relating to its 

telemarketing activities: 

(1) All substantially different 

advertising, brochures, telemarketing 

scripts, and promotional materials; 

(2) The name and last known address 

of each prize recipient and the prize 

awarded for prizes that are represented, 

directly or by implication, to have a 

value of $25.00 or more; 

(3) The name and last known address 

of each customer, the goods or services 

purchased, the date such goods or 

services were shipped or provided, and 

the amount paid by the customer for the 

goods or services; 303

(4) The name, any fictitious name 

used, the last known home address and 

telephone number, and the job title(s) 

for all current and former employees 

directly involved in telephone sales or 

solicitations; provided, however, that if 

the seller or telemarketer permits 

fictitious names to be used by 

employees, each fictitious name must be 

traceable to only one specific employee; 

and 

(5) All verifiable authorizations or 

records of express informed consent or 

express agreement required to be 

provided or received under this Rule. 

(b) A seller or telemarketer may keep 

the records required by § 310.5(a) in any 

form, and in the same manner, format, 

or place as they keep such records in the 

ordinary course of business. Failure to 

keep all records required by § 310.5(a) 

shall be a violation of this Rule. 

(c) The seller and the telemarketer 

calling on behalf of the seller may, by 

written agreement, allocate 

responsibility between themselves for 

the recordkeeping required by this 

Section. When a seller and telemarketer 

have entered into such an agreement, 

the terms of that agreement shall govern, 

and the seller or telemarketer, as the 

case may be, need not keep records that 

duplicate those of the other. If the 

agreement is unclear as to who must 

maintain any required record(s), or if no 

such agreement exists, the seller shall be 

responsible for complying with 

§§ 310.5(a)(1)-(3) and (5); the 

telemarketer shall be responsible for 

complying with § 310.5(a)(4). 

(d) In the event of any dissolution or 

termination of the seller’s or 

telemarketer’s business, the principal of 

that seller or telemarketer shall maintain 

all records as required under this 

section. In the event of any sale, 

assignment, or other change in 

ownership of the seller’s or 

telemarketer’s business, the successor 

business shall maintain all records 

required under this section. 

§ 310.6 Exemptions. 

(a) Solicitations to induce charitable 

contributions via outbound telephone 

calls are not covered by 

§ 310.4(b)(1)(iii)(B) of this Rule. 

(b) The following acts or practices are 

exempt from this Rule: 


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(1) The sale of pay-per-call services 

subject to the Commission’s Rule 

entitled ‘‘Trade Regulation Rule 

Pursuant to the Telephone Disclosure 

and Dispute Resolution Act of 1992,’’ 16 

CFR Part 308, provided, however, that 

this exemption does not apply to the 

requirements of §§ 310.4(a)(1), (a)(7), (b), 

and (c); 

(2) The sale of franchises subject to 

the Commission’s Rule entitled 

‘‘Disclosure Requirements and 

Prohibitions Concerning Franchising,’’ 

(‘‘Franchise Rule’’) 16 CFR Part 436, and 

the sale of business opportunities 

subject to the Commission’s Rule 

entitled ‘‘Disclosure Requirements and 

Prohibitions Concerning Business 

Opportunities,’’ (‘‘Business 

Opportunities Rule’’) 16 CFR Part 437, 

provided, however, that this exemption 

does not apply to the requirements of 

§§ 310.4(a)(1), (a)(7), (b), and (c); 

(3) Telephone calls in which the sale 

of goods or services or charitable 

solicitation is not completed, and 

payment or authorization of payment is 

not required, until after a face-to-face 

sales or donation presentation by the 

seller or charitable organization, 

provided, however, that this exemption 

does not apply to the requirements of 

§§ 310.4(a)(1), (a)(7), (b), and (c); 

(4) Telephone calls initiated by a 

customer or donor that are not the result 

of any solicitation by a seller, charitable 

organization, or telemarketer, provided, 

however, that this exemption does not 

apply to any instances of upselling 

included in such telephone calls; 

(5) Telephone calls initiated by a 

customer or donor in response to an 

advertisement through any medium, 

other than direct mail solicitation, 

provided, however, that this exemption 

does not apply to calls initiated by a 

customer or donor in response to an 

advertisement relating to investment 

opportunities, debt relief services, 

business opportunities other than 

business arrangements covered by the 

Franchise Rule or the Business 

Opportunity Rule, or advertisements 

involving goods or services described in 

§§ 310.3(a)(1)(vi) or 310.4(a)(2)-(4); or to 

any instances of upselling included in 

such telephone calls; 

(6) Telephone calls initiated by a 

customer or donor in response to a 

direct mail solicitation, including 

solicitations via the U.S. Postal Service, 

facsimile transmission, electronic mail, 

and other similar methods of delivery in 

which a solicitation is directed to 

specific address(es) or person(s), that 

clearly, conspicuously, and truthfully 

discloses all material information listed 

in § 310.3(a)(1) of this Rule, for any 

goods or services offered in the direct 

mail solicitation, and that contains no 

material misrepresentation regarding 

any item contained in § 310.3(d) of this 

Rule for any requested charitable 

contribution; provided, however, that 

this exemption does not apply to calls 

initiated by a customer in response to a 

direct mail solicitation relating to prize 

promotions, investment opportunities, 

debt relief services, business 

opportunities other than business 

arrangements covered by the Franchise 

Rule or the Business Opportunity Rule, 

or goods or services described in 

§§ 310.3(a)(1)(vi) or 310.4(a)(2)-(4); or to 

any instances of upselling included in 

such telephone calls; and 

(7) Telephone calls between a 

telemarketer and any business, except 

calls to induce the retail sale of 

nondurable office or cleaning supplies; 

provided, however, that 

§ 310.4(b)(1)(iii)(B) and § 310.5 of this 

Rule shall not apply to sellers or 

telemarketers of nondurable office or 

cleaning supplies. 

§ 310.7 Actions by states and private 

persons. 

(a) Any attorney general or other 

officer of a state authorized by the state 

to bring an action under the 

Telemarketing and Consumer Fraud and 

Abuse Prevention Act, and any private 

person who brings an action under that 

Act, shall serve written notice of its 

action on the Commission, if feasible, 

prior to its initiating an action under 

this Rule. The notice shall be sent to the 

Office of the Director, Bureau of 

Consumer Protection, Federal Trade 

Commission, Washington, D.C. 20580, 

and shall include a copy of the state’s 

or private person’s complaint and any 

other pleadings to be filed with the 

court. If prior notice is not feasible, the 

state or private person shall serve the 

Commission with the required notice 

immediately upon instituting its action. 

(b) Nothing contained in this Section 

shall prohibit any attorney general or 

other authorized state official from 

proceeding in state court on the basis of 

an alleged violation of any civil or 

criminal statute of such state. 

§ 310.8 Fee for access to the National Do 

Not Call Registry. 

(a) It is a violation of this Rule for any 

seller to initiate, or cause any 

telemarketer to initiate, an outbound 

telephone call to any person whose 

telephone number is within a given area 

code unless such seller, either directly 

or through another person, first has paid 

the annual fee, required by § 310.8(c), 

for access to telephone numbers within 

that area code that are included in the 

National Do Not Call Registry 

maintained by the Commission under 

§ 310.4(b)(1)(iii)(B); provided, however, 

that such payment is not necessary if 

the seller initiates, or causes a 

telemarketer to initiate, calls solely to 

persons pursuant to 

§§ 310.4(b)(1)(iii)(B)( i ) or ( ii ), and the 

seller does not access the National Do 

Not Call Registry for any other purpose. 

(b) It is a violation of this Rule for any 

telemarketer, on behalf of any seller, to 

initiate an outbound telephone call to 

any person whose telephone number is 

within a given area code unless that 

seller, either directly or through another 

person, first has paid the annual fee, 

required by § 310.8(c), for access to the 

telephone numbers within that area 

code that are included in the National 

Do Not Call Registry; provided, 

however, that such payment is not 

necessary if the seller initiates, or causes 

a telemarketer to initiate, calls solely to 

persons pursuant to 

§§ 310.4(b)(1)(iii)(B)( i ) or ( ii ), and the 

seller does not access the National Do 

Not Call Registry for any other purpose. 

(c) The annual fee, which must be 

paid by any person prior to obtaining 

access to the National Do Not Call 

Registry, is $54 for each area code of 

data accessed, up to a maximum of 

$14,850; provided, however, that there 

shall be no charge to any person for 

accessing the first five area codes of 

data, and provided further, that there 

shall be no charge to any person 

engaging in or causing others to engage 

in outbound telephone calls to 

consumers and who is accessing area 

codes of data in the National Do Not 

Call Registry if the person is permitted 

to access, but is not required to access, 

the National Do Not Call Registry under 

this Rule, 47 CFR 64.1200, or any other 

Federal regulation or law. Any person 

accessing the National Do Not Call 

Registry may not participate in any 

arrangement to share the cost of 

accessing the registry, including any 

arrangement with any telemarketer or 

service provider to divide the costs to 

access the registry among various clients 

of that telemarketer or service provider. 

(d) Each person who pays, either 

directly or through another person, the 

annual fee set forth in § 310.8(c), each 

person excepted under § 310.8(c) from 

paying the annual fee, and each person 

excepted from paying an annual fee 

under § 310.4(b)(1)(iii)(B), will be 

provided a unique account number that 

will allow that person to access the 

registry data for the selected area codes 

at any time for the twelve month period 

beginning on the first day of the month 

in which the person paid the fee (‘‘the 

annual period’’). To obtain access to 

additional area codes of data during the 


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42024 Federal Register / Vol. 74, No. 159 / Wednesday, August 19, 2009 / Proposed Rules 

first six months of the annual period, 

each person required to pay the fee 

under § 310.8(c) must first pay $54 for 

each additional area code of data not 

initially selected. To obtain access to 

additional area codes of data during the 

second six months of the annual period, 

each person required to pay the fee 

under § 310.8(c) must first pay $27 for 

each additional area code of data not 

initially selected. The payment of the 

additional fee will permit the person to 

access the additional area codes of data 

for the remainder of the annual period. 

(e) Access to the National Do Not Call 

Registry is limited to telemarketers, 

sellers, others engaged in or causing 

others to engage in telephone calls to 

consumers, service providers acting on 

behalf of such persons, and any 

government agency that has law 

enforcement authority. Prior to 

accessing the National Do Not Call 

Registry, a person must provide the 

identifying information required by the 

operator of the registry to collect the fee, 

and must certify, under penalty of law, 

that the person is accessing the registry 

solely to comply with the provisions of 

this Rule or to otherwise prevent 

telephone calls to telephone numbers on 

the registry. If the person is accessing 

the registry on behalf of sellers, that 

person also must identify each of the 

sellers on whose behalf it is accessing 

the registry, must provide each seller’s 

unique account number for access to the 

national registry, and must certify, 

under penalty of law, that the sellers 

will be using the information gathered 

from the registry solely to comply with 

the provisions of this Rule or otherwise 

to prevent telephone calls to telephone 

numbers on the registry. 

§ 310.9 Severability. 

The provisions of this Rule are 

separate and severable from one 

another. If any provision is stayed or 

determined to be invalid, it is the 

Commission’s intention that the 

remaining provisions shall continue in 

effect. 

By direction of the Commission. 

Donald S. Clark, 

Secretary 

Federal Register 

Attachment A 

Consumer Protection and the Debt 

Settlement Industry Workshop 

Commenters 

Able Debt Settlement, Inc. (‘‘Able 

Debt Settlement’’) 

ACA International (‘‘ACA’’) 

American Association of Debt 

Management Organizations (‘‘AADMO’’) 

American Financial Services 

Association (‘‘AFSA’’) 

CareOne Credit Counseling Services 

(‘‘CareOne’’) 

Carlson, N. (‘‘Carlson’’) 

Consumer Bankers Association 

(‘‘CBA’’) 

Consumer Recovery Network (‘‘CRN’’) 

Credit Advisors, Inc. (‘‘Credit 

Advisors’’) 

Debt Settlement USA (‘‘Debt 

Settlement USA’’) 

First Stone Credit Counseling (‘‘First 

Stone’’) 

Gilpin, William (‘‘Gilpin’’) 

Manning, Robert (‘‘Manning’’) 

McClendon (‘‘McClendon’’) 

Merry, Jack (‘‘Merry’’) 

Morgan Drexen Integrated Legal 

Systems (‘‘Morgan Drexen’’) 

Rhode, Steve (‘‘Rhode’’) 

The Association of Settlement 

Companies (‘‘TASC’’) 

United States Organizations for 

Bankruptcy Alternatives (‘‘USOBA’’) 

US Debt Resolve (‘‘US Debt Resolve’’) 

Federal Register 

Attachment B 

Consumer Protection and the Debt 

Settlement Industry Workshop 

Participants 

American Association of Debt 

Management Organizations 

(‘‘AADMO’’): Mark Guimond 

American Bankers Association, Center 

for Regulatory Compliance (‘‘ABA’’): 

Virginia O’Neill 

American Credit Alliance, Inc. 

(American Credit Alliance’’): Alan 

Franklin 

American Express, Consumer Affairs 

Division (‘‘American Express’’): Anna 

Flores 

Center for Consumer Financial 

Services, Rochester Institute of 

Technology (‘‘CCFS’’): Robert Manning 

Consumer Federation of America 

(‘‘CFA’’): Travis Plunkett 

Debt Settlement USA (‘‘Debt 

Settlement USA’’): Jack Craven 

EFA Data Processing, L.P (‘‘EFA’’).: 

John Ansbach 

Federal Trade Commission (‘‘FTC’’): 

Lydia Parnes 

Gordon, Feinblatt, Rothman, 

Hoffberger & Hollander, LLC (‘‘Gordon 

Feinblatt’’): Carla Stone Witzel 

Internal Revenue Service (‘‘IRS’’), EO 

Technical Group, Ruling and 

Agreements: Steve Grodnitzky 

Loeb & Loeb, LLP (‘‘Loeb’’): Michael 

Mallow 

Maryland Consumer Rights Coalition 

(‘‘MCRC’’): Stephen Hannan 

National Conference of 

Commissioners on Uniform State Laws 

(‘‘NCCUSL’’): Michael Kerr 

National Foundation for Credit 

Counseling (‘‘NFCC’’): William Binzel 

South Carolina Department of 

Consumer Affairs (‘‘SCDCA’’): Carolyn 

Lybarker 

The Association of Settlement 

Companies (‘‘TASC’’): Wesley Young 

US Debt Resolve (‘‘US Debt Resolve’’): 

Scott Johnson 

United States Organizations for 

Bankruptcy Alternatives, 

Inc.(‘‘USOBA’’): Jenna Keehnen 

U. S. Public Interest Research Group 

(‘‘USPIRG’’): Ed Mierzwinski 

[FR Doc. E9–19749 Filed 8–18–09: 8:45 am] 

BILLING CODE: 6750–01–S 


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