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50–108 PDF 2009

S. HRG. 111–33 

CONSUMER PROTECTION AND THE CREDIT CRISIS 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

FEBRUARY 26, 2009 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JOHN ENSIGN, Nevada 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

SAM BROWNBACK, Kansas 

MEL MARTINEZ, Florida 

MIKE JOHANNS, Nebraska 

ELLEN L. DONESKI, Chief of Staff 

JAMES REID, Deputy Chief of Staff 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

PAUL NAGLE, Republican Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on February 26, 2009 ....................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator Pryor .................................................................................... 51 

Statement of Senator Lautenberg .......................................................................... 54 

Prepared statement .......................................................................................... 55 

Statement of Senator Klobuchar ............................................................................ 56 

Statement of Senator Begich .................................................................................. 58 

Statement of Senator Warner ................................................................................. 62 

Statement of Senator Thune ................................................................................... 64 

WITNESSES

Hon. Pamela Jones Harbour, Commissioner, Federal Trade Commission ......... 3 

Prepared statement .......................................................................................... 5 

Nancy Dix, Consumer, Ansted, West Virginia ...................................................... 15 

Prepared statement .......................................................................................... 16 

Prentiss Cox, Associate Professor of Clinical Law, University of Minnesota 

Law School ............................................................................................................ 17 

Prepared statement .......................................................................................... 19 

Travis B. Plunkett, Legislative Director, Consumer Federation of America 

On Behalf of The Consumer Federation of America, the National Consumer 

Law Center (On Behalf of its Low-income Clients), and U.S. PIRG ............... 27 

Prepared statement .......................................................................................... 29 

Bill Himpler, Executive Vice President, American Financial Services 

Association ............................................................................................................ 43 

Prepared statement .......................................................................................... 45 

APPENDIX

Hon. Kay Bailey Hutchison, U.S. Senator from Texas, prepared statement ...... 77 

Letter, dated February 26, 2009, to Hon. John D. Rockefeller IV, from 

Michael C. Dillon ................................................................................................. 77 

Letter, dated March 23, 2009, to Hon. John D. Rockefeller IV, from 

Hon. Pamela Jones Harbour, Commissioner, Federal Trade Commission ...... 80 

(1) 

CONSUMER PROTECTION 

AND THE CREDIT CRISIS 

THURSDAY, FEBRUARY 26, 2009 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:03 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Senator John D. 

Rockefeller, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. We’ll come to order. As I think I’ve said before 

to Members, I will give an opening statement and Senator Wicker 

will give an opening statement if he wishes to. But that will be all 

because the whole philosophy is to get to the witnesses, and to listen to the witnesses and hear what they have to say. 

Then we’ll go into a period of questions. The questions will be 

based upon first come, first serve, so to speak. The people who have 

statements can work that into their questions. Then we’ll have as 

many rounds of questions as we need, except for a vote which is 

coming up at 10:30. And we’ll handle that. 

So we’re having our first policy and oversight hearing of the 

111th Congress today in the Commerce Committee. What we’re 

going to do is to highlight and to uncover what I think are abusive 

practices that take advantage of American families. 

I decided to hold the first hearing on this topic as the new Chairman for a very specific reason. We have a lot of huge subjects that 

we look at in terms of aviation, transportation, oceans, atmosphere, 

climate change, all kinds of things. But the most important aspect 

of what’s going on in America right now is the suffering of the 

American people. 

And that’s true in my State of West Virginia. It’s true in your 

state. It’s true in your state, Senator. We have to be sensitive to 

that. We want to expose that and see what we can do about that. 

In spite of our broad jurisdiction I want the American people to 

know that what is going to be a big part under my Chairmanship 

is people. People in trouble. People that are hurting and how we 

can help them. We’ve got to do that as we do all the other large 

NASA-like subjects that we have to do very thoroughly as well. 

Families are hurting all across the country. We all know that. 

They’re counting on Congress to help them out. I sincerely hope 

that this committee will always focus attention on that, on people 

who are just hurting. There are just so many and it’s going to get 

worse before it gets better. 

2 

It sickens me to say that during these extremely difficult times 

there are really some outrageous, from my point of view, fraudulent practices happening every single day to people that aren’t necessarily prepared to combat them. We have identified some of the 

worst offenders operating under the guise of providing consumers 

with assistance, with the intention, in fact, of doing anything but 

that. Deceitful fraudsters are aggressively working to attract consumers with false promises, offering misleading credit repair, credit 

counseling, debt management and mortgage rescue services. It’s 

really quite stunning in fact. 

As the financial crisis increases by the day and families do all 

they can just to survive and individuals, what I would say are people with criminal instincts who are looking to make big dollars 

through illegal channels, they also increase. When more people are 

in distress, more people want to take advantage of the people in 

distress. The plummeting markets have encouraged many with ill 

will to create multiple opportunities for both sophisticated institutions and criminal, in my judgment, activity to take advantage of 

people in desperate situations. Nothing concerns me more than the 

cold, hard reality that hard-working Americans are being swindled. 

Imagine a family where the parents are working two or three 

jobs just to make ends meet. The money coming in just barely covers the cost of food, cost of the mortgage, cost of clothing while the 

debt in the meantime is piling up as they struggle to pay for prescriptions, the broken appliance or other things which they have to 

do. Can’t avoid but doing, but can’t do. 

And all of a sudden the phone rings. Someone on the other line 

is promising a chance for a way out. They use slick advertising, lots 

of it, television, radio. 

Confusing language and rushed tactics to lure these folks in. But 

it’s all a lie. The family is swindled. Swindled. They could lose it 

all and many do because they’re innocent of what these tactics entail and how they can counter them. And they feel alone and helpless. 

During this period of unfathomable uncertainty families are 

thinking more thoughtfully about their spending habits. They’re 

seeking out advice from experts if they know them to help them 

manage their finances. Often these financial services help keep 

families afloat. It works. Sometimes they do not. 

That’s why we’re here today—to weed out the good from the bad 

and discuss ways that we can protect as many consumers as possible in the months and years to come. So we’ve gathered an expert 

panel of witnesses, as always, to discuss what’s happening to families once they pay for services to help them manage their debt, repair their credit scores or to try to or refinance their homes. 

We have a West Virginia witness here today, I’m very proud to 

say, whose testimony will typify the type of abuse that we aim to 

tackle. I look forward to hearing her testimony in person and working with my colleagues to consider what steps we might take to 

make sure that these kinds of things don’t happen again. 

You know, the Committee has the authority to help people have 

real opportunities to participate in the American dream. The question is are we using it? Do we wish to use it? Do we have the will 

to use it and to live healthier and safer lives? With today’s ecoVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
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nomic circumstances it’s even more important that the Congress 

step in, speak up and protect those who need it most. 

Ms. Nancy Dix from Ansted is here today to testify about a foreclosure rescue scam that nearly cost her, her home. And I’m anxious to hear it. Mrs. Dix, thank you for appearing before this committee. 

We’re also going to hear from Professor Prentiss Cox of the University of Minnesota Law School. Where’s Professor Cox? OK, good. 

He is one of the preeminent experts in the land on mortgage fraud 

and consumer protection and is the former head of consumer protection for the Minnesota State Attorney General’s Office. 

Following Professor Cox will be Travis Plunkett, Legislative Director for the Consumer Federation of America. Mr. Plunkett is an 

expert on issues involving credit counseling and the debt management market and has been doing significant work in this area. 

Finally, we will hear then from—don’t worry, Madam Chairperson, I haven’t forgotten you. We’ll hear from Bill Himpler, Executive Vice President of the American Financial Services Administration. 

I thank all of you for agreeing to testify. 

First, however, I’d like to call on FTC Commissioner Pamela 

Jones Harbour. The FTC is the Federal Government’s agency 

charged with protecting consumers from these scams. I know the 

Commission has been actively trying to protect consumers from 

these abuses. I look forward to hearing what Commissioner Harbour’s perspective is on the scope of the problem and what the FTC 

is doing about it. 

What I’d like to do is to have all the witnesses come to the table. 

Let’s listen to all of the witnesses’ testimony; there are not so many 

of them, and they’ll be talking about things which have common 

threads. Then we can ask them questions. 

So Commissioner Harbour, I turn it over to you. 

STATEMENT OF HON. PAMELA JONES HARBOUR, 

COMMISSIONER, FEDERAL TRADE COMMISSION 

Ms. HARBOUR. Good morning. Thank you, Mr. Chairman, Senator 

Wicker, and Members of the Committee. I am Pamela Jones Harbour, a Commissioner at the Federal Trade Commission. And I appreciate the opportunity to appear before you today to discuss the 

FTC’s efforts to protect consumers in this time of financial distress. 

I would first like to emphasize that although the views expressed 

in my written testimony represent the views of the Commission, 

my oral presentation and responses to your questions will be my 

own views and not necessarily those of the Commission or any individual Commissioner. As Members of the Committee are well 

aware, many American consumers are now struggling financially. 

With the downturn in the economy the national unemployment 

rate last month was 7.6 percent. The highest it has been in many 

years. 

Consumers also are sinking further and further into debt. In the 

third quarter of 2008, the percentage of borrowers who are 60 or 

more days past due on their mortgage loans increased for the seventh straight quarter. Similarly in January 2009 late payments on 

4 

credit cards in the United States topped record levels. And defaults 

rose sharply. 

Unfortunately experience teaches that some bad actors will seek 

to take advantage of consumers when they are down. These bad actors make false promises to consumers about the credit they can 

obtain, the home foreclosures they can avoid and the debt burden 

they can ease. Our mission at the FTC is to protect the consumer 

from being harmed by these false promises, a mission that has increased relevance and poignancy when consumers are in financial 

distress. 

At the FTC we protect consumers at every stage of the credit life 

cycle, from when debt is first advertised to when debts are collected. The Commission does this by enforcing Section Five of the 

FTC Act which prohibits unfair and deceptive acts or practices as 

well as by enforcing a number of special statutes governing financial services including the Truth in Lending Act, the Fair Debt Collection Practices Act and the Credit Repair Organizations Act. 

Pursuant to these statutes the FTC investigates and brings law 

enforcement actions against brokers, lenders and others who deceptively and unfairly advertise or offer credit, creditors and servicers 

who misrepresent fees and amounts owed and abusive debt collectors, credit repair companies, debt settlement firms and mortgage 

foreclosure scam artists who target delinquent consumers or those 

who are in default. Responding to the current financial crisis the 

FTC has increased its focus on preventing harm to consumers who 

are already in debt by stepping up its law enforcement activities 

relating to foreclosure rescue scams, debt relief services, credit repair and debt collection. We also have created and distributed extensive consumer education materials about these and other financial services topics to assist consumers in taking steps to protect 

themselves. 

The Commission has conducted cutting edge, empirical research 

on mortgage disclosures as well as engaged in comprehensive policy 

development activities relating to debt collection and debt settlement. In particular, the FTC today is issuing its debt collection 

workshop report. This report takes a comprehensive look at how 

the debt collection industry has changed in the last 30 years and 

recommends a number of changes in the law to modernize into reform the debt collection regulatory system. 

The FTC believes that its past efforts have provided important 

protections to the American consumer in financial distress. The 

Agency recognizes, however, that it must do more. To allow the 

Commission to perform a greater and more effective role in protecting consumers in financial distress, the Agency recommends 

that Congress permit the FTC to employ notice and comment rulemaking procedures to declare acts and practices relating to financial services to be unfair or deceptive in violation of the FTC. 

The CHAIRMAN. Can you repeat that sentence, please? 

Ms. HARBOUR. The Agency, the FTC, recommends that Congress 

permit us, permit the FTC, to employ notice and comment rulemaking procedures. That’s APA rulemaking authority, to declare 

acts and practices relating to financial services to be unfair or deceptive in violation of our FTC Act. 

5 

1The views expressed in this statement represent the views of the Commission. My oral presentation and responses to any questions are my own, however, and do not necessarily reflect 

the views of the Commission or any other Commissioner. 2 Between 1985 and 2007, outstanding household debt in the United States increased from approximately 60 percent of annual disposable income to more than 125 percent, a jump due mostly to increased mortgage debt. See Federal Trade Commission, ‘‘Collecting Consumer Debts: The 

Challenges of Change, A Report by the Federal Trade Commission,’’ at 16 (Feb. 26, 2009). The 

ratio of household indebtedness to annual disposable income peaked at 126 percent in the third 

quarter of 2007. Since that time, the latest available data indicate that, as of the third quarter 

of 2008, the ratio has declined slightly to 123 percent. This remains well above typical indebtedness levels in the past two decades. See id. 3For example, the percentage of borrowers 3 who are 60 or more days past due on their mortgage loans increased for the seventh straight quarter in the third quarter of 2008, reaching a 

national average of 3.96 percent. Press Release, TransUnion, Mortgage Loan Delinquency Rates 

Rise for Seventh Straight Quarter (Dec. 8, 2008), available at http://newsroom.transunion.com/ 

index.php?s=43&item=502. This figure is approximately 54 percent higher than the figure for 

the third quarter of 2007. Id. Similarly, in January 2009 late payments on credit cards in the 

United States topped record levels, and defaults rose sharply to just below all-time highs. Al 

Yoon, U.S. Credit Card Delinquencies at Record Highs—Fitch, Reuters, Feb. 4, 2009, available 

at http://www.reuters.com/articlePrint?articleId=USN0428871920090204. 

The Agency also recommends that Congress authorize broader 

civil penalty authority for the Federal Trade Commission and authorize it to bring, in Federal court, suit to obtain civil penalties. 

The Agency also recommends that Congress authorize the FTC 

to promulgate rules to implement the Fair Debt Collection Practices Act. 

And the Agency also recommends that Congress provide us with 

substantial additional resources to assist the FTC in increasing its 

law enforcement activities relating to consumer financial services 

and expanding its critical empirical work on the efficacy of mortgage disclosures. 

With your help the FTC can and will do more to help consumers 

in financial distress. I would like to take this opportunity to thank 

you, Mr. Chairman and other Members of the Committee for the 

opportunity to speak today. And I would be very pleased to answer 

your questions. 

[The prepared statement of Ms. Harbour follows:] 

PREPARED STATEMENT OF HON. PAMELA JONES HARBOUR, COMMISSIONER, 

FEDERAL TRADE COMMISSION

I. Introduction 

Chairman Rockefeller, Ranking Member Hutchison, and Members of the Committee, I am Pamela Jones Harbour, a Commissioner of the Federal Trade Commission (‘‘FTC’’ or ‘‘Commission’’).1 I appreciate the opportunity to appear before you 

today to discuss the Commission’s efforts to help consumers in financial distress. 

The Commission protects consumers from harmful acts and practices at every 

stage of the credit life-cycle, from when credit is first advertised to when debts are 

collected. At the early stages of the cycle, the FTC protects consumers from the unfair, deceptive, or otherwise unlawful acts and practices of brokers, lenders, and others who advertise or offer credit. The agency also protects consumers at the middle 

stages of the credit life-cycle from the unlawful conduct of creditors and servicers 

who collect payments from consumers who are current on their debts. At the later 

stages of the cycle, the Commission protects consumers who are delinquent or in default on their debts from the unlawful acts and practices of debt collectors, credit 

repair companies, debt settlement firms, and mortgage foreclosure scam artists. 

Although the agency protects consumers throughout the credit life-cycle, the FTC 

recently has increased its focus on preventing harm to consumers who are already 

in debt. Consumer debt is now at historic levels.2 Moreover, the recent economic 

downturn has made it even more difficult for consumers with high debt levels to 

remain current on their mortgages, credit cards, and other types of debts.3 In short, 

many American consumers are now in financial distress. 

Consumers in financial distress are particularly vulnerable to unfair, deceptive, 

and otherwise unlawful business practices. Some debt collectors use unfair, decepVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
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4The FTC also participates in the governmental Financial Literacy and Education Commission and has contributed its expertise to the production of MyMoney.gov and Taking Ownership 

of the Future: The National Strategy for Financial Literacy. 5 15 U.S.C. § 45(a). 6The FTC enforces numerous consumer protection statutes that govern financial services providers, including the Truth in Lending Act (15 U.S.C. §§ 1601–1666j), the Consumer Leasing Act 

(15 U.S.C. §§ 1667–1667f), the Fair Credit Reporting Act (15 U.S.C. §§ 1681–1681x) (‘‘FCRA’’), 

the Equal Credit Opportunity Act (15 U.S.C. §§ 1691–1691f), the Electronic Funds Transfer Act 

(15 U.S.C. 1693–1693r), and the privacy and pretexting provisions of the Gramm-Leach-Bliley 

Act (15 U.S.C. §§ 6801–6809). 7 15 U.S.C. §§ 1692–1692p. 8 15 U.S.C. §§ 1679–1679j. 

tive, or abusive practices such as threats of imprisonment or harassing calls to try 

to compel consumers to pay their debts. Some debt settlement firms promise for a 

fee to negotiate settlements with creditors that will result in consumers owing less 

than the full amount of the balance on their credit cards, but in fact these firms 

do not negotiate the promised reductions. Some credit repair companies promise for 

a fee to be able to remove delinquencies, bankruptcies, and other negative information from the credit reports of consumers, but these companies cannot remove such 

information if it is truthful and accurate. Finally, some scam artists target consumers facing home foreclosure and promise that for a fee they will be able to negotiate a deal with lenders or servicers that will allow the consumers to stay in their 

homes. However, consumers later learn that no one has taken steps to save their 

homes from foreclosure, resulting in many consumers losing both the fee and their 

homes. 

The Commission has used all the tools at its disposal to increase its protection 

of consumers in the later stages of the credit life-cycle. The FTC has brought law 

enforcement actions against those who engage in unfair or deceptive acts and practices in violation of Section 5 of the FTC Act, as well as against those who violate 

specific credit statutes, such as the Fair Debt Collection Practices Act (‘‘FDCPA’’) 

and the Credit Repair Organizations Act (‘‘CROA’’). The agency has created and distributed extensive consumer education materials about debt collection, debt relief 

services, credit repair, foreclosure rescue scams, and other financial services topics 

to assist consumers in financial distress in taking steps to protect themselves.4 The 

Commission has conducted cutting-edge empirical research on how to improve mortgage disclosures and engaged in comprehensive policy development activities related 

to debt collection and debt settlement. 

The FTC believes that its past efforts have provided important protections to 

American consumers in financial distress. The agency, however, also recognizes that 

it must do more. To allow the Commission to perform a greater and more effective 

role in protecting consumers in financial distress, the agency recommends the enactment of legislation that would: 

• permit the FTC to employ notice and comment rulemaking procedures to declare acts and practices relating to financial services to be unfair or deceptive 

in violation of the FTC Act; 

• authorize the FTC to obtain civil penalties for unfair or deceptive acts and practices related to financial services, and authorize the FTC to bring suit in Federal court to obtain civil penalties; 

• authorize the FTC to promulgate rules to implement the FDCPA; and 

• provide additional resources to assist the FTC in increasing its law enforcement 

activities related to consumer financial services and expanding its critical empirical work on the efficacy of disclosures. 

This testimony will provide an overview of the FTC’s consumer protection authority related to financial services, describe how the Commission has used its consumer 

protection tools on behalf of consumers throughout the credit life-cycle, and recommend changes in the law and resources to enable the FTC to do more to protect 

consumers in financial distress. 

II. Overview of Commission Authority 

The Commission has law enforcement authority over a wide range of acts and 

practices related to financial services. The agency enforces Section 5 of the Federal 

Trade Commission Act,5 which prohibits unfair or deceptive acts or practices in or 

affecting commerce. In addition, among other specific financial services statutes,6

the FTC enforces the FDCPA,7 which prohibits unfair, deceptive, or abusive debt 

collection practices by third-party debt collectors. It also enforces the CROA,8 which 

prohibits credit repair firms from making false statements about their ability to imVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
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9See 15 U.S.C. § 45(a)(2). 10See 15 U.S.C. § 1692a(4), (6); 15 U.S.C. § 1679b(4). 11See, e.g., FTC v. Mortgages Para Hispanos.Com Corp., 11 No. 06–00019 (E.D. Tex. 2006); 

FTC v. Ranney, No. 04–1065 (D. Colo. 2004); FTC v. Chase Fin. Funding, No. 04–549 (C.D. Cal. 

2004); FTC v. Diamond, No. 02–5078 (N.D. Ill. 2002); United States v. Mercantile Mortgage Co., 

No. 02–5079 (N.D. Ill. 2002); FTC v. Associates First Capital Corp., No. 01–00606 (N.D. Ga. 

2001); FTC v. First Alliance Mortgage Co., No. 00–964 (C.D. Cal. 2000). 12See, e.g., FTC v. Associates First Capital Corp., No. 01–00606 (N.D. Ga. 2001); FTC v. First 

Alliance Mortgage Co., No. 00–964 (C.D. Cal. 2000). 13FTC v. Chase Fin. Funding, No. 04–549 (C.D. Cal. 2004); FTC v. Diamond, No. 02–5078 

(N.D. Ill. 2002). 14FTC v. Diamond, No. 02–5078 (N.D. Ill. 2002). 15See, e.g, In the Matter of American Nationwide Mortgage Company, Inc., FTC Dkt. No. C– 

4249 (Feb.17, 2009); In the Matter of Shiva Venture Group, Inc., FTC Dkt. No. C–4250 (Feb. 

17, 2009); In the Matter of Michael Gendrolis, FTC Dkt. No. C–4248 (Feb. 17, 2009). 16 Although the credit cards were issued by 16 various FDIC-regulated banks, CompuCredit 

created, designed, and distributed the credit card marketing materials that the Commission alleged were deceptive. As discussed above, the Commission does not have jurisdiction over banks, 

which issue nearly all credit cards in the United States. The FTC, however, does have jurisdiction over non-bank entities that market or advertise credit cards. The Commission worked closely on this case with the FDIC, which brought a parallel action challenging this deceptive conduct. 17FTC v. CompuCredit Corp. and Jefferson Capital Systems, LLC, No. 1:08–CV–1976–BBM– 

RGV (N.D. Ga. 2008). 

prove the credit rating of consumers and from charging an advance fee before providing credit repair services. The FTC Act, as well as the FDCPA and CROA, provide the fundamental authority that the Commission uses to take law enforcement 

action against those whose acts and practices harm consumers in the later stages 

of the credit life-cycle. 

Although the Commission has the authority to take action against a wide array 

of acts and practices in the financial services arena, some financial service providers 

are exempt from the FTC’s jurisdiction. Banks, thrifts, and Federal credit unions 

are specifically exempt from the Commission’s jurisdiction under the FTC Act.9 The 

FTC’s jurisdiction under the FTC Act extends only to non-bank financial companies, 

including non-bank mortgage companies, mortgage brokers, and finance companies. 

Similarly, under the FDCPA and CROA, the Commission has jurisdiction over nonbank entities covered by these statutes, including debt collectors and credit repair 

organizations, respectively.10

In conducting its law enforcement and other activities, the FTC often cooperates 

with other agencies, such as the Federal agencies who have authority over banks, 

thrifts, and Federal credit unions. Even more significant in the context of assisting 

consumers in financial distress, the FTC has a history of close cooperation with 

many state attorneys general and state banking departments on issues such as debt 

collection, foreclosure rescue scams, and credit repair. 

III. The FTC’s Protection of Consumers During the Credit Life-Cycle 

A. Marketing and Advertising of Consumer Credit 

A consumer’s credit life-cycle begins when he or she initially shops for a mortgage, 

credit card, auto loan, or any other form of credit. In the area of marketing and advertising of credit, the FTC has brought numerous enforcement actions challenging 

deceptive or illegal marketing by lenders, brokers, or other advertisers of consumer 

credit in violation of the FTC Act or the Truth in Lending Act.11 In mortgage advertising, for example, the Commission has brought actions against mortgage lenders 

or brokers for deceptive marketing of loan costs 12 or other key loan terms, such as 

the existence of a prepayment penalty 13 or a large balloon payment due at the end 

of the loan.14 Most recently, the Commission announced settlements with three 

mortgage lenders charged with using ads that touted low interest rates and low 

monthly payments, but failing to adequately disclose that the low rates and payment amounts would increase substantially after a limited period of time.15

The FTC has also brought enforcement actions against credit card marketers and 

advertisers. In June 2008, the FTC sued a credit card marketing company, 

CompuCredit Corporation, for allegedly deceptively marketing its credit cards to 

subprime consumers nationwide, primarily through solicitations that misrepresented the amount of available credit and failed to adequately disclose the cost of 

that credit.16 Last December, CompuCredit agreed to settle this case for an estimated $114 million in credits as redress to consumers.17

The Commission believes the CompuCredit case provides valuable insight into 

consumers’ experiences in procuring credit and going into debt. Deceptively marketing the costs of a credit product can have long-lasting consequences for many 

8 

18 15 U.S.C. §§ 1681–1681x. Section 605(a)(4) of the FCRA prohibits credit reporting agencies 

from reporting charge-offs that are more than 7 years old. 15 U.S.C. § 1681c. 19FTC v. EMC Mortgage Corp., No. 4:08–cv–338 (E.D. Tex. Sept. 9, 2008). See Press Release, 

Federal Trade Commission, Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC 

Charges of Unlawful Mortgage Servicing and Debt Collection Practices (Sept. 9, 2008), available 

at http://www2.ftc.gov/opa/2008/09/emc.shtm. 20http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm. 21http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm. 22http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea12.shtm. 

consumers. In this case, for instance, the deceptive marketing led many consumers 

to believe they would receive $300 in available credit, but instead they were charged 

$185 in fees and therefore initially received only $115 in credit. Many consumers 

were pushed over their credit limits almost immediately because they did not have 

as much credit as they thought they would have. These consumers were sent into 

a debt spiral from which they could not recover, and as a result, their debts were 

charged off by CompuCredit, in turn worsening their credit scores and further limiting their financial options. 

The CompuCredit case also highlights what happens as more and more consumers 

face growing debt. Debt collectors are developing innovative approaches to collecting 

charged-off debt. CompuCredit and Jefferson Capital, its debt collection subsidiary, 

allegedly marketed a credit card specifically to consumers with charged-off debt. 

This type of program encourages consumers to enroll in a debt repayment plan in 

order to obtain a credit card. Once a consumer pays down a specific amount of his 

or her outstanding debt, the consumer is eligible for a credit card with a minimal 

amount of available credit. These debt repayment offers may be marketed to consumers whose debts were discharged in bankruptcy or whose debts are no longer 

reportable pursuant to the FCRA.18 As a consequence, consumers who receive debttransfer credit card offers may be induced to re-validate an old debt, for which collection action might not otherwise have been possible. Because of its impact on consumers in financial distress, the FTC will continue to monitor the marketplace for 

this type of debt collection practice. 

B. Mortgage Servicing 

In the mortgage market, servicers collect payments for lenders and other owners 

of mortgage loans. The FTC has challenged deceptive and unfair practices in the 

servicing of mortgage loans, addressing core issues such as failing to post payments 

upon receipt, charging unauthorized fees, and engaging in deceptive or abusive debt 

collection tactics. For example, in September 2008, the FTC settled charges that 

EMC Mortgage Corporation and its parent, The Bear Stearns Companies, LLC, violated Section 5 of the FTC Act, the FDCPA, and the FCRA in servicing consumers’ 

mortgage loans, including debts that were in default when EMC obtained them.19

Among other practices, the complaint alleged that the defendants: (1) misrepresented the amounts consumers owed; (2) assessed and collected unauthorized fees; 

and (3) misrepresented that they had a reasonable basis to substantiate their representations about consumers’ mortgage loan debts. The complaint further alleged 

the defendants made harassing collection calls; falsely represented the character, 

amount, or legal status of consumers’ debts; and used false representations and deceptive means to collect on mortgage loans. 

The EMC settlement required the defendants to pay $28 million in consumer redress, barred them from future law violations, and imposed new restrictions on their 

business practices. In particular, it required EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data 

and other information about consumers’ loan accounts before servicing those accounts. 

In addition to law enforcement, the Commission provides mortgage borrowers 

with tools to protect themselves. For example, the FTC distributes consumer education materials on mortgage servicing,20 what to do if you are having trouble making your mortgage payments,21 and how to manage your mortgage if your lender 

closes or files for bankruptcy.22 The Commission also uses innovative approaches to 

reach out to consumers in other ways. This January, the FTC included a bookmark, 

‘‘Numbers to Know & Places to Go,’’ with contacts for more information about assistance with financial services along with the redress checks sent to over 86,000 consumers as a result of the Commission’s settlement with EMC. 

C. Debt Collection 

Consumer credit is a critical component of today’s economy. Credit allows consumers to purchase goods and services for which they are unable or unwilling to 

pay the entire cost at the time of purchase. By extending credit, however, creditors 

9 

23See Federal Trade Commission Annual Report 23 2008: Fair Debt Collection Practices Act 

at 4, available at http://www2.ftc.gov/os/2008/03/P084802fdcpareport.pdf. Note that, although 

the FDCPA generally does not cover the conduct of creditors collecting on their own debts, Section 5 of the FTC Act’s prohibition on unfair and deceptive acts and practices does apply to such 

conduct. 24See, e.g., FTC v. Check Investors, Inc., 2005 U.S. Dist. LEXIS 37199 (D.N.J. July 18, 2005) (ban on debt collection and $10.2 million judgment), aff’d, 503 F.3d 159 (3d Cir. 2007), petition 

for reh’g denied, Nos. 05–3558, 05–3957 (3d Cir. Feb. 6, 2008). 25 United States v. Acad. Collection Serv., Inc., No. 2:08-CV–1576 (D. Nev. Nov. 18, 2008). See 

Press Release, Federal Trade Commission, Nationwide Debt Collector Will Pay $2.25 Million to 

Settle FTC Charges (Nov. 21, 2008), available at http://www.ftc.gov/opa/2008/11/academy.shtm. 26Previously, the highest civil penalty judgment in an FDCPA case was $1.375 million, entered in United States v. LTD Financial Services, No. H–07–3741 (S.D. Tex. Nov. 5, 2007). 

take the risk that consumers will not repay all or part of the amount they owe. If 

consumers do not pay their debts, creditors may become less willing to lend money 

to consumers, or may increase the cost of borrowing money. Creditors typically use 

independent or third-party collectors to try to recover on debts to decrease the 

amount of their lost revenues. Debt collection thus helps keep credit available and 

its cost as low as possible. 

Some debt collection activities, however, also may harm consumers. In 1977, Congress passed legislation to protect consumers from harmful debt collection practices 

and to protect ethical collectors from competitive disadvantage. The result was the 

landmark Fair Debt Collection Practices Act, which established specific standards 

of conduct for the collection industry. Consumer groups, labor groups, state and Federal enforcement officials, and collection industry trade associations supported the 

law’s passage. The Commission is the primary governmental enforcer of the FDCPA. 

Consumers also may file their own actions against debt collectors. 

The FDCPA prohibits abusive, deceptive, and unfair debt collection practices, and 

specifies numerous practices that are barred. The FTC receives more complaints 

about debt collectors than any other industry.23 The consumer complaints include 

demands for payments that are not owed or larger than owed, harassment, false 

threats of legal or other action, impermissible calls to the consumer’s place of employment, revealing debts to third parties, and other law violations. 

Since 1999, the FTC has brought 21 lawsuits for illegal debt collection practices. 

In these cases, the Commission has obtained strong permanent injunctive and equitable relief, including substantial monetary judgments and, for some defendants, 

bans on collecting debts.24 In addition, the FTC has held more individuals, rather 

than just companies, liable for unlawful debt collection practices. As an example of 

the FTC’s current approach to law enforcement, in November 2008, Academy Collection Service, Inc. (‘‘Academy’’) and its owner, Keith Dickstein, agreed to pay $2.25 

million in civil penalties to settle charges that they violated the FDCPA and Section 

5 of the FTC Act.25 This is the largest civil penalty that the Commission has ever 

obtained in an FDCPA case.26

Although the Commission has provided effective protection for consumers within 

the current confines of the law, the FTC recognized that the law may need to be 

modified to provide consumers with even stronger protection against abusive debt 

collectors. In October 2007, the Commission therefore hosted a two-day workshop, 

entitled ‘‘Collecting Consumer Debts: The Challenges of Change,’’ to explore changes 

in the debt collection industry and examine their impact on consumers and businesses since the FDCPA was enacted in 1977. 

The FTC is releasing its debt collection workshop report today. Based on the 

workshop record and its experience, the Commission concludes that debt collection 

law needs reform and modernization to reflect changes in consumer debt, the debt 

collection industry, and technology. The Report discusses these changes and sets 

forth the modifications to the law the FTC believes are needed to provide better consumer protection without unduly burdening debt collection. 

Among other things, the Report concludes that major problems exist in the flow 

of information within the debt collection system. The law needs to be changed to 

require that debt collectors have better information, making it more likely their attempts to collect are for the right amount and are directed to the correct consumers. 

The Report also recommends that collectors be required to provide consumers with 

better information explaining their rights under the FDCPA. 

The Commission also concludes that debt collection laws must be modernized to 

take account of changes in technology. The Report recognizes that the law generally 

should allow debt collectors to use all communication technologies, including new 

and emerging technologies, to contact consumers. However, it is important that the 

law be carefully crafted and applied to avoid collectors’ use of communication techVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
10 

27On February 13, 2008 the FTC testified before the Senate Special Committee on Aging 

about foreclosure rescue fraud. The FTC’s testimony is available at http://www.ftc.gov/os/testimony/P064814foreclosure.pdf. 28FTC v. United Home Savers, LLP, No. 8:08–cv–01735–VMC–TBM (M.D. Fla. Sept. 3, 2008); 

FTC v. Foreclosure Solutions, LLC, and Timothy A. Buckley, No. 1:08–cv–01075 (N.D. Ohio April 

28, 2008); FTC v. Mortgage Foreclosure Solutions, Inc., No. 8:08–cv–388–T–23EAJ (M.D. Fla. 

Feb. 26, 2008); FTC v. National Hometeam Solutions, Inc., No. 4:08–cv–067 (E.D. Tex. Feb. 26, 

2008). 29FTC v. National Foreclosure Relief, Inc., No. SACV09–117 (C.D. Cal. Feb. 2, 2009) (temporary restraining order issued pending hearing on FTC’s motion for preliminary injunction). 30FTC v. Safe Harbour Foundation, No. 08 C 1185 (N.D. Ill. Feb. 25, 2008). 

nologies in a manner that causes consumers to incur charges, or otherwise subjects 

them to unfair, deceptive, or abusive acts and practices. 

The workshop record also revealed that certain debt collection litigation and arbitration practices appear to raise substantial consumer protection concerns. Because 

the workshop record does not contain adequate information for the FTC to determine the nature and extent of these concerns, the Report announces that the agency 

will convene regional roundtables this year with state court judges and officials, 

debt collectors, collection attorneys, consumer advocates, arbitration firms, and 

other interested stakeholders to obtain more information about these concerns and 

develop possible solutions. The participation of state officials in these roundtables 

will be critical, because debt collection litigation and arbitration involve many issues 

of state as well as Federal law. 

D. Debt Relief Services and Credit Repair 

Foreclosure Rescue Scams 

With the rapid increase in mortgage delinquencies and foreclosures, the FTC has 

intensified its efforts to protect consumers from mortgage foreclosure rescue 

scams.27 There are many varieties of mortgage foreclosure rescue fraud, but in most 

cases the perpetrator makes misleading promises that a consumer’s home will be 

saved from foreclosure and that the consumer’s loan can be modified. These scams 

share at least two common characteristics. First, the fraudulent schemes target consumers who are facing foreclosure or delinquency on their mortgage and who have 

limited time and resources to save their homes. Second, these schemes falsely promise that they can save consumers’ homes from foreclosure or obtain a loan workout 

or modification chiefly by negotiating directly with the mortgage lender or servicer. 

Many consumers, however, ultimately lose both their homes and the money they 

paid to scammers. 

In the past year, the Commission has brought six cases targeting mortgage foreclosure rescue scams,28 including a case announced earlier this month.29 In these 

cases, the Commission alleged that the defendants promise to stop foreclosure in exchange for an up-front consumer payment, ranging from $500 to $1,200. After a consumer makes the payment, the defendants do little or nothing to stop the foreclosure. This fraud deprives consumers not only of much-needed funds but also of 

the opportunity to explore realistic options to avoid foreclosure, including with the 

assistance of a non-profit housing counselor. In one case, the Commission alleged 

that the defendants enticed consumers into a second mortgage or home equity line 

of credit on very unfavorable terms without fully disclosing the costs, risks, and consequences of doing so.30

In tandem with its recent law enforcement actions against alleged foreclosure rescue scams, the Commission initiated a stepped-up outreach initiative on foreclosure 

rescue fraud. The FTC is involved in Federal, state, and local task forces in several 

regions where foreclosures are most prevalent both to coordinate enforcement and 

develop consumer outreach strategies. In addition, to warn consumers about the red 

flags for scams and inform them about the legitimate resources available to them, 

the Commission has undertaken a variety of other outreach initiatives. The FTC 

submitted a series of radio public service announcements, in English and Spanish, 

to stations in cities hardest hit by mortgage foreclosures. The Commission also distributed an article adapted from its mortgage foreclosure scam consumer education 

brochure to a national syndicated news service, which in turn, sent it to more than 

10,000 community newspapers across the Nation for inclusion in their publications. 

2. Debt Settlement 

With historically high levels of consumer credit card debt, many consumers are 

looking for ways to manage or reduce their debt. For decades, credit card debt relief 

was almost exclusively the province of non-profit credit counseling agencies 

(‘‘CCAs’’). Beginning in the mid-1960s, creditor banks initiated the current model of 

non-profit credit counseling to reduce personal bankruptcy filings. Under this model, 

11 

31To negotiate a DMP, the credit counselor first obtains the consumer’s full financial profile. 

Then, the credit counselor contacts each of the consumer’s creditors. Based principally on the 

consumer’s debt load and available income, the creditor then determines what, if any, repayment options to offer the consumer. Repayment options, or concessions, include reductions of the 

interest rate on the credit card and elimination of late or over-limit fees. After negotiations with 

all of the consumer’s creditors, the credit counselor calculates a consolidated and reduced monthly payment to enable the consumer to repay the balance in full over a period of years, typically 

three to 5 years. The consumer sends the payment to the credit counselor, which then distributes payments to each of the consumer’s creditors. 32Federal Trade Commission, Debt Settlement Workshop (Sept. 25, 2008), Transcript at 6 (remarks of Lydia B. Parnes, then-Director of the Bureau of Consumer Protection), available at 

http://www.ftc.gov/bcp/workshops/debt settlement/OfficialTranscript.pdf 33FTC v. Debt-Set, No. 07–558 (D. Colo. 2007); FTC v. Select Personnel Mgmt., Inc., No. 07– 

0529 (N.D. Ill. 2007); FTC v. Dennis Connelly, No. 06–701 (C.D. Cal. 2006); FTC v. Express Consolidation, No. 06–61851 (S.D. Fla. 2006); United States v. Credit Found. of Am., No. 06–3654 

(C.D. Cal. 2006); FTC v. Debt Solutions, Inc., No. 06–0298 (W.D. Wash. 2006); FTC v. Debt 

Mgmt. Found. Servs., Inc., No. 04–1674 (M.D. Fla. 2004); FTC v. Integrated Credit Solutions, 

Inc., No. 06–00806 (M.D. Fla. 2006); FTC v. National Consumer Council, Inc., No. 04–0474 (C.D. 

Cal. 2004); FTC v. Better Budget Fin. Servs., Inc., No. 04–12326 (D. Mass. 2004); FTC v. Innovative Sys. Tech., Inc., d/b/a Briggs & Baker, No. 04–0728 (C.D. Cal. 2004); FTC v. AmeriDebt, 

Inc., No. 03–3317 (D. Md. 2003); FTC v. Jubilee Fin. Servs., Inc., No. 02–6468 (C.D. Cal. 2002). 34FTC v. Randall L. Leshin d/b/a Express Consolidation, No. 0:06–CV–61851–WJZ (S.D. Fla. 

2008). 35FTC v. Express Consolidation, No. 06–CV–61851 (S.D. Fla. Dec.11, 2006). 

CCAs work with consumers and creditors to negotiate a repayment plan of principally credit card debt (a ‘‘debt management plan’’ or ‘‘DMP’’) and also assist the 

consumer in developing a manageable budget and educational tools to avoid debt 

problems in the future.31 If the consumer cannot afford a repayment plan, the credit 

counselor explores other options, including referral to a bankruptcy attorney. 

The historic levels of consumer debt necessarily have affected the services CCAs 

can provide. Non-profit credit counselors have told the Commission that the number 

of consumers contacting them about debt has increased by over a third. However, 

they also have said that the number of consumers who meet the income requirements to enroll in debt management plans has decreased substantially, which 

means that there are more consumers in debt who are looking for relief but cannot 

obtain that relief from non-profit credit counseling services. These reports from credit counselors are consistent with what the Commission has observed in the marketplace as part of its law enforcement activities related to debt settlement.32

The increased demand for debt relief options resulted in the recent growth of forprofit debt settlement companies. The term ‘‘debt settlement’’ refers to services forprofit companies market that promise to obtain lump sum settlements of consumers’ 

unsecured debt—principally, credit card debt. These companies typically promise 

that they will negotiate with creditors to obtain settlements in amounts less than 

the full balance owed by the consumer. The for-profit debt settlement business 

model typically encourages consumers, even those who are current on their payments, to become delinquent on credit card debt to encourage creditors to accept less 

than full payment of principal as a form of loss mitigation. Unlike DMPs, debt settlement companies do not consolidate credit card debt or arrange a monthly payment plan to pay off the debt over a period of years. Rather, the goal of debt settlement is to save enough cash, while not paying creditors, so that the creditors will 

offer to take a fraction of the balance owed as settlement in lieu of the full debt. 

Since 2001, the Commission has brought 14 cases against both sham non-profit 

credit counseling agencies and for-profit debt settlement companies.33 In these 

cases, defendants allegedly deceive consumers who are seeking workout options for 

credit card debt into paying large upfront fees for debt relief services which, for 

many consumers, are nonexistent. Other allegations include deceptive promises that 

debt collectors will stop trying to collect from consumers enrolled in their programs 

and that stopping payments to creditors under their program will not hurt consumers’ creditworthiness. 

Earlier this month, the Commission brought a contempt action against an alleged 

sham non-profit credit counseling company and its principal for violations of an 

order a Federal court entered against them in 2008.34 The defendants, Express Consolidation and Randall Leshin, misrepresented their non-profit status, charged hidden fees, and misled consumers about the benefits of enrolling in a debt management plan, according to the Commission’s underlying action.35 The 2008 order prohibited them from the illegal conduct and from operating in states where they were 

not qualified to do business. Notwithstanding being subject to a Federal court order, 

the defendants continued to do business in states where they were unqualified and 

to collect fees from consumers who had canceled their debt management plans. On 

12 

36See Press Release, FTC’s Operation ‘‘Clean Sweep’’ Targets ‘‘Credit Repair’’ Companies, 

available at http://www.ftc.gov/opa/2008/10/cleansweep.shtm. 37 5 U.S.C. § 553. 38Section 18, for example, includes requirements that the FTC must publish an advance notice of proposed rulemaking and seek public comment before publishing its notice of proposed 

rulemaking; it must provide an opportunity for a hearing before a presiding officer at which interested persons are accorded certain cross-examination rights; and, where there are numerous 

interested parties, the FTC must determine which have similar interests, have each group of 

persons with similar interests choose a representative, and make further determinations about 

representation for those interests in the cross-examination process. 15 U.S.C. § 57a(b). 

February 17, 2009, the court found the defendants in contempt based on this conduct. The Commission currently is seeking an order reimbursing consumers for any 

fees collected in violation of the 2008 order. 

As part of its research and policy development initiatives, the Commission convened a public workshop in September 2008 to examine the debt settlement industry, including the role of creditors, and the consumer protection issues that the forprofit business model raises. As a result of this workshop and the FTC’s law enforcement experience, the Commission is considering what initiatives, in addition to 

continued aggressive enforcement, are needed to further protect consumers from deceptive and unfair practices by purported debt relief companies. 

3. Credit Repair 

Another consumer protection challenge exacerbated by the economic downturn is 

the effect of delinquencies, bankruptcy, or other negative credit information on a 

consumer’s credit report. Fraudulent credit repair companies falsely promise to be 

able to remove for a fee accurate, negative information from consumers’ credit reports. This false promise particularly appeals to consumers with poor credit histories who are seeking a job, a car loan, or a mortgage. 

Consistent with its efforts to combat other types of financial fraud, the Commission has acted aggressively against such ‘‘credit repair’’ scams. Since 1999, the FTC 

has brought 42 cases against defendants that allegedly misrepresented the creditrelated services they would provide. Most recently, in October 2008, the Commission 

and 24 state agencies announced a crackdown on 33 credit repair operations—entities that deceptively claimed they could remove negative information from consumers’ credit reports, even if that information was accurate and timely.36 The law 

enforcement sweep included ten FTC actions charging companies with violating the 

FTC Act and the CROA by making false and misleading statements, such as claiming they could substantially improve consumers’ credit reports by removing accurate, negative information from credit reports. The agency also alleged that the defendants violated the CROA by charging an advance fee for credit repair services. 

The sweep included 26 state actions alleging violations of state laws and the CROA. 

Our partnerships with state authorities have increased significantly the reach of the 

Commission’s law enforcement efforts to promote broader compliance with the law. 

IV. Enhancing FTC Consumer Protection Efforts 

As described above, the FTC has used a vigorous program of law enforcement, 

consumer education, and research and policy development to protect consumers of 

financial services. The current economic crisis, however, demonstrates that more 

needs to be done. As the Nation’s consumer protection agency, the Commission is 

well-positioned to provide the additional protection that is needed. The FTC can provide greater protection to consumers in financial distress through enhanced and 

streamlined authority to promulgate rules, including rules to implement the 

FDCPA, increased monitoring and oversight to assess compliance with the law, expanded authority to obtain civil penalties against those who violate the law, and increased policy-oriented research on financial services subjects. To exercise these responsibilities in the robust manner necessary to confer greater consumer protection, 

the Commission will need substantial additional authority and resources. 

A. Rulemaking Authority 

The Commission would be able to be develop rules concerning financial services 

more quickly and effectively if the procedures required for issuing such rules were 

streamlined; that is, if the FTC were permitted to use standard government-wide 

notice and comment rulemaking procedures under Section 553 of the Administrative 

Procedures Act (‘‘APA’’) 37 to declare acts and practices to be unfair or deceptive. The 

FTC currently must use the burdensome, complicated, and time-consuming procedures of Section 18 of the FTC Act (‘‘Magnuson-Moss rulemaking procedures’’) to 

promulgate such rules.38 Commission rulemakings subject to Magnuson-Moss rulemaking procedure requirements typically take anywhere from three to 10 years to 

13 

39FTC Credit Practices Rule, 16 C.F.R. § 444. 40See 15 U.S.C. § 57a(f). 41See 15 U.S.C. § 1692l(d). 42 Currently, the FTC may seek civil penalties against any entity that knowingly violates a 

trade regulation rule promulgated by the FTC or that violates an FTC cease and desist order. 

See 15 U.S.C. §§ 45(l) and (m)(1)(A). In addition, recognizing the importance of civil penalties, 

Congress has specifically authorized the FTC to seek civil penalties for violations of certain statutes, e.g., the FDCPA. 43 15 U.S.C. § 56. 44 If the Commission brings an action in Federal court seeking civil penalties for violations 

of the laws it enforces, the agency should be permitted to obtain injunctive relief in such an 

action. In instances where there is a need to bring ongoing unlawful conduct by a financial services provider to a swift halt to protect consumers, and where both equitable relief and civil penalties are appropriate, the FTC should have the option of directly filing an action in Federal 

court seeking both equitable relief and civil penalties. 45See cases cited supra, n. 15. 

complete. For example, the proceeding to promulgate the FTC’s Credit Practices 

Rule 39 took almost 10 years. 

The cumbersome requirements of Section 18 of the FTC Act do not apply to other 

Federal agencies when they promulgate rules to protect consumers of financial services from unfair and deceptive acts and practices. Most significantly, under the FTC 

Act itself, the Board of Governors of the Federal Reserve System (‘‘FRB’’), the Office 

of Thrift Supervision (‘‘OTS’’), and the National Credit Union Administration 

(‘‘NCUA’’) may use notice and comment rulemaking to promulgate such rules for 

banks, thrifts, and Federal credit unions, respectively.40 The FTC, by contrast, must 

use the onerous and lengthy Magnuson-Moss rulemaking procedures to address the 

exact same unfair and deceptive acts and practices by financial entities within the 

Commission’s jurisdiction. Changing the law to allow the Commission to use the 

same process under the FTC Act as used by the Federal banking agencies would 

promote expedition and consistency in the promulgation of rules to protect consumers of financial services. 

Similarly, expeditiously promulgating rules to address the acts and practices of 

debt collectors would be very beneficial in protecting consumers in financial distress. 

Section 814 of the FDCPA specifically prohibits the FTC from promulgating rules 

concerning the collection of debts by debt collectors.41 In the debt collection workshop report that the Commission is issuing today, the agency concluded that the 

debt collection legal framework should be changed to enable the FTC to issue rules 

to implement the FDCPA to respond better to changes in technology and the marketplace. As with the rules under the FTC Act that address unfair and deceptive 

acts and practices related to financial services, the Commission would be able to 

issue rules to implement the FDCPA quickly and effectively if the agency were able 

to use notice and comment rulemaking procedures under the APA to promulgate 

them. 

B. Expand FTC Ability to Obtain Civil Penalties for Law Violations 

Civil penalties and other forms of monetary relief are vital to the effectiveness of 

the Commission’s law enforcement program, because they punish noncompliance 

and deter future violations. The FTC, however, does not have the authority to seek 

civil penalties for violations of some of the laws that it enforces, most notably, the 

FTC Act.42 Even in circumstances in which civil penalties are available to the FTC, 

the agency may not bring an action in Federal court seeking penalties without first 

referring it to the Department of Justice (DOJ) to file on behalf of the Commission.43

First, in the context of financial services, enhanced civil penalty authority would 

increase deterrence of would-be violators within the FTC’s jurisdiction.44 Equitable 

monetary remedies, such as redress and disgorgement, may not be appropriate or 

sufficient in certain cases, and the availability of civil penalties against the wrongdoers would likely achieve greater deterrence. 

The Commission’s recent settlements with mortgage advertisers discussed 

above,45 for example, contained no monetary relief. The FTC did not seek redress 

or disgorgement because of the difficulty in quantifying and proving consumer injury attributable to the particular ads challenged in those cases. Deterrence of unlawful conduct likely would be increased in these types of cases if civil penalties 

were available as a remedy. 

In addition to authorizing civil penalties for violations of all consumer protection 

laws related to financial services, changes to the process required to obtain those 

penalties would make law enforcement more effective. Giving the FTC independent 

litigating authority when it seeks civil penalties would allow the Commission—the 

agency with the greatest expertise in enforcing the FTC Act—to litigate some of its 

14 

46Other independent Federal agencies, such as the Securities and Exchange Commission and 

the Commodity Futures Trading Commission, are able to maximize the benefits of their own 

expertise by independently bringing administrative or judicial actions for civil penalties. 47 In 2004, for example, the FTC released a study showing that broker compensation disclosures that the Department of Housing and Urban Development had proposed confused consumers, leading many of them to choose loans that were more expensive. See Federal Trade 

Commission, Bureau of Economics Staff Report, The Effect of Mortgage Broker Compensation 

Disclosures on Consumers and Competition: A Controlled Experiment (February 2004). 48See Federal Trade Commission, Bureau of Economics Staff Report, Improving Consumer 

Mortgage Disclosures: An Empirical Assessment of Current and Prototype Disclosure Forms 

(June 2007), available at http://www.ftc.gov/os/2007/06/P025505mortgagedisclosurereport.pdf. 

In this empirical study, the FTC staff tested currently required mortgage cost disclosure documents, as well as developed and tested a prototype mortgage cost disclosure document. The FTC 

staff study concluded that the current document ‘‘failed to convey key mortgage costs to many 

consumers,’’ while the prototype document ‘‘significantly improved consumer recognition of mortgage costs, demonstrating that better disclosures are feasible.’’ Id. at ES–1 and ES–5. Following 

up on this research, in 2008 the FTC’s Bureau of Economics convened a conference to evaluate 

how mortgage disclosures could be improved. See Federal Trade Commission, ‘‘May 15, 2008 

Mortgage Disclosure Conference,’’ available at http://www2.ftc.gov/opa/2008/05/mortgage.shtm. 

own civil penalty cases, while retaining the option of referring appropriate matters 

to DOJ.46 Conferring this authority on the Commission also would increase efficiency. Currently, if DOJ declines to participate in the name of the United States 

or otherwise fails to act within 45 days on such a referral, the Commission may file 

the case in its own name. This process requires extra time and delay, even under 

the best of circumstances. Moreover, once DOJ accepts a referral, the FTC normally 

assigns one or more of its staff attorneys, at DOJ’s request, to assist in litigating 

the case. Despite excellent relations and coordination, the use of personnel at two 

agencies inevitably creates delay and inefficiencies. This is particularly true in cases 

where the FTC is simply referring to DOJ a civil penalty settlement to be filed in 

Federal court. 

The FTC Act therefore should be amended to expand the agency’s independent 

litigating authority to allow the FTC to bring actions for civil penalties in Federal 

court ‘‘in its own name by any of its attorneys,’’ without mandating that DOJ have 

the option to litigate on the FTC’s behalf, as is currently required in most cases. 

C. Increase Vital Empirical Research 

One of the most challenging current policy issues in consumer protection is under 

what circumstances the disclosure of information allows consumers to make adequately informed decisions about products, including financial goods and services. 

The FTC has long recognized that the disclosure of information often can empower 

consumers, but that such disclosures may not be effective in some circumstances. 

In particular, the agency has recognized the challenges of conveying information 

about complex products and topics via disclosures. This challenge is an especially 

important one to address in the financial services area, because mortgage and credit 

products have become much more complex in recent years. 

Statutory and regulatory schemes related to financial services include a host of 

requirements mandating that information be disclosed to consumers. Some have 

questioned whether these disclosures provide consumers with the information they 

need to properly understand the financial services they are purchasing. Specifically, 

some have argued that current disclosure requirements are inadequate in light of 

the advent and expansion of new financial services, such as alternative mortgages. 

The Commission has a long history of conducting empirical tests of the efficacy 

of disclosures in a wide variety of commercial contexts.47 Most recently, in 2007, the 

FTC’s Bureau of Economics published a seminal research report concluding that the 

current mortgage disclosure requirements do not work and that alternative disclosures should be considered and tested.48 As policymakers assess the utility of disclosures for financial products and services, the FTC has an opportunity to play a pivotal role in the debate. The Commission has the experience needed to conduct reliable studies of disclosures and report the results of these studies to policymakers 

and the public to better inform the debate. Focusing more attention on and devoting 

more resources to such vital empirical work is needed so that the FTC can foster 

the development of sound consumer protection policy. 

D. Increase in Resources 

The FTC has a broad consumer protection mission that extends far beyond the 

financial services area, protecting consumers from identity theft, false advertising, 

malware, business opportunity frauds, telemarketing fraud, and more. Over the past 

few years, the Commission has responded to the need for more financial services 

15 

enforcement by shifting consumer protection resources to the financial services area 

to the fullest extent possible. There is a great deal more that the FTC can accomplish in protecting consumers of financial services and we are prepared to do more. 

To accomplish this goal, the FTC needs significant additional professional staff. 

V. Conclusion 

The Commission is committed to protecting consumers throughout the credit lifecycle, including preventing harm to the many American consumers who struggle 

with mortgage, credit card, and other debt. The agency has used its traditional consumer protection tools of law enforcement, broad-based research and policy development, and consumer and business outreach to provide important protections for consumers of financial services. However, the Commission must do more. To enable the 

FTC to perform a greater and more effective role protecting consumers in financial 

distress, it recommends changes in the law and resources to enhance its authority 

to promulgate needed rules and prosecute cases against law violators. The Commission appreciates the opportunity to appear before you today to discuss the FTC’s 

work and your consideration of its views. 

The CHAIRMAN. Thank you. Thank you very much, Commissioner. 

STATEMENT OF NANCY DIX, CONSUMER, 

ANSTED, WEST VIRGINIA 

I’m very proud that Nancy Dix is here this morning. I really 

want to thank you for coming here, from coming up from West Virginia. It’s not far away, but it’s a long trip, isn’t it? 

Mrs. DIX. Yes, it is. 

The CHAIRMAN. Yes, it is. From what I understand from your testimony is that you were in danger of losing your home and so you 

turned to a company called, Mortgage Rescue. 

Mrs. DIX. Right. 

The CHAIRMAN. Is that correct? 

Mrs. DIX. Yes. 

The CHAIRMAN. Well, it doesn’t sound like this company rescued 

you from anything. 

Mrs. DIX. They didn’t. 

The CHAIRMAN. In fact, it sounds like this mortgage rescue company just made your financial situation even worse. You paid this 

company $921 for their services. 

Mrs. DIX. Right. 

The CHAIRMAN. And their expert advice to you was to pay the 

lender a $5,000 deposit to stop the foreclosure. Is that correct? 

Mrs. DIX. Yes. 

The CHAIRMAN. Of course they knew that you couldn’t afford to 

make this payment. 

Mrs. DIX. Right. They knew it. 

The CHAIRMAN. So Mrs. Dix, one of our responsibilities in this 

committee is to protect consumers against fraud, against people 

who call you up. They contacted you on the telephone? 

Mrs. DIX. Through the mail. 

The CHAIRMAN. Through the mail and you were looking for help 

and so you kind of, were eager to see what they had to say. 

Mrs. DIX. Yes. 

The CHAIRMAN. I don’t know all of the facts about your case, but 

it sounds to me like this company promised you something it knew 

it could never deliver to you. 

Mrs. DIX. Right. 

16 

The CHAIRMAN. Based on your experience can you give this Committee any guidance about what we can do to make sure that other 

families don’t have to go through what you have gone through? 

Mrs. DIX. Yes, sir. If they’re not sure about a company like that 

they need to come talk to our Attorney General. 

The CHAIRMAN. To the Attorney General? 

Mrs. DIX. Yes, of their state. 

The CHAIRMAN. Yes, and in this case that worked out for you, 

didn’t it? 

Mrs. DIX. Yes, it did. It kept me from losing my home. 

[The prepared statement of Mrs. Dix follows:] 

PREPARED STATEMENT OF NANCY DIX, CONSUMER, ANSTED, WEST VIRGINIA

Good morning, my name is Nancy Dix. I am sixty-seven years old. I live in a double-wide manufactured home in Ansted, West Virginia. After my husband died of 

a heart attack in 2001, I was contacted by lenders to refinance my home with promises of saving me money. My husband had always handled things like loans so I 

did not know much about mortgages and loans. I trusted the people I dealt with 

because I thought they were professionals looking out for my best interests. I later 

found out that I was actually being taken advantage of by predatory lenders. 

In the spring of 2002 I spoke with a mortgage broker called Infinity, which told 

me it would save me money. Infinity sent an appraiser out to my house and valued 

the property for $97,000. I later learned that it was actually worth about $59,000. 

After the appraisal, Infinity told me a man would be coming to my home with 

papers to sign. When the man came, I learned for the first time that my payments 

would be $800 a month. This is higher than what I was expecting and a lot for me 

to afford on my fixed income. I asked about the payments and was told that in a 

few months, they would lower my payments to $600. The signing was rushed, and 

no one explained the papers to me. I admit I was confused by all that paperwork 

and simply trusted that I was being treated honestly. 

The loan ended up with a bank called Flagstar. The total amount of the loan was for $86,700.00 with an APR of 9.481 percent. Under the loan I was required to make 

payments of over $245,000.00 over thirty years. 

After the signing I began making payments. I contacted Flagstar after a few 

months to lower my payments. Flagstar told me that I would have to come up with 

more than $8,000 out of my pocket before they would lower my payment—money 

I did not have. I struggled to make payments over the years and was forced ultimately into bankruptcy. When I tried to catch up my payments with Flagstar, they 

wanted me to pay large amounts that I could not afford on my fixed income. 

Flagstar wanted me to pay over $1,800 a month when my income was only about 

$2,000. Also, Flagstar force placed expensive insurance on my account, which made 

me further behind and increased my monthly payment. 

In July 2005, Flagstar started sending my payments back to me. Eventually, my 

home was sent into foreclosure, with a sale set for December 15, 2005. 

Around this time I was contacted by an outfit from Houston, Texas, called Mortgage Rescue. They told me to send them some information about my finances and 

$921 and they would stop the foreclosure. So on November 8, 2005, I sent them the 

information and money. They responded to me by a letter I received only days before the foreclosure. The letter said for me to call Flagstar and work out a forbearance agreement, but I would have to pay the total amount I was behind and a 

$5,000 deposit to Flagstar to stop the foreclosure. Mortgage Rescue knew I did not 

have this money. I could have worked out this deal with Flagstar at anytime, without sending Mortgage Rescue $921. Basically they took my money for nothing. I 

later found out that Mortgage Rescue was not even licensed to do business in West 

Virginia. I never got my money back from them. 

Luckily, I was able to call the West Virginia Attorney General, who had the foreclosure put off. I was then sent to Mountain State Justice, a non-profit legal services 

office, and they worked it out so I could keep my home. 

If I had not called the Attorney General or found Mountain State Justice, I would 

have lost my home. I would be in my late sixties, retired, widowed, with nowhere 

to live. I think at times about other people who sent their hard-earned money to 

scam artists like Mortgage Rescue. I hope you are able to do something to prevent 

these crooks from taking advantage of people who are desperate, like I was, because 

they are facing loss of their homes. Thank you. 

17 

The CHAIRMAN. Let me now go on to Professor Cox before my 

time runs out. Nothing is clicking here. Is the clock running? 

MALE SPEAKER. I think they’ve reset it, Mr. Chairman. 

The CHAIRMAN. Yes, that’s not proper. Professor Cox according to 

your testimony, Mrs. Dix’s experience is disturbingly common. You 

say it’s difficult for consumers to get objective information when 

they fall behind on their loan payments. They’re in danger of losing 

their homes. 

Why is it so difficult for people to find the assistance that might 

keep them in their homes? 

STATEMENT OF PRENTISS COX, ASSOCIATE PROFESSOR OF 

CLINICAL LAW, UNIVERSITY OF MINNESOTA LAW SCHOOL 

Mr. COX. Thank you, Mr. Chairman. It is difficult because they 

get bombarded with solicitations promising the homeowner that 

the family will be safe from foreclosure by signing up with this 

white knight who is going to take care of the problem. 

And if you’re looking for an area where there’s a problem with 

consumer protection? Try to find something where’s there’s lots of 

money, complexity of a transaction and/or vulnerability of the consumer. Foreclosure rescue fraud pins the meter on absolutely every 

one of those items. 

So you’ve got desperate homeowners who are trying their best to 

save their homes, their largest investment, often all they have. And 

we’re dealing with an extremely complex transaction. So it’s difficult to sort out what’s right and what’s wrong when you’re in that 

position. 

The CHAIRMAN. OK. I went out of order there deliberately because I wanted to be able to ask Nancy some questions before I 

have to go down and vote at which point I will then turn it over 

to Senator Lautenberg. I will go vote and will come back. This happens often on the Committee. And it’s not particularly wonderful, 

but it’s the way at least we can keep the testimony going. 

So maybe what I should do, Mr. Cox, is just to ask you to give 

your testimony. 

Mr. COX. Thank you, Mr. Chairman. I’ll be extremely brief. I understand the time pressures. 

The CHAIRMAN. No, don’t worry about that. 

Mr. COX. OK. 

The CHAIRMAN. We don’t have that. We just have a vote. That’s 

different. Small pressure. 

Mr. COX. There are two types of scams here that we’re dealing 

with. The one that Mrs. Dix was taken advantage of is called a 

foreclosure consultant and other similar names. That has become 

more popular with the change in the market lately. 

The other kind is called a foreclosure reconveyance. And that’s 

where the homeowner is in foreclosure and has equity in their 

home and they are convinced to give a title to the property to a 

scam artist who is going to save the house. The scam artist then 

gives back some sort of interest to the homeowner, typically a land 

sale contract or a lease with purchase option. That’s called a foreclosure reconveyance scam. 

I had the privilege of doing all the major predatory lending cases 

with the state attorney generals in the national leadership, whethVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
18 

er it was First Alliance Mortgage, Household or Ameriquest, for 10 

years. During that time, about 2002–2003, we began to see homeowners who were coming in who were in foreclosure and didn’t 

know why they were being told that they could be evicted from the 

home they thought they owned. Well, these were reconveyance 

scams. 

The market, if you will, for that kind of reconveyance scam in the 

early 2000s existed because there was a historic, incredible appreciation of home values, which meant that the majority of people in 

foreclosure had equity in their homes, sometimes really substantial 

equity in their homes. And these scams flourished during that period. Since that time I don’t think you need to look at the graphs 

that were attached to my testimony to know that home values have 

plummeted. 

I hope you do look at the foreclosure graph because even though 

you all know it, it is unbelievable. It looks like a hockey stick. 

And when you look at it on isolated, regional areas, you’re just 

floored. In Hennepin County, which is the county including Minneapolis and the suburbs, there was a very steady 20-year average. 

It’s up nine times. I mean we’re talking an unbelievable explosion 

in foreclosures that has devastated communities. 

As the market shifted and housing values plummeted, the equity 

disappeared from many of those transactions. So even though we 

have nine times more homeowners than foreclosure, the number of 

people with equity is much lower, but still exists. And those reconveyance scams are still going on. 

During the last year or two, there is an increasing prominence 

of the kinds of scams that Mrs. Dix fell victim to, which is these 

foreclosure consultant scam. In 2004 in Minnesota, we got ahead 

of this curve and passed a state law dealing with the foreclosure 

consultants, which was modeled on an old California law. And we 

invented from scratch a law to attempt to regulate reconveyance 

transactions. 

It has been very successful. And it has been adopted in almost 

20 states now. And another 15 states have it pending. 

These state laws work. In my experience working on predatory 

lending, back when I had to explain to people what subprime mortgages were, and back to when I was a really bad dinner table conversation because I was saying, you don’t realize how bad this is, 

people. This is disaster brewing. It was like, yes, yes, shut up. 

Back in those days, at the state level we were doing almost all 

the work on this. We got some support from agencies like the FTC. 

But we actually had to fight the Federal Government and particularly the OCC, the Office of Controller of the Currency, the OTS— 

the depository regulatory agencies. In fact, I had a case where they 

filed an amicus brief against us where the data was overwhelming 

about the fraud. 

So the first thing I would say in terms of what the Federal Government can do here is don’t preempt the states. The states are 

working really hard on this. We were way out in front on this. 

We’ve passed laws. We’re attempting to solve the problem. Federal preemption on the subprime mortgages was really, really not 

helpful in attacking that problem when we were trying to do it at 

the state level. 

19 

The second thing I would say in terms of what the Federal Government can do to help attack these scams is I support Commissioner Harbour’s testimony. The FTC works very well with state 

attorney generals. In fact when I walked in I saw some familiar 

faces here from the FTC from those days. 

But the FTC, to move quickly to attack scams as opposed to more 

delicate policy questions and established industries, needs swifter 

authority. They need to get more of a cop mentality when it’s a 

scam, and it’s not a complicated policy issue. And they need that 

APA rulemaking authority and not that cumbersome MagnusonMoss authority. 

And then finally two other quick things. First, fund of legal services. At our local level we established a committee of people that 

had a very effective public/private partnership. And the legal service attorneys were at the fore in taking cases like Mrs. Dix and others and resolving the problems. 

And second, there is a possibility to adopt an analogous federal 

law to the state foreclosure consultant laws that would set a floor, 

not a ceiling, a floor, to protect consumers who are subject to that 

type of solicitation. I appreciate the opportunity to testify, Mr. 

Chairman and Members of the Committee. 

[The prepared statement of Mr. Cox follows:] 

PREPARED STATEMENT OF PRENTISS COX, ASSOCIATE PROFESSOR OF CLINICAL LAW, UNIVERSITY OF MINNESOTA LAW SCHOOL

Thank you, Chairman Rockefeller and Members of the Committee, including my 

home state Senator Amy Klobuchar, for the opportunity to testify on the Nation’s 

consumer protection agenda in the wake of this great flood of foreclosures. While 

there is much to say about why we have a human-made disaster of this proportion, 

millions of American families are just desperately trying to cope with the reality of 

default or foreclosure on their mortgage loans, or are worried about looming difficulties in meeting their mortgage payments. I will try to address the unfair and deceptive practices targeting homeowners in foreclosure and how government can help 

protect these families in a time of intense distress. 

Prior to joining the University of Minnesota Law School faculty in 2005, I had 

the privilege of working as an Assistant Attorney General and Manager of the Consumer Enforcement Division in the Minnesota Attorney General’s Office. A primary 

focus of my work in that Office was combating mortgage fraud and attacking predatory conduct against homeowners in foreclosure. Along with my colleagues Giulia 

Palumbo and Julie Aoki-Ralston, I worked with homeowners in foreclosure who had 

succumbed to solicitations promising to save their homes. These homeowners often 

faced eviction as a result of complicated and frequently fraudulent transactions. In 

2004, we helped draft legislation enacted by the Minnesota legislature designed to 

regulate these foreclosure rescue scams. Since that time, I have worked with numerous state legislators and consumer advocates seeking to pass similar legislation and 

with legal aid and other attorneys engaged in litigation to help foreclosed homeowners. I also have been asked to appear before you on behalf of the National Association 

of Consumer Advocates (NACA), a non-profit association of consumer law attorneys 

and consumer advocates. NACA members include attorneys from a variety of types 

of practice, including the public sector, legal services, fee-generating attorneys and 

the academy. NACA is a remarkable efficient and strong advocate for the protection 

of consumers in the marketplace. 

I. Anatomy of Foreclosure Rescue Scams 

Foreclosure rescue scams target homeowners at their most vulnerable moment. 

Perpetrators of these scams use fraud and false promises to take desperately needed 

cash from these homeowners. 

A. Experience of Homeowners Entering Foreclosure 

If you want to find an area ripe for consumer fraud, look for one or more of the 

following three factors: substantial amounts of money at stake; complexity of transVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
20 

1State v. HJE, No. 03–cv–05554 (D.Minn.) (Complaint filed October 16, 2003). For other example solicitations, see Steve Tripoli and Elizabeth Renuart, National Consumer Law Center, 

Dreams Foreclosed: the Rampant Theft of Americans’ Homes Through Foreclosure ‘‘Rescue’’ 

Scams (2005); available at http://www.consumerlaw.org/news/content/ForeclosureReport 

Final.pdf. 2For a detailed description of the types of foreclosure reconveyance scams, see Steve Tripoli 

and Elizabeth Renuart, supra note 1; Prentiss Cox, Foreclosure Equity Stripping: Legal Theories 

and Strategies to Attack a Growing Problem, Clearinghouse Review Journal of Poverty Law and 

Policy (Mar.–Apr. 2006). 

actions; and vulnerability of the consumer. Families in foreclosure present all of 

these characteristics in one place. The largest and most important investment made 

by the typical American family is their home. It is almost impossible to find a consumer transaction more complex than the financing and legal obstacles facing a 

family in foreclosure. And these families often are desperate to save their homes. 

Foreclosure rescue scams provide a ready-made opportunity for the perpetrators 

of scams because the potential victims appear in the public record of foreclosure filings, and critical information such as estimated home value and the amount of liens 

on the property also are readily available in the public record or on the Internet. 

As soon as a house enters the foreclosure process, the homeowner in foreclosure 

typically is subject to an avalanche of mail, phone calls and personal visits from people promising to help the homeowner. 

It is difficult to describe the desperation felt by many homeowners with whom I 

have worked who were facing the loss of their homes through foreclosure. My colleagues and I worked with one family that had three small children and their home 

had been passed through two prior generations of the family. I recall another homeowner who had personally built most of his home. He and his wife and children 

were evicted by a foreclosure rescue buyer on Christmas Eve. We were eventually 

able to help them regain possession of the home. More than one homeowner with 

whom we worked succumbed to the stress of the foreclosure process. 

B. Two Types of Foreclosure Rescue Operations 

The individuals and companies that descend on homeowners in foreclosure have 

a common theme of purporting to help the homeowner ‘‘save your home’’ and ending 

the nightmare of foreclosure. Acquirers claim to have special expertise to help the 

homeowner resolve the foreclosure. A typical solicitation letter is as follows: 

We lookout for your interests. 

We can stop the foreclosure process. 

We can help you restore your credit. 

We can help you save your homestead. 

. . . Let us try and help you figure out solutions so you can sleep at night.1

Many foreclosure rescue operations also rely heavily on affinity appeals, such as 

race or religious similarity. 

Foreclosure rescue operations can be grouped into two broad categories: foreclosure reconveyance transactions and foreclosure ‘‘consultants.’’ 

1. Foreclosure Reconveyance Transactions 

Foreclosure reconveyance transactions involve the transfer of title from the homeowner in foreclosure to a ‘‘purchaser’’ and an alleged second transfer, or reconveyance, of an ownership interest back to the homeowner. There are several variations 

of this type of reconveyance deal.2 In some instances, the ‘‘purchaser’’ promises to 

return ownership to the homeowner through a land sale contract or a lease with 

purchase option. Other forms of the reconveyance scheme involve a third party 

‘‘white knight’’ who takes title to the home and promises to complete the reconveyance to the homeowner. 

A substantial number of these transactions involve outright fraud. Forged signatures on deeds, blatantly false representations about the character of documents 

presented for signature by the homeowner, and false statements that the deal is 

really a mortgage refinancing are common in these transactions. For example, I 

worked with a Saint Paul, Minnesota family in foreclosure who were told that they 

would receive a mortgage loan refinancing. The person soliciting them referred the 

family to a company representative who gave them a business card stating ‘‘loan 

administrator’’ and an appraiser was sent to the home. In reality, the person conducting the scam fraudulently obtained a warranty deed from the family by telling 

them that the documents they were being asked to sign were paperwork to get the 

refinancing loan started. Without the family’s knowledge, the perpetrator of this 

scheme transferred the property to a third party who obtained a mortgage loan that 

21 

3 John Leland, Swindlers Find Growing Market in Foreclosures, New York Times (January 15, 

2009). 

provided cash to the perpetrator. The family was told the refinancing was complete 

and they even made a few payments to the perpetrator before they received a ‘‘rent’’ 

demand from the third party who purportedly held title to the home. After many 

difficult months for the family and countless hours of investigation and litigation, 

we were able to have the title restored to the family. 

Many of these reconveyance transactions, however, do not involve such blatant 

fraud—the foreclosed homeowner knows that some sort of reconveyance transaction 

is occurring. But these deals are designed to fail for the homeowner. The perpetrators of the schemes use the desperate hopes of the homeowner combined with misleading promises about future refinancing opportunities, or the like, to obtain agreement to complex transactions that would be hard to grasp for most average homeowners even in the best of circumstances. Unlike the type of loan modification that 

makes sense for these homeowners, based on the principles of restructuring payments cognizant of the payment ability of the homeowner, foreclosure reconveyance 

almost invariably increase the homeowner’s monthly payment over the payment 

amount that led to foreclosure. One missed payment means the deal is quickly canceled and the home is gone. 

The loss of homeowner equity in these reconveyance transactions can be substan- tial. The typical loss in these deals exceeds $20,000, in my experience. Some victims, 

such as elderly homeowners with modest mortgages, have lost in excess of $100,000. 

Foreclosure reconveyance transactions occur partly because these deals almost 

never involve cash investment by the ‘‘purchaser’’ in the foreclosed property. The 

‘‘purchaser’’ simply takes title to the property from the homeowner, or arranges for 

a third party to take title. Once title is transferred, the ‘‘purchaser’’ or third party 

title holder obtains a mortgage refinance loan and pulls cash out of the property. 

So there is an up-front pay-off for these actors. After the homeowner is evicted, the 

perpetrators of the scheme sell the home and may profit from a ‘‘back-end’’ of the 

deal, as well. 

2. Foreclosure Consultants 

The other type of foreclosure rescue operation involves solicitation of foreclosed 

homeowners by ‘‘consultants’’ who promise to assist the homeowner in negotiating 

a resolution of the problem with the foreclosing lender. The foreclosed homeowner 

has to pay a substantial advance fee for these services, usually about a thousand 

dollars or more. While the monetary loss to these homeowners is not as substantial 

as with the reconveyance transactions, a four figure sum of money usually is a critical amount for homeowners trying to maintain control of their homes and pay other 

debts. 

Unlike foreclosure reconveyance scams, there are many worthwhile providers of 

foreclosure prevention services who offer important help to homeowners attempting 

to evaluate the difficult choices presented by the initiation of a foreclosure proceeding. The non-profit organizations affiliated with the National Federation of 

Credit Counselors, for example, have an excellent reputation for providing advice 

and services to mortgagors and other consumers in debt. 

Yet deceptive and unfair conduct is pervasive in this area.3 As discussed below, 

state attorneys general have brought dozens of actions against foreclosure consultants since the onset of the foreclosure crisis. Some of these companies just disappear 

with the money. Even when the company is not a complete sham, the services provided often are of little use to the homeowner and the outcomes promised at the 

time of solicitation are illusory. Better, affordable services generally are available 

to foreclosed homeowners through legitimate non-profit counselors. 

Foreclosure consultants thus present a very similar regulatory problem to debt 

settlement services. While the underlying service is useful, often vitally important, 

the degree of fraud and misleading promises in the industry make it likely that a 

homeowner who pays up-front for these services will be losing cash desperately 

needed to manage the foreclosure process or its aftermath. 

II. The Changing Reality of Foreclosures and the Market For Rescue Scams 

Consumer protection regulators and advocates began to see a sharp rise in foreclosure reconveyance scams in the early 2000s. A wave of problems with foreclosure 

consultants appeared later, rising concurrently with the foreclosure crisis that became apparent within the last 3 years. This shifting pattern is largely explained by 

the gyrations in the real estate market. 

Attached as Exhibit A to this testimony is a graph of median home prices over 

the last twenty years. You probably don’t have to look to know what it shows. 

22 

4 Ellen Schloemer, Wei Li, Keith Ernst, and Kathleen Keest, Losing Ground: Foreclosures in 

the Subprime Market and Their Cost to Homeowners, Center for Responsible Lending, Dec. 2006, 

available at http://www.responsiblelending.org/pdfs/ CRL-foreclosure-rprt–1–8.pdf. 5See generally Steve Tripoli and Elizabeth Renuart, supra note 1. 6See Testimony of Federal Trade Commission on Foreclosure Rescue Fraud, U.S. Senate Special Committee on Aging (2/13/08) at p. 7 n.29; infra note 9. 7Federal Trade Commission v. National Foreclosure Relief, Inc. et al., No. SACV09–117 

(C.D.Calif 2/2/09), available at http://www.ftc.gov/os/caselist/0823067/090211nfrcmpt.pdf; 

Federal Trade Commission v. United Home Savers, LLP, et al., No. 8:08 CV 01735 (M. D.Fla. 

9/3/08), available at http://www.ftc.gov/os/caselist/0723251/080903unitedhomesaverscomplaint 

.pdf; Federal Trade Commission v. National Hometeam Solutions, LLC. (E.D.Tex 2/29/08), available at http://www.ftc.gov/os/caselist/0823076/080229nationalfinancialsolutionscmplt.pdf; 

Federal Trade Commission v. Foreclosure Solutions, LLC. (N.D.Ohio 4/28/08), available at 

http://www.ftc.gov/os/caselist/0723131/080428complaint.pdf. 

Steady but slow appreciation gave way in the late 1990s to an ahistoric, sharp rise 

in home prices, followed by a crash in values starting in mid-2006. This pattern, 

likely not coincidentally, closely mirrors the explosion and collapse of nonprime 

mortgage lending.4

The graph of foreclosures attached as Exhibit B, on the other hand, looks like a 

hockey stick. Foreclosures began a slow rise through the 1980s and 1990s, then rose 

exponentially starting in 2005. While we all understand this pattern, the rapidity 

and height of this foreclosure explosion is startling. 

Putting this information together explains the change in the most common type 

of foreclosure rescue scam. The ‘‘market’’ for perpetrators of foreclosure reconveyance transactions was as ripe as it may ever be in the early to mid 2000s. Foreclosures were slightly higher than the historic average, but foreclosed homeowners 

owned properties that had substantially appreciated since the loan in foreclosure 

was originated, and their properties were continuing to appreciate almost by the 

month. 

Therefore, the number of homeowners in foreclosure with substantial equity in 

the property was at an historic high during the early 2000s. This is the necessary 

condition for a foreclosure reconveyance transaction to yield proceeds to the perpetrator of the deal. The purchaser obtains an upfront payment from the deal only 

if there is sufficient equity to yield proceeds after the purchaser closes on his or her 

mortgage loan. During the high tide of foreclosure reconveyance transactions, the 

inappropriately loose underwriting criteria of most lenders and the failure of selfregulation by appraisers and others involved in real estate settlement services contributed to the ease of completing foreclosure reconveyance transactions. 

Conversely, the current environment is ideal for foreclosure consultant schemes. 

Foreclosure consultants thrive when the number of foreclosures is high and when 

foreclosed homeowners feel that they have few options for dealing with the situation. Plummeting real estate values have left the overwhelming majority of homeowners in foreclosure with negative equity. Credit markets have tightened in many 

sectors, but have all but disappeared for foreclosed homeowners. Various public sector and industry pronouncements about purported loan modification programs have 

added to confusion on the part of foreclosure homeowners about their available options. In this situation, foreclosed homeowners are ripe for ‘‘consultants’’ promising 

big results while demanding upfront payment. 

III. Consumer Protection Enforcement with Foreclosure Rescue Scams 

Consumer protection regulation is not a one-size-fits-all proposition. It is essential 

to tailor the regulatory requirements to the problem at hand. The problem of foreclosure rescue scams presents a challenge of drafting appropriate substantive restrictions on the conduct and ensuring that enforcement of those laws is effective 

and efficient. State legislatures and state attorneys general have already taken significant steps in addressing these issues. 

A. The Right Tool for This Job: State Laws Attacking Foreclosure Rescue Scams 

The Federal Trade Commission (‘‘FTC’’) and multiple states have used their broad 

UDAP (unfair and deceptive acts and practices) authority to attack the problem of 

foreclosure rescue scams. Starting in the early 2000s, state attorneys general 

brought a series of UDAP actions against entities engaged in foreclosure reconveyance schemes.5 When the foreclosure crisis spawned a flood of foreclosure consultants, state attorneys general brought UDAP cases against these parties.6 More recently, the FTC has initiated multiple legal actions against deceptive foreclosure 

consultant conduct.7

One disadvantage of UDAP cases is that they usually require extensive investigation and resources to prosecute. States have tackled this problem by enacting legislation to restrict the conduct of foreclosure purchasers in reconveyance transactions 

23 

8Minn.Stat. §§ 325N.10–.18 (2008). 9See, e.g., Press Release, Missouri Attorney General’s Office, Madigan Sues Seven Companies 

For Mortgage Rescue Fraud (11/18/08), available at http://www.illinoisattorneygeneral.gov/ 

pressroom/2008l11/20081118.html; John Rebchock, Suthers Cracks Down on Mortgage Fraud, 

Rocky Mountain News (11/18/08), available at: http://www.rockymountainnews.com/news/ 

2008/nov/18/suthers-cracks-down-mortgage-fraud; Press Release, Minnesota Attorney General’s 

Office, Lori Swanson Sues Two More Out-Of-State Mortgage ‘‘Foreclosure Consultants’’—Bringing To A Total Of Ten Such Companies Her Office Has Now Sued In This Area, available at 

http://www.ag.state.mn.us/Consumer/PressRelease/080821ForeclosureConsultants.asp; Press 

Release, Maryland Attorney General’s Office, Attorney General Gansler Announces Consumer 

Protection Division Files Complaint Against Operators of Alleged Foreclosure Rescue Scam (7/ 

10/08), available at http://www.oag.state.md.us/Press/2008/071008.htm. 10Kristen Siegesmund and Leah Weaver, Minnesota Statutes Chapter 325N: A model For 

Substantive Consumer Protection, 33 Wm. Mitchell L. Rev. 223 (2006). 

and restrict the behavior of foreclosure consultants. In 2004, Minnesota enacted a 

law regulating both types of foreclosure rescue scams. Maryland enacted this law 

in 2005, followed by New York and Illinois in 2006. Massachusetts and the District 

of Columbia have regulations prohibiting foreclosure reconveyance transactions. 

Today, more than 20 states have laws regarding foreclosure rescue scams, the vast 

majority based on the Minnesota model. See Exhibit C (listing state foreclosure rescue scam laws). 

The key to the Minnesota model law regulating foreclosure reconveyance transactions is substantive restrictions on the deals. The foreclosure purchaser must have 

verified proof that the homeowner in foreclosure has the ability to pay for the land 

sale contract or purchase option required for the reconveyance end of the transaction. If the deal fails to result in the return of title to the property to the foreclosed homeowner, the law requires payment by the purchaser to the foreclosed 

homeowner if total consideration paid to the homeowner is 82 percent or less of the 

home’s value. The law has numerous other protections, including a required formal 

closing of the transaction and an extended right to cancel the deal.8

State foreclosure consultant laws also attack the core of that problem. The crucial 

protection in this part of the state foreclosure rescue scam laws is a prohibition on 

the foreclosure consultant receiving ‘‘. . . any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented he or she would perform.’’ This requirement obviously provides simple recourse against the scammer who just takes money 

and never promises the service. This requirement also puts the homeowner in control of whether to pay foreclosure consultants who perform far fewer or less effective 

services than promised. 

These state foreclosure rescue scam laws provide state attorneys general and 

other state enforcement entities with an efficient and swift means of attacking the 

rescue scam problem. States that have brought actions against foreclosure rescue 

scams in the last few years have relied primarily on violations of the express requirements of these statutes rather than having to prove UDAP violations.9

Enacting these laws clearly did not eradicate the problem of foreclosure rescue 

scams. Enforcement resources rarely are sufficient to stop every violator of the law. 

Of course, the entities conducting these scams purposefully or inadvertently find 

loopholes in the law, which has led states to evolve these laws to adapt to the 

changing patterns of the rescue perpetrators. Yet the laws put the right tools in the 

hands of state consumer protection enforcement authorities to efficiently pursue 

most foreclosure rescue fraud scams. State attorneys general retain UDAP authority 

as a basis for action against any exceptional conduct. 

In addition to public enforcement actions, numerous private attorneys have contributed substantially to helping foreclosed homeowners caught in rescue scams. 

Most of these laws also include a private right of action so that homeowners in foreclosure have remedies to recover losses suffered in these transactions. The size of 

the loses with foreclosure reconveyance transactions, combined with the existence 

of an immovable asset that cannot be moved beyond the reach of the homeowner’s 

attorney, have made it possible for private attorneys to effectively utilize these laws 

in many cases.10 Legal services attorneys have been on the forefront of this work. 

Many of the earliest cases attacking foreclosure reconveyance transactions, for example, were brought by local legal aid offices attempting to help seniors and other 

homeowners who had lost control of their homes and their home equity. 

In Minnesota, we have established a highly successful collaborative approach to 

attacking these scams. The Minnesota Equity Stripping Task Force was organized 

in 2003 by the Volunteer Lawyer’s Network (VLN) and Mid-Minnesota Legal Services. Task Force membership includes local legal services attorneys, pro bono attorneys, private attorneys handling cases for a fee and representatives of public agenVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
24 

11 Amanda Quester and Kathleen Keest, Looking Ahead After Watters v. Wachovia Bank; 

Challenges for Lower Courts, Congress and the Comptroller of the Currency, 27 Review of Banking and Financial Law 187 (2008). 

cies. Cases are accepted by an appropriate Task Force member based on legal aid 

income eligibility, the potential for fee generation and the concerns of public enforcement agencies. The 2004 Minnesota foreclosure rescue scam law has been used effectively by attorneys on the Task Force to assist homeowners victimized by predatory foreclosure reconveyance deals. 

B. A Lesson from Federal and State Consumer Protection Enforcement Relating to 

Mortgage Origination 

An analysis of the past failure of the regulatory system to control problems in 

mortgage origination is beyond the scope of this testimony. But one lesson from this 

failure is directly relevant to confronting the problems for consumers resulting from 

the current credit crisis. We need to use all the resources, talents and creativity of 

both state and Federal authorities. Accordingly, there is no place for Federal preemption of state consumer protections and state enforcement efforts. 

The explosive rise of abusive nonprime mortgage lending in 1998 was not accompanied by a substantial enforcement reaction from public regulatory authorities. The 

exception was a small group of state attorneys general and state financial regulators 

who pursued a series of cases against the largest of the nonprime mortgage originators—First Alliance Mortgage Corporation (state actions from 1998–2005), Household International (state investigations and action in 2001–2002) and Ameriquest 

Mortgage Corporation (state investigations and actions in 2003–2006). 

It is not a coincidence that state entities with a central consumer protection focus 

were the only public agencies that made substantial efforts to identify and address 

rampantly imprudent mortgage lending practices in the period from 1998 through 

2006. These consumer protection enforcement actions typically arise from observations and reflected experience of individuals who work closely with consumers who 

are in distress. In the case of nonprime lending, consumer protection regulators received complaints showing a pattern of mortgage loans whose terms revealed a disconnection between cost and risk, and in which homeowners repeatedly expressed 

misperception of the actual terms of the mortgage. These state entities receive and 

evaluate large volumes of complaints by borrowers, and have expertise in analyzing 

such data for patterns of conduct. The more aggressive state agencies also have 

close ties to credit counselors, legal aid organizations and other public interest organizations who reflect the experience of an even larger number of borrowers. State 

actions against nonprime mortgage lenders were brought despite limited resources, 

limited legal authority, and a wide range of competing consumer protection concerns. 

Federal entities with authority to establish rules for residential mortgage origination, especially the Federal Reserve Board, made little or no contribution to attacking the problems in nonprime origination. Federal banking regulators were worse 

than idle. They actively impeded state actions by expansively interpreting their authority to preempt state consumer protection laws and declaring that state agencies 

had no authority to enforce non-preempted state laws as to federally-chartered financial institutions or even operating subsidiaries of those institutions.11

The FTC, which has a positive history of cooperating with state attorneys general 

in UDAP enforcement, did not take a leadership role in confronting mortgage origination abuse by nonbank institutions. 

A constructive Federal role in tackling consumer problems arising from the credit 

crisis should recognize the importance of fully empowering state consumer protection enforcement efforts and the creative learning potential from allowing states to 

experiment with varied approaches to regulating unfair and deceptive practices. 

C. Possible Federal Action on Foreclosure Rescue Scams 

There are numerous options for Federal action related to this problem. Examining 

the problem of foreclosure rescue scams offers an opportunity to review the tools 

and resources available to the FTC. While FTC UDAP authority can be and has 

been brought to bear on the problem, the experience of the states is that regulation 

aimed directly at this conduct is more efficient than treating each case as a new 

UDAP investigation. The FTC began to bring actions against these scams substantially after state attorneys general had attacked the problem and after state legislatures had developed statutory restriction on their operation. 

Current FTC rule-making on UDAP matters is restricted to cumbersome and slow 

Magnuson-Moss procedures. Foreclosure rescue scams are prolific in number and 

often rapidly adapt solicitation strategies. Reform of FTC rule-making authority to 

25 

make it more flexible and prompt would allow for a stronger and more effective Federal response to this and similar consumer protection problems. 

The Federal Government also can support proven, effective work by legal services 

attorneys that have been the front line of defense for embattled homeowners. 

Unwinding or otherwise providing remedies for individual homeowners subject to 

foreclosure rescue scams, especially reconveyance transactions, can require substantial legal resources. In many situations, these are not cases that fee-generating attorneys are likely to undertake. Legal services attorneys have been a reliable source 

of assistance for victims of rescue scams. A substantial number of the early warning 

cases in this area were brought by legal services attorneys. 

Congressional legislation could assist with controlling foreclosure rescue scams in 

at least two areas. First, a Federal law patterned on the state laws that have addressed these issues could be helpful for both FTC enforcement actions and by providing recourse for state enforcement agencies and individuals in states lacking a 

foreclosure rescue regulatory scheme. It may prove more difficult, though not impossible, to enact Federal foreclosure reconveyance restrictions because they are more 

closely tied to state real property regimes. Foreclosure consultant regulation, however, is clearly amenable to Federal action. In terms of coordinated Federal and 

state regulations, this type of law could be similar to the relationship between the 

Federal Credit Repair Organizations Act (CROA) and state credit services laws. As 

noted above, it would be crucial to ensure that any Federal law sets a floor on the 

conduct of foreclosure consultants, rather than preempting in any way state protections or enforcement efforts. 

Second, and of less current importance, Congress could consider clarifying that 

foreclosure reconveyance transactions, including sale-leaseback arrangements, are 

clearly within the scope of the Home Ownership Equity Protection Act (‘‘HOEPA’’). 

Current HOEPA language and rules make this result possible, but not certain, depending on the structure of the reconveyance transaction. 

IV. Conclusion 

Foreclosure rescue scams can be constrained by concerted efforts at the Federal 

and state level. Distressed homeowners deserve a government response to rescue 

scams better than the largely unregulated approach to mortgage lending that helped 

create the reality of an extraordinary number of foreclosures facing America today. 

26 

EXHIBIT A 

HOUSING PRICE APPRECIATION, 1987–2008 

Data from Case-Schiller Index Composite 10 represents the housing prices in the following 

metropolitan areas: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San 

Diego, San Francisco, and Washington DC. Composite 20 includes the Composite 10 cities plus 

the following metropolitan areas: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, 

Phoenix, Portland, Seattle, and Tampa. 

EXHIBIT B 

MORTGAGE FORECLSOURES 

Graph Source: Center for American Progress, Economic Data for September 2008. http:// 

www.americanprogress.org/issues/2008/09/econlsnapshot.html 


226COX1.eps 226COX2.eps
27 

EXHIBIT C 

STATE LAWS REGULATING FORECLOSURE RESCUE SCAMS 

I) STATES WITH FORECLOSURE PURCHASER/RECONVEYANCE LAWS 

A) Older Laws: 

California: CAL. CIV. CODE §§ 1695.6, 1695.13. 

Colorado: COLO. REV. STAT. ANN. § 6–1–1117. 

Georgia: GA. CODE ANN. § 44–14–180. 

B) Minnesota Model (2004 and after): 

Arizona: ARIZ. REV. STAT. § 44–7701 

Delaware: 6 D. Code ch. 24B 

Florida: FL. STAT. § 501.1377 

Hawaii: Act 137 (to be codified at title 26) 

Iowa: IOWA CODE ANN. § 714F 

Illinois: 765 ILL. COMP. STAT. ANN. 940/50 

Indiana: IND. CODE ANN. § 24–5.5. 

Maine: ME REV. STAT ch. 80–B 

Maryland: MD. CODE ANN., REAL PROP § 7–310 

Minnesota: MINN. STAT. § 325N.10–.18 

New Hampshire: N.H. REV. STAT. ANN. § 479–B 

New York: N.Y. REAL PROP. LAW § 265–a 

Oregon: HB 3630 (to be codified) 

Rhode Island: R.I. GEN. LAWS § 5–80–8. 

Washington: RCW § 61.34.020 

C) Bans on Foreclosure Reconveyance Transactions: 

Massachusetts: By Order of the Attorney General 

District of Columbia: Act A17–0205 

D) Other Recent Laws/Actions: 

Idaho: ID CODE § 45–1601 

Nebraska: LB123 

Nevada:—NEV. REV. STAT. ANN. § 645F.300 

II) STATES WITH FORECLOSURE CONSULTANT LAWS 

Arizona: ARIZ. REV. STAT. 44–7701 

Delaware: 6 D. Code ch. 24B 

Florida: FL. STAT. ch. 79 

California: CAL. CIV. CODE § 2945(a)(1). 

Colorado: COLO. REV. STAT. ANN. § 6–1–1101(4)(a). 

Hawaii: Act 137 (to be codified at title 26) 

Iowa: IOWA CODE ANN. § 714E. 

Illinois: 765 ILL. COMP. STAT. ANN. 940. 

Indiana: IND. CODE ANN. § 24–5.5 

Maryland: MD. CODE ANN., REAL PROP. § 7–305 

Minnesota: MINN. STAT. §§ 325N.01–.09 

Missouri: MO. ANN. STAT. § 407.935(2)(a). 

Nevada:-NEV. REV. STAT. ANN. § 645F.300 

New Hampshire: N.H. REV. STAT. ANN. § 479–B 

Oregon: HB 3630 

Rhode Island: R.I. GEN LAWS § 5–79–1(a). 

Virginia § 59.1–200.1 

Washington: RCW § 61.34.020 

The CHAIRMAN. Thank you very much. Mr. Travis Plunkett? 

STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE 

DIRECTOR, CONSUMER FEDERATION OF AMERICA ON 

BEHALF OF THE CONSUMER FEDERATION OF AMERICA, THE 

NATIONAL CONSUMER LAW CENTER (ON BEHALF OF ITS 

LOW-INCOME CLIENTS), AND U.S. PIRG 

Mr. PLUNKETT. Thank you very much, Mr. Chairman and Members of the Committee. 

28 

The CHAIRMAN. Consumer Federation of America, for those 

who’ve come in. 

Mr. PLUNKETT. Travis Plunkett. I’m the Legislative Director at 

the Consumer Federation of America. I’d like to move now from a 

discussion about debt reduction scams involving secured credit 

mortgage and home mortgage lending to unsecured credit, so primarily credit card loans. 

And of course Consumer Federation of America and many others 

have expressed great concern about irresponsible and aggressive 

lending practices by credit card companies which have run up the 

amount of debt that people have taken on and left them vulnerable 

to these scams. And when we’re talking about unsecured credit, 

two primary forms of assistance short of bankruptcy, traditional 

credit counseling and a newer and much more harmful variant 

called debt settlement. So I’ll mention both of those separately. 

Credit counseling can be very effective if it’s delivered by legitimate non-profit counselors and credit unions. The good news about 

credit counseling is that thanks to the efforts of the Federal Trade 

Commission and the IRS and state regulators, we aren’t seeing the 

kinds of abuses that we saw at the turn of the century. Consumers 

who see a non-profit credit counselor can now be pretty certain that 

the agency isn’t going to overcharge them, isn’t going to try to sell 

them harmful ancillary products and isn’t going to try to funnel 

their fees to for-profit affiliates. That’s the very good news about 

credit counseling. 

The bad news is that the value of the assistance, the effectiveness of the assistance that credit counselors offer and this is primarily a consolidated credit card payment plan, is less helpful now 

because creditors, the credit card companies, have not been as aggressive as they should have been in lowering the interest rates 

that consumers pay to credit counselors in credit counseling. So we 

have a lot of people who are showing up with very high debt loads 

who simply can’t be helped in credit counseling. So they’re turning 

elsewhere. And this is the great concern. 

You probably have seen advertisements for debt settlement outfits that don’t offer to help you pay your loan off over 3 to 5 years 

like credit counseling. They say that they’re going to get you a settlement, a one shot, lump sum payment. That they’re going to 

bring your credit card companies to their knees. And they’re going 

to lower what you owe your credit card company by 50 or more percent. If you, like me, occasionally are watching late night cable television, you know what I’m talking about. 

The business model used for these companies is fatally flawed 

and very harmful to consumers. Let me just tick off a couple of 

problems. They often mislead consumers about the likelihood of a 

settlement. 

Once again, the Federal Trade Commission is out front here. 

They shut down a settlement organization called the National Consumer Council in 2004. We discovered that under 2 percent of the 

consumers that were being supposedly helped by this company, 

under 2 percent of those consumers were settling their debts, were 

actually reaching settlements with credit card companies. 

A second problem. Unlike credit counseling agencies, these firms 

have no arrangements with creditors. In fact some credit card comVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
29 

panies won’t even deal with them. So they can’t guarantee a settlement despite their advertisements. That puts them right on the 

brink of fraudulent advertising at the very beginning of the process. 

Third, settlement firms often mislead consumers about the effect 

on their credit worthiness of the plans they’re offering. It’s a long 

process. You have to save up money to offer a settlement. 

Meanwhile your creditors are still trying to collect. Your debts 

are piling up. They may go to court. Your credit worthiness deteriorates. 

And these outfits, these debt settlement companies are telling 

people, don’t worry. We’re going to take care of this. We’re going 

to get you a really good deal. And in the long run that will improve 

your credit worthiness. 

Fourth problem. These firms charge such high fees the consumers can’t save money. Remember these are people in really serious debt trouble. 

Fifth. Consumers targeted by these companies are the least likely to benefit. These are the folks facing serious hardship with very 

high debts. They can’t afford these high, upfront fees or high back 

end settlement fees. These are the fees they charge as a percentage 

of what they save you. 

So we have a number of policy recommendations, starting with 

some good state laws that aren’t being enforced. So our first recommendation is the states that have good laws should enforce 

them. 

Second recommendation is that Congress should consider a minimum standards law. Sticking with what Mr. Cox just said, the 

states are doing some good work. There are some gaps and some 

states don’t have the resources to enforce the law. So let’s put a 

minimum standards law on the book that does not preempt the 

deals with a number of these abuses. 

Fourth, we need some help from banking regulators to create a 

legitimate alternative to debt settlement. There clearly is demand 

here. Consumers want something that gives them more assistance 

in credit counseling that stops short of bankruptcy. And right now 

we have some regulatory hurdles that have not allowed credit card 

companies to create that legitimate alternative. 

And finally the card companies themselves have to immediately 

work to provide more benefits, more concessions they’re called, 

lower interest rates to consumers in credit counseling. So they can 

get some help and aren’t turning to these debt settlement firms 

that can hurt them. 

Thank you very much. 

[The prepared statement of Mr. Plunkett follows:] 

PREPARED STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE DIRECTOR, CONSUMER

FEDERATION OF AMERICA ON BEHALF OF THE CONSUMER FEDERATION OF

AMERICA, THE NATIONAL CONSUMER LAW CENTER (ON BEHALF OF ITS LOW-INCOME

CLIENTS), AND U.S. PIRG 

Chairman Rockefeller, Ranking Member Hutchison and Members of the Committee, my name is Travis Plunkett and I am the legislative director of the ConVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
30 

1The Consumer Federation of America (CFA) is a nonprofit association of some 300 pro-consumer groups, which was founded in 1968 to advance consumers’ interests through research, 

advocacy and education. 2The National Consumer Law Center, Inc. (NCLC) is a non-profit corporation, founded in 

1969, specializing in low-income consumer issues, with an emphasis on consumer credit. On a 

daily basis, NCLC provides legal and technical consulting and assistance on consumer law 

issues to legal services, government, and private attorneys representing low-income consumers 

across the country. NCLC publishes and regularly updates a series of sixteen practice treatises 

and annual supplements on consumer credit laws, including Truth In Lending, Cost of Credit, 

Consumer Banking and Payments Law, Foreclosures, and Consumer Bankruptcy Law and Practice, as well as bimonthly newsletters on a range of topics related to consumer credit issues and 

low-income consumers. NCLC attorneys have written and advocated extensively on all aspects 

of consumer law affecting low income people, conducted training for tens of thousands of legal 

services and private attorneys on the law and litigation strategies to deal predatory lending and 

other consumer law problems, and provided extensive oral and written testimony to numerous 

Congressional committees on these topics. NCLC’s attorneys have been closely involved with the 

enactment of the all Federal laws affecting consumer credit since the 1970s, and regularly provide comprehensive comments to the Federal agencies on the regulations under these laws. 3The U.S. Public Interest Research Group (U.S. PIRG) is the national lobbying office for state 

PIRGs, which are non-profit, non-partisan consumer advocacy groups with half a million citizen 

members around the country. 4Mann, Ronald J., ‘‘Credit Cards, Consumer Credit and Bankruptcy,’’ Law and Economics Research Paper No. 44, The University of Texas School of Law, March 2006. 5Testimony of Travis B. Plunkett, Legislative Director, on Behalf of the Consumer Federation 

of America, Center for Responsible Lending, Consumer Action, Consumers Union, National Consumer Law Center (on Behalf of its Low-Income Clients) and U.S. PIRG before the Banking, 

Housing and Urban Affairs Committee of the U.S. Senate. regarding Strengthening Credit Card 

Protections, February 12, 2009, http://www.consumerfed.org/pdfs/TESTIMONYlTravis 

lPlunkettlSenatelBankinglFebl12l2009.pdf 6Day, Kathleen and Caroline E. Mayer, ‘‘Credit Card Penalties, Fees Bury Debtors,’’ Washington Post, March 6, 2005. 7 According to the Federal Reserve Board, the amount of revolving debt held by Americans 

at the end of 2008 was $963.5 billion. In the 7-year period from the beginning of 2000 through 

2007 consumer revolving debt grew by 50 percent from $627.5 billion to $941.4 billion. Federal 

sumer Federation of America (CFA).1 I am testifying today on behalf of CFA, the 

National Consumer Law Center,2 on behalf of its low-income clients, and U.S. 

PIRG.3 I commend the committee for investigating the adequacy of consumer protections for families with distressed finances. The number of Americans who cannot afford their consumer or mortgage loans is increasing sharply. Many of these families 

are desperately seeking debt reduction assistance short of bankruptcy. 

Effective assistance that helps some consumers reduce their unsecured debts is 

available from legitimate, non-profit credit counselors and credit unions. However, 

some creditors have reduced the value of the ‘‘concessions’’ they will allow agencies 

to offer to debtors in credit counseling at a time when debt problems are increasing. 

Meanwhile, scam artists (including some calling themselves credit counselors) are 

promising to quickly and painlessly reduce the amount of credit card debt that consumers owe through a variety of expensive, harebrained and harmful schemes. 

Much more needs to be done by state and Federal policymakers to stop these abusive debt reduction practices and, in conjunction with creditors, create legitimate, 

effective debt management alternatives to these harmful ‘‘services.’’ 

Background: Reckless and Irresponsible Lending Practices Have Caused 

Household Debt Levels to Skyrocket and Left Consumers Vulnerable to 

Debt Reduction Scams 

For fifteen years, CFA and many others have warned that credit card issuers 

were irresponsibly pushing cardholders to take on more debt than they could afford, 

and then using unfair and deceptive tactics to increase debt loads and issuer profits. 

There is considerable evidence linking the rise in bankruptcy in recent years to the 

increase in consumer credit outstanding, and, in particular, to credit card debt. For 

example, research by Professor Ronald Mann of Columbia University has found that 

an increase in credit card spending in the U.S. and four other countries has resulted 

in higher credit card debt, which is strongly associated with an increase in bankruptcy filings.4 To make matters worse, credit card companies have become far more 

aggressive in implementing questionable fees and interest rate practices in recent 

years.5 The upshot of these practices is that penalty interest rates, high and accumulating fees, and interest on fees can push consumers with high debts into the 

hands of debt reduction scam artists or into bankruptcy.6 In fact, consumers in debt 

trouble sometimes owe as much or more in fees and penalty interest charges as in 

principal. The growth of revolving debt in this country to $964 billion 7 has obviously not 

affected all Americans equally. The extraordinary expansion of the credit card inVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
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Reserve, Statistical Release, ‘‘Consumer Credit Outstanding,’’ Table G.19. Although this figure 

is often used as a proxy for credit card debt, most experts believe that outstanding credit card 

debt is slightly lower. First, approximately 5 percent of consumer revolving credit is not on credit cards. Second, between 4 to 9 percent of the debt does not truly revolve. It is repaid to the 

credit card issuer before the next billing cycle starts. Taking these two factors into account, outstanding credit card debt at the end of 2008 was between $829 and $877 billion. 8Mierzwinski and Lindstrom, ‘‘The Campus Credit Card Trap: A Survey of College Students 

and Credit Card Marketing,’’ March 2008, U.S. PIRG, available at http:// 

www.truthaboutcredit.org, last visited 25 February 2009. 9 Cardweb.com. 

10 Bucks, Brian K., Arthur B. Kennickell and Kevin B. Moore, ‘‘Recent Changes in U.S. Family 

Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances,’’ Federal Reserve 

Bulletin, vol. 92, February 2006, pg. 31. 11 CFA calculation based on estimated credit card (as opposed to revolving) debt of $850 billion. If a conservative estimate of 75 percent of 114.4 million households have credit cards, and 

only 58 percent of these households carry debt, then the remaining 49.7 million households have 

an average of $17,103 in debt. 12 Chu, Kathy, ‘‘November Credit-Card Payoff Rate Fell Sharply,’’ USA Today, February 8, 

2009. The monthly payment rate fell by 2.5 percentage points to 16.1 percent in November 2008, 

according to CardTrak.com. 13Federal Reserve Board, ‘‘Charge-Off and Delinquency Rates on Loans and Leases at All 

Commercial Banks,’’ available at www.Federalreserve.gov/release/chargeoff. Most experts attribute lower charge-offs in 2006 to the surge of bankruptcy filings (and corresponding increase 

in charge-offs) that occurred in the third and fourth quarters of 2005. 14 30-day credit card delinquencies during first three quarters of 2008 were between 4.79 and 

4.88 percent, the highest levels since 2002. Federal Reserve Board, ‘‘Charge-Off and Delinquency 

Rates on Loans and Leases at 100 Largest Commercial Banks’’ ‘‘U.S. Credit Card Delinquencies 

at Record Highs—Fitch,’’ Reuters, February 4, 2009. 

dustry in the 1990s was fueled by the marketing of credit cards to populations that 

had not had widespread access to mainstream credit, including lower- and moderate-income households, consumers with seriously blemished credit histories, college students, older Americans and minorities. For example, U.S. PIRG reported 

last year that the amount of debt held by students who carry credit card debt more 

than doubles between their freshman year and senior year in college, from $1,301 

to $2,623.8

In a practice widely known as risk-based pricing, creditors charged riskier consumers more to cover potential losses, usually in the form of higher interest rates. 

To make the assumption of debt more attractive to these households—and to entice 

them into carrying debt for longer periods—creditors lowered minimum payment 

balances from around 5 percent of principal to just over 2 percent. As a result, an 

estimated eighty percent of all households now have at least one card.9 According 

to the Federal Reserve Board, about 42 percent of cardholding households pay their 

credit card bill in full every month,10 which means that the remaining 50 million 

or so families that carry debt owe an average of about $17,000.11

Moderate and lower income households that are more financially vulnerable 

shoulder a higher level of debt relative to their incomes. In the current economic 

climate, these households are also under financial pressure from many external factors, such as flat wages, rising unemployment, skyrocketing home foreclosures and 

increasingly unaffordable health insurance. In other words, the ‘‘democratization of 

credit’’ has had serious negative consequences for many Americans, putting them 

one unexpected financial emergency away from bankruptcy. 

As the economy has worsened and home foreclosures have increased to record levels, consumers are increasingly having serious difficulty paying their credit card 

bills. One widely watched measure of financial health, the amount of credit card 

debt paid off by Americans monthly, is now at one of the lowest levels ever recorded.12 Credit card charge-offs, the percentage of the value of credit card loans 

removed from the books (net of recoveries), or ‘‘written off,’’ have been persistently 

high for most of the last thirteen years and are now approaching the highest levels 

on record. During the decade between the end of 1995 and the start of 2006, credit 

card charge-offs were not below 4 percent in a single quarter.13 They increased to 

more than 4 percent in the fourth quarter of 2006 and broke 4 percent again during 

the latter half of 2007. Since then, charge-offs have escalated sharply to 5.62 percent in the third quarter of 2008. There is a very good chance that charge-offs will 

keep rising because the number of delinquent credit card payments—an early sign 

of payment difficulty—are also approaching historically high levels. Thirty-day credit card delinquencies are now at their highest point in 6 years, since the last economic recession ended.14 Moreover, a number of major issuers have reported fourth 

quarter charge-offs that indicate that borrower defaults and issuer losses will exceed 

32 

15Terris, Harry, ‘‘Credit Card Losses Seen Surpassing Levels of Last Two Recessions,’’ American Banker, January 28, 2009. 16Westrich, Tim and Weller, Christian E., ‘‘House of Cards, Consumers Turn to Credit Cards 

Amid the Mortgage Crisis, Delaying Inevitable Defaults,’’ Center for American Progress, February 2008. 17 Chu, Kathy, ‘‘More Americans Using Credit Cards to Stay Afloat,’’ USA Today, February 

28, 2008. 18Federal Reserve Board, ‘‘Charge-Off and Delinquency Rates on Loans and Leases at All 

Commercial Banks,’’ available at www.Federalreserve.gov/releases/chargeoff/chgallsa.htm , 

accessed April 14, 2008. 19 ‘‘Look Out for That Lifeline, Debt-Settlement Firms are Doing a Booming Business—And 

Drawing the Attention of Prosecutors and Regulators,’’ Business Week, March 6, 2008. 20For an excellent history of the credit counseling industry, see David A. Lander, Recent Developments in Consumer Debt Counseling Agencies: The Need for Reform, American Bankruptcy 

Institute Journal, Feb. 2002. 

those of the last two recessions.15 The difficulty that many families are having affording their credit card bills has been exacerbated by the mortgage crisis. As home 

values have dropped sharply, Americans have been unable to use home equity loans 

and home refinancing to pay off their credit card debts.16 Moreover, some families 

in financial trouble are continuing to use their credit cards to pay for essential purchases and are therefore attempting to stay current on their credit card loans but 

not their mortgage payments, a shift in behavior from past economic crises that will 

likely lead to further deterioration of their financial condition.17

QUARTERLY CREDIT CARD CHARGE-OFF RATES, ALL BANKS (%) 18

Growing problems with the affordability of unsecured debt has not only led to an 

increase in the number of consumers who are seeking personal bankruptcy protection. Consumer demand for debt reduction or debt management assistance has increased too, especially in the last 2 years as the economy has deteriorated.19 Many 

non-profit organizations and for-profit businesses have jumped in to ‘‘help,’’ including non-profit credit counseling agencies and for-profit debt settlement companies. 

Credit Counseling: Abuses Have Declined, but so has Value of the Debt 

Reduction Offered 

The credit counseling industry was created in the mid–1960s by credit card companies, which saw an opportunity to recover overdue debts. Creditors initially provided the bulk of the funding needed to keep the agencies in business.20 At first, 

most of the agencies were nonprofit. Debt management plans or DMPs were the feature service offered by credit counseling agencies, which also provided financial and 

budget counseling and community education sessions. With DMPs, a consumer 

sends the credit counseling agency a lump sum, which the agency then distributes 

to the consumer’s creditors. In return, the consumer is supposed to receive a break 

in the form of creditor agreements to waive fees and lower interest rates. Consumers also gain the convenience of making only one payment to the agency rather 

than having to deal with multiple creditors on their own. Through a creditor policy 

known as ‘‘fair share,’’ DMPs provided substantial revenue for the agencies. Creditors returned to the agency a set percentage of the funds that are disbursed to 

them. Over the years, creditors have reduced the amount of fair share funding they 

offer or moved away from it entirely by distributing grants that are not explicitly 

tied to the amount of DMP funding collected. In response, agencies curtailed some 


226PLUNK1.eps
33 

21Loonin, Deanne; Plunkett, Travis; ‘‘Credit Counseling in Crisis: The Impact on Consumers 

of Funding Cuts, Higher Fees and Aggressive New Market Entrants;’’ National Consumer Law 

Center and Consumer Federation of America; April 2003; http://www.consumerfed.org/pdfs/ 

creditlcounselinglreport.pdf. 22 ‘‘Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling,’’ Report Prepared by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, U.S. Senate, April 13, 2005, http://frwebgate.access.gpo.gov/ 

cgibin/getdoc.cgi?dbname=109lconglreports&docid=f:sr055pdf. 23http://www.irs.gov/charities/article/0,,id=156827,00.html. The IRS has since reported that 

it has ‘‘revoked, terminated or proposed revocation of over half of the organizations examined, 

representing 41 percent of revenue in the industry,’’ http://www.irs.gov/charities/article/ 

0,,id=156829,00.html. 24Some states used the Uniform Debt Management Services Act proposed in 2005 by the National Conference of Commissioners on Uniform State Laws as a model and others acted independently to adopt standards regarding business practices and fees. 25 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 11 U.S.C. § 109, 11 

U.S.C. § 11(c)(2)(E), 11 U.S.C. § 111(c)(1). 26Staten, Michael E., Barron John M., ‘‘Evaluating the Effectiveness of Credit Counseling,’’ 

May 31, 2006; http://www.consumerfed.org/pdfs/CreditlCounselinglReport061206.pdf. Consumers who were recommended for a DMP by agencies and chose to start payments had a significantly lower incidence of bankruptcy, as well as improved bankruptcy and delinquency risk 

scores, over the two years following counseling than did those who were recommended for a 

DMP and chose not to start. 

tied to the amount of DMP funding collected. In response, agencies curtailed some 

free counseling services and raised consumer fees for DMPs. 

The National Consumer Law Center, the Consumer Federation of America, and 

U.S. PIRG were among the first to warn that the nature of credit counseling had 

also begun to dramatically shift in ways that were very harmful to debtors. In the 

late 1990s, a new class of agencies emerged that aggressively marketed DMPs and 

related services, dramatically raised consumer fees, and had extensive relationships 

with for-profit vendors and consultants. Complaints about deceptive practices, improper advice, excessive fees and abuse of non-profit status sharply increased.21

Federal and state regulators and policymakers, who had largely ignored the rise of 

these new agencies, and the problems they had created, began to investigate.22

By late 2006, the IRS had investigated 63 agencies that brought in more than half 

the revenue of the entire credit counseling industry for violating their non-profit status.23 The Federal Trade Commission had begun taking legal action against 

AmeriDebt and other phony non-profit agencies for a variety of deceptive practices 

(see Addendum B). State attorneys general had launched a number of similar investigations and state lawmakers were putting new laws on the books to stop deceptive 

practices and prevent excessive charges.24

In July of 2006, Congress created a new section 501(q) of the Internal Revenue 

Code that imposed standards on non-profit agencies, including the following: 

• Agencies may not refuse to provide credit counseling services due to a consumer’s inability to pay or unwillingness to enroll in a DMP. 

• Agencies must have reasonable fees. 

• Agencies must have a governing body that is not dominated by agency employees or those who benefit financially from agency activities. 

• Agencies must not exceed a phased in cap of 50 percent of revenues on creditor 

fair share contributions by 2011. (The cap for the 2009 tax year is 70 percent.) 

About the same time, the Executive Office of the United States Trustees (EOUST) 

began implementing a requirement of the new bankruptcy law that required those 

who wish to enter personal bankruptcy to receive credit counseling prior to filing 

and a debtor education course before being discharged.25 Consumer groups have serious questions about the efficacy and necessity of a credit counseling session for 

debtors on the verge of bankruptcy, many of whom have suffered a severe reduction 

in income or a sharp increase in medical expenses not covered by insurance. However, the EOUST has done a good job of setting standards to help ensure that debtors headed to bankruptcy are counseled by legitimate, non-profit agencies that will 

not harm them or delay their bankruptcy filing. 

An initial phase of research directed by the Consumer Federation and American 

Express has found that credit counseling can be effective in helping consumers to 

improve their credit worthiness over time.26 Consumer groups often advise consumers that a DMP could be helpful in reducing some unsecured debts, depending 

on whether the financial condition of the debtor is stable or deteriorating, and on 

the interest rate reduction offered by creditors. 

However, CFA has also found that some major creditors have actually increased 

the interest rate they charge in credit counseling, while others have kept these inVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
34 

27 Consumer Federation of America, ‘‘Large Banks Increase Charges To Americans In Credit 

Counseling, New Practices Will Hurt Consumers On The Brink Of Bankruptcy, July 28, 1999. 

National Consumer Law Center, Consumer Federation of America, ‘‘First-Ever Study of Credit 

Counseling Finds High Fees, Bad Advice and Other Abuses by New Breed of ‘Non-Profit’ Agencies,’’ April 9, 2003; http://www.consumerfed.org/releases2.cfm?filename=040903ccreport.txt. 28Keating, Susan C., President and CEO, National Foundation for Credit Counseling, ‘‘2008 

State of the Credit Counseling and Financial Education Sector Address.’’ 29The OCC and other financial regulatory agencies rejected a request made by CFA and the 

Financial Services Roundtable on October 29, 2008 to permit a pilot project that would allow 

some credit counseling agencies to offer some consumers reduced principal DMPs over a period 

of up to 60 months. Current guidance requires that reduced principal ‘‘settlements’’ must generally be paid in full within three to 6 months. Multi-year, reduced principal payment plans are 

not allowed unless the issuer charges off the entire loan before offering the settlement. 

terest rates high for many consumers. For example, when CFA surveyed interest 

rates in credit counseling in 1999 and 2003,27 Bank of America was a model for the 

rest of the industry, charging 0 percent APR for those in a DMP. Now, they have 

a range of interest rates from 1 percent all the way up to 16 percent. There is not 

a single major credit card issuer right now that charges less than 5 percent APR 

for all of its clients in DMPs. (JP Morgan Chase comes the closest, at 6 percent.) 

Capital One charges a 15.9 percent rate, unless the client enters counseling with 

a lower rate. Discover charges a range of rates that go as high as 15.9 percent as 

well. 

As more consumers struggle to continue to pay their credit card loans, it is becoming increasingly clear that the DMP is a less viable tool in helping consumers significantly reduce their unsecured debt because creditors have kept interest rates too 

high. While some credit card issuers appear to have increased the reductions they 

offer customers in individual ‘‘workout’’ plans, such reductions can only be helpful 

in stabilizing a consumer’s finances if the person does not have multiple credit card 

debts, as many people in debt trouble do. Credit counseling executives are now 

openly acknowledging that creditor concessions have not kept pace with growing indebtedness, ‘‘. . . given the high levels of unsecured debt outstanding, bankruptcy 

will be the only option available to many of these families—unless the credit card 

industry provides relief through better concessions, so that a greater number of consumers can qualify for Debt Management Plans.’’ 28

The refusal by credit card issuers to significantly lower interest rates for consumers in credit counseling is perplexing because there are signs that the industry 

does realize that if it moves aggressively to significantly reduce what consumers owe 

them, it such assistance would likely benefit card issuers in the long run by keeping 

consumers from discharging much or all of their credit card debt in bankruptcy. As 

mentioned above, some issuers appear to be offering greater unilateral concessions 

to customers who enter workout programs. Moreover, the Financial Services Roundtable has recently collaborated with CFA in an effort to reduce or eliminate regulatory hurdles that currently inhibit issuers from authorizing DMPs that significantly reduce the principal (not just the interest charges) that consumers owe.29

CFA hopes to work with Congress and the Office of the Comptroller of the Currency 

(OCC) to quickly create a regulatory path that would allow and encourage issuers 

to offer reduced principal DMPs. Such a pathway would also need to eliminate or 

reduce the tax liability that consumers must pay on reduced principal settlements. 

Reduced principal DMPs could not only help many families in debt trouble stay solvent, but also create a legitimate, pro-consumer alternative to debt settlement 

scams (see next section.) 

Debt Settlement: Business Model is Inherently Harmful to Vulnerable 

Consumers 

Debt settlement involves negotiating with creditors to reduce the principal 

amount the consumer owes and to pay this reduced amount over a fairly short period, usually in one or two lump sum payments. Unlike most credit counseling agencies, debt settlement and debt negotiation companies are usually for-profit businesses. Settlement services are different from credit counseling (or debt management) mainly because settlement companies do not send regular monthly payments 

to creditors. Instead, these agencies generally maintain a consumer’s funds in separate accounts—or direct consumers to deposit savings in an account that they can 

observe but do not control—until the company believes it can settle the consumer’s 

debts for less than the full amount owed. Typically, debtors can only afford to pay 

off their creditors sequentially, saving up enough money (after upfront fees are paid) 

to make an offer to one creditor, then saving again until there is enough to offer 

a second settlement, and so on. 

35 

30 ‘‘Look Out for That Lifeline, Debt-Settlement Firms are Doing a Booming Business—And 

Drawing the Attention of Prosecutors and Regulators,’’ Business Week, March 6, 2008. 31 Robb Evans and Associates LLC, ‘‘Report of the Temporary Receiver, May 3, 2004–May 14, 

2004, First report to the Court.’’ 32 ‘‘Look Out for That Lifeline, Debt-Settlement Firms are Doing a Booming Business—And 

Drawing the Attention of Prosecutors and Regulators,’’ BusinessWeek, March 6, 2008. 

Many companies have advised consumers to stop paying debts as a condition of 

participation in the program. Debtors pay a variety of fees for this service, including 

enrollment fees, monthly maintenance fees and a settlement fee, which is usually 

a percentage of the forgiven amount of debt. 

The Federal Trade Commission and attorneys general in at least six states have 

begun legal action against debt settlement firms throughout the country. Addendum 

A provides significant details about the range of deceptive, fraudulent, and harmful 

practices that these companies used that the FTC has uncovered, which can be summarized as follows: 

1. Settlement firms often mislead consumers about the likelihood of a settlement. 

Evidence from debt settlement investigations indicate that a large number of 

consumers never complete a debt settlement program. One North Carolina assistant attorney general estimates that 80 percent of consumers drop out of debt 

settlement plans within the first year.30 A receivers’ report on the National 

Consumers Council, a purported non-profit debt settlement organization that 

was shut down by the FTC in 2004, found that only 1.4 percent of NCC customers settled with all their creditors. 43 percent of their clients canceled the 

program after incurring fees of 64 percent of the amount remitted to NCC.31

2. Unlike credit counseling agencies, settlement firms cannot guarantee to consumers that the creditor will agree to a reduced payment if certain conditions 

are met. In fact, some creditors insist that they won’t negotiate with settlement 

firms at all,32 or that they will initiate a collections action if they learn that 

a debt settlement company is negotiating on behalf of a consumer. 

3. Settlement firms often mislead consumers about the effect of the settlement 

process on debt collection and their credit worthiness. Withholding payment to 

settle multiple debts is a very long process. Meanwhile, additional fees and interest rates continue to buildup, creditors continue to try to collect on unpaid 

debts, and consumers’ credit worthiness continues to deteriorate. Some firms 

still advise consumers not to pay debts, either implicitly or explicitly. Others 

firms say they never tell consumers not to pay their debts but only accept clients who have already done so. Moreover, many settlement firms have not followed through with promises that they will stop collection calls. In fact, under 

the Fair Debt Collection Practices Act, consumers can only request that third 

party collection efforts stop, not collection attempts by a credit card company 

on its own behalf. 

4. Settlement firms charge such high fees that consumers often don’t end up saving much to make settlement offers, which is why so many drop out of settlement 

programs. Debt settlement firms typically require consumers to pay fees of between 14 and 20 percent upfront (and as high as 30 percent) before they receive 

a settlement. It is often not made clear to consumers that a hefty portion of the 

payments they make in the first year will go to the firm, not to their reserve 

fund or creditors. Many firms also charge monthly fees to maintain accounts as 

well as a ‘‘settlement fee’’ of between 15 and 30 percent of the amount of debt 

that has been forgiven. 

5. As a result of high fees, consumers targeted by debt settlement companies are 

generally the least likely to benefit. Some firms will work only with insolvent 

consumers who are unemployed or those in a hardship situation. Many have 

minimum debt requirements of $10,000 to $12,000. Consumers facing serious 

hardship with very high debts are, of course, the least likely to be able to afford 

the hefty payments that are charged. Settlement firms also appear to make no 

distinction, as a good attorney would, between consumers in these hardship situations who are vulnerable to legal judgments to collect and those who are not. 

6. It is unclear what professional services most debt settlement companies offer 

to assist debtors while they save money to pay for a settlement. Serious negotiation with creditors cannot commence until a significant settlement amount is 

saved, which could take years once high fees are paid. A persistent complaint 

by consumers is that settlement companies do not contact creditors at all in 

some cases. 

36 

33 11 U.S.C. § 502(k). 

The combined impact on consumers of these practices can be devastating. To get 

a sense of the impact on the many indebted borrowers for whom the debt settlement 

business model does not work, CFA examined some of the thousands of debt settlement complaints that are on various consumer review websites. Here are a few summaries of the stories we found (all from the past 5 months): 

• One (anonymous) consumer was convinced by a debt settlement company that 

it had strong relationships with major creditors and that its services would be 

a good alternative to bankruptcy. After she signed up with the settlement company, she was instructed to stop making payments to creditors. She later found 

out that the extent of the settlement company’s involvement amounted to sending ‘‘power of attorney’’ letters to the creditors. Without help from the company 

she hired, she is now facing at least two collections lawsuits alone. 

• One woman was persuaded to stop paying her creditors and to start paying the 

debt settlement company over $800 a month with the promise that her creditors 

would stop their collections calls and that she could reach a good settlement on 

her credit card balance. The settlement company took the money, but no settlements ever took place, and creditors never stopped calling. After 7 months of 

no progress with her accounts, she stopped paying the company’s fees. Without 

being able to get a refund of the more than $5,000 she paid in fees, she is now 

saving money for a bankruptcy lawyer. After a legal firm later acquired her accounts, she discovered that the original settlement company routinely dealt 

with other customers in the same way. 

• After hearing nothing from his debt settlement company for several months, 

Chris from Maryland attempted to respond personally to a credit card collections letter. The debt settlement company later scolded and threatened him because he contacted the creditor directly. He realized that the company was not 

keeping up its end of the bargain, and he decided that the $300/month he was 

paying in fees was not money well spent. He has tried to sever his ties with 

the settlement company, but they continue to ignore his requests. 

• ‘‘T’’ from Arizona regularly saw television advertisements for a particular debt 

settlement company and thought they appeared legitimate. He called the company and was promised that his payments would be only $300 a month. The 

company collected his personal financial information and instructed him to stop 

paying his creditors. After 4 months and over $1,500 in fees being automatically 

drawn from his bank account, the consumer found out that no creditors had 

been paid. He eventually had to put a ‘‘stop payment’’ order on his bank account 

to prevent the settlement company from automatically withdrawing what they 

pleased. The consumer is now stuck with a damaged credit report, excessive 

fees, and no debt settlements. 

• Frank from New York was directly contacted by a debt settlement company 

after visiting the company website. After a promise that the company would settle his debts, he decided to accept the $250 per month fee. Nearly a year later, 

with no progress in debt settlements, he stopped hearing from them. After 

many unanswered calls and e-mails, he finally received a response from the 

company that he would get a partial refund. Since then the company has ignored his efforts to receive the refund and his debts remain unsettled. 

Creditors obviously must share some responsibility for the growth of the debt settlement industry. For one thing, some credit card issuers are knowingly doing business with these firms. For another, there clearly is consumer demand for a legitimate debt reduction approach that offers more relief than traditional credit counseling but is not as far reaching as bankruptcy. As stated above, creditors have not 

lowered interest rates in credit counseling. On a positive note, as mentioned above, 

creditors have now taken steps to get permission from Federal regulators to offer 

reduced principal, multi-year payment plans. The 2005 bankruptcy act attempted to 

provide an incentive to creditors to offer ‘‘60/60’’ plans (60 percent of what the borrower owes paid off over 60 months.) 33

Ultimately, it appears clear that the business model for debt settlement is structurally flawed. The essential promise made by debt settlement firms to the public, 

that they can settle most debts for significantly less than what is owed, is often 

fraudulent. There is a general consensus that credit counseling, if done well, can 

provide significant benefits for some financially distressed consumers. No such consensus exists for debt settlement. Debt settlement firms should have to prove that, 

37 

34 ‘‘Look Out for That Lifeline, Debt-Settlement Firms are Doing a Booming Business—And 

Drawing the Attention of Prosecutors and Regulators,’’ BusinessWeek, March 6, 2008. 35 Uniform Law Commissioners, ‘‘A Few Facts about the Uniform Debt-Management Services 

Act of 2005, http://www.nccusl.org/Update/uniformactlfactsheets/uniformacts-fs-udmsa.asp. The National Consumer Law Center and Consumer Federation of America opposed including 

provisions regulating debt settlement firms in the same law that regulated debt management 

and credit counseling because the businesses are so different. The highly questionable debt settlement business model necessitates a different and more stringent regulatory framework that 

does not legitimize the debt settlement. 36Loonin, Deanne, National Consumer Law Center, ‘‘An Investigation of Debt Settlement 

Companies: An Unsettling Business for Consumers,’’ March 2005. 

in the face of significant evidence to the contrary, their business model can and does 

actually help more than a few financially distressed consumers. 

Recommendations 

Congress, the Federal Trade Commission, and the States 

Debt settlement is regulated primarily at the state level. Seven states have 

banned debt settlement.34 Four more have adopted limited restrictions on the practice proposed by the National Conference of Commissioners on Uniform State 

Laws.35 A number of other states have restrictions on debt management or adjustment that do not explicitly pertain to the practice of for-profit debt settlement, but 

cover it. States can also deploy laws regarding credit repair, the unauthorized practice of law, and unfair and deceptive practices (UDAP) against selected debt settlement practices.36

Regarding laws at the Federal level, some debt settlement firms appear to have 

violated the Federal Credit Repair Organizations Act by claiming that they will improve consumers’ credit. The Federal Trade Commission has used the FTC Act well 

to pursue settlement firms that have used unfair and deceptive practices. 

We recommend that state and Federal policymakers, regulators and enforcement 

offices consider taking the following steps: 

1. The Federal Trade Commission and state attorneys general should continue 

to enforce UDAP laws. We also urge the FTC to immediately use its subpoena 

power to examine the records of the largest debt settlement firms in the country 

to determine if these firms are or are not making fraudulent claims about their 

ability to deliver large settlements for most of their customers. 

2. UDAP prosecutions can be time-consuming and costly, so it is essential that 

state lawmakers in particular begin to more aggressively enforce debt management and other laws that regulate the practice of debt settlement, including 

tight limits on what firms are allowed to charge. 

3. Congress should consider the enactment of a Federal law setting a strong 

minimum standard based on the best state laws directed specifically at debt settlement, which states could exceed if local conditions warrant such a move. This 

would bring the power and reach of the Federal Government in enforcing tough 

standards throughout the country. At the very least such minimum standards 

should: 

• Prohibit debt settlement firms from collecting any fees from consumers until 

debts are settled, except for a small enrollment fee. 

• Prohibit firms from misrepresenting the settlement process’ impact on the credit 

worthiness of consumers. 

• Place a cap on back end settlement fees, based on the settlement services actually rendered rather than the amount of debt that was forgiven. 

• Require that any debt serviced by a settlement firm must be settled within 12 

months. 

4. In order to help facilitate the creation of a legitimate alternative to thirdparty debt settlement, banking regulatory agencies should take steps to allow 

creditors to offer multi-year, reduced principal payment plans, consistent with 

sound accounting principals. If regulators cannot agree on a solution that 

achieves this goal quickly, Congress should step in to offer one. 

5. As it has done in the mortgage lending context, Congress should consider 

waiving or reducing the tax liability that consumers must pay for the forgiven 

amount of any debt settlement (above $600). 

Creditors 

Credit card issuers should act to immediately lower interest rates charged to consumers in credit counseling and should continue to consider methods that might be 

38 

acceptable to regulators to allow consumers to pay back a reduced amount of principal over a 3 to 5 year period of time. 

ADDENDUM A: RECENT FTC DEBT SETTLEMENT CASES

1. Edge Solutions, Inc. and Money Cares, Inc. aka The Debt Settlement Company 

and The Debt Elimination Center; Pay Help, Inc.; Miriam and Robert Lovinger 

Press release on August 5, 2008 at: www.ftc.gov/opa/2008/08/edge.shtm 

Complaint filed on October 3, 2007 

Complaint alleged that the defendants: 

• Promised that they could reduce consumers’ debts so they would only pay 55 

cents for each dollar of debt. 

• Told consumers that their payments would cover both negotiated debts and 

fees. 

• Told consumers to stop making payments to and have no further contact with 

their creditors, and that this would place them in a ‘‘hardship condition,’’ making negotiations possible. 

• Promised that debts would be begin to be paid to creditors within several weeks 

and would ultimately be paid in a shorter time, and for a reduced amount, than 

if consumers continued to pay. 

• Required consumers to set up direct debit from their bank accounts to a bank 

account controlled by the company, from which their fees and debts would be 

paid. 

• Promised one-on-one financial counseling, which in most cases was never provided. 

• Buried in the agreement the fact that consumers must pay 45 percent of total 

fee upfront before any payments would begin to creditors and that this might 

take several months. 

• Failed to negotiate with and pay creditors as promised. 

• Caused consumers to incur late fees, finance charges, overdraft charges, and 

negative information on their credit reports, and to face various types of legal 

action by creditors, leaving them in worse financial condition than before. 

Status: Settlement 

2. Debt-Set, William Riggs, Leo Mangan, Resolve Credit Counseling, Inc., and 

Michelle Tucker Press release on February 14, 2008 at: www.ftc.gov/opa/2008/02/ 

debtreduct.shtm 

Complaint filed on March 27, 2007 

Complaint alleged that the defendants: 

• Falsely promised that they could significantly reduce consumers’ credit card interest rates to between 0 and 9 percent or reduce the amount of their unsecured 

debt to 50 percent or 60 percent. 

• Encouraged consumers who called in response to ads to enroll in a ‘‘debt consolidation program’’ if their unsecured consumer debt was up to 1 month overdue, 

or in a ‘‘debt settlement program’’ if they were overdue by a longer period. 

• Misrepresented that they would not charge consumers any upfront fees before 

obtaining the promised debt relief and buried inadequate fee information in the 

agreement, when in fact they generally charged 8 percent of the total debt before they would contact the creditors. 

• Sent consumers documents to sign that were described as ‘‘not contracts’’ but 

‘‘just information’’ but in fact were agreements that, among other things, authorized the companies to make withdrawals from consumers’ bank accounts. 

• Misrepresented that participation in their program would stop creditors from 

calling or suing consumers to collect debts. 

• Failed to negotiate with and pay creditors as promised. 

• Caused consumers to incur late fees, finance charges, overdraft charges, and 

negative information on their credit reports, and to face various types of legal 

action by creditors, leaving them in worse financial condition than before. 

Status: Settlement 

3. Homeland Financial Services, National Support Services LLC, United Debt Recovery LLC, Freedom First Financial LLC, and USA Debt Co, LLC, Financial Liberty Services, and their principals, Dennis Connelly, Richard Wade Torkelson, and 

Joanne Garneau (doing business as Prosper Financial Solutions) 

39 

Press release on September 21, 2006 at: www.ftc.gov/opa/2006/09/nationwide.shtm Complaint filed on September 21, 2006 

Complaint alleged that the defendants: 

• Falsely claimed that, for a non-refundable fee of up to 15 percent of a consumer’s unsecured debt, they could reduce all of their unsecured debts, including credit card balances and medical bills, by as much as 40 percent to 60 percent. 

• Falsely represented that they would contact consumers’ creditors immediately. 

• Charged a nonrefundable fee of 12–15 percent of the total debt. 

• To the extent that they initiated negotiations with creditors, these settlements 

typically began only after a consumer paid 30 percent to 40 percent of the fee. 

This could take up to 3 months after a consumer followed the advice of the settlement firm and stopped making payments to creditors. 

• Rarely negotiated settlements with all of a consumer’s creditors, and even when 

they have successfully negotiated an account, in many cases, the settlement 

amount is significantly more than 60 percent of what consumers owe. 

• Caused most consumers, who typically left the program within 6 months of enrolling without completing it, to incur larger debt as a result of penalties, fees, 

interest, and other charges. 

• Failed to adequately disclose the likelihood that consumers would be sued if 

they took the defendants’ advice and stopped making payments to creditors. 

• Falsely advised consumers that negative information that appeared on their 

credit report as a result of participating in the defendants’ program would be 

removed upon completion of the program. 

Status: Settlement for some of the defendants, injunctions still in place on others. 

4. Innovative Systems Technology, Inc., dba Briggs & Baker; Debt Resolution Specialists, Inc., Todd A. Baker; and Jack Briggs, aka John Briggs 

Press release on July 19, 2005 at: http://www.ftc.gov/opa/2005/07/ 

briggsbaker.shtm 

Complaint filed February 13, 2004 

Complaint alleged that: 

• Innovative Systems Technology, Inc., which did business as Briggs & Baker and 

Debt Resolution Specialists, Inc., falsely told consumers they could negotiate 

with their creditors and reduce their debt. 

• Consumers were told to end all contact with their creditors and to stop making 

payments on their accounts. 

• However, Innovative Systems Technology, Inc., never did negotiate with the 

consumers’ creditors and consumers often ended up deeper in debt and incurred 

further damage to their credit ratings. 

Status: Settlement. Both companies are now currently in Chapter 7 bankruptcy 

and barred from selling any debt negotiation services in the future. 

5. National Consumer Council, London Financial Group; National Consumer Debt 

Council, LLC; Solidium, LLC; J.P. Landis, LLC; Financial Rescue Services, Inc.; Signature Equities, LLC; M&L Springfield Trust; PC Hailey Trust; Via Lido Trust; and 

United Consumers Law Group 

Press release on March 30, 2005 at: www.ftc.gov/opa/2005/03/creditcouncel.shtm 

Complaint filed April 23, 2004 

Complaint alleged that: 

• National Consumer Council, a purported nonprofit organization, solicited customers through an aggressive telemarketing and direct mail advertising campaign that falsely promised free debt counseling. 

• In fact, NCC’s role in the scheme was simply to generate leads for the other 

defendants who then charged consumers thousands of dollars in fees to enroll 

in their debt negotiation programs. 

• The defendants deceptively claimed these programs were an effective way to 

stop creditors’ collection efforts and eliminate debts. 

• The defendants failed to disclose important information to consumers before 

they enrolled, including the fact that very few people were able to reduce their 

debts through the debt negotiation programs; consumers would suffer late fees, 

penalties, and other charges; and that participation in the program might hurt 

their credit rating. 

40 

• Very few consumers were helped; a court-appointed receiver determined only 

1.4 percent of the consumers who enrolled in the defendants’ debt negotiation 

programs—638 out of 44,844 consumers—actually completed them. 43 percent 

of NCC’s clients canceled the program after incurring fees of 64 percent of the 

total amount remitted to NFCC. 

Status: Settlement 

6. Jubilee Financial Services, Jabez Financial Group, Gustavsen Learning Centers, Inc., and Debt Relief Counselors of America, P.C. et al 

Press release on January 26, 2005 at: www.ftc.opa/2005/01/jubilee.shtm 

Complaint filed August 19, 2002 

Complaint alleged that defendants: 

• Lured consumers with false promises that consumers who enrolled in their debt 

negotiation program would be able to pay their debts at a reduced amount of 

40 to 60 percent and that consumers would stop receiving collection calls from 

creditors. 

• Told consumers to stop making payments to creditors so that they would be in 

a ‘‘hardship condition’’ that would make it easier to negotiate. 

• Misled consumers about the effects of the Jubilee program on their credit report 

and failed to tell consumers that, as a result of using the defendants’ services, 

negative information would appear on consumers’ credit reports and stay there 

for 7 years. 

• Falsely told consumers that money sent to the Jubilee companies would be held 

in a trust account to be used by defendants to pay off consumers’ debts at a 

reduced rate, when instead the companies withdrew the funds to pay operating 

expenses. 

• Failed to negotiate with and pay creditors as promised. 

• Caused consumers to incur late fees, finance charges, overdraft charges, and 

negative information on their credit reports, and to face various types of legal 

action by creditors, leaving them in worse financial condition than before. 

Status: Permanent injunctions against defendants 

7. Better Budget Financial Services (BBFS) and its principals, John Colon, Jr. and 

Julie Fabrizio-Colon 

Press release on November 15, 2004 at: www.ftc.gov/opa/2004/11/bbfs.shtm 

Complaint filed November 15, 2004 

Complaint alleged that the defendants: 

• Falsely claimed that they could negotiate with consumers’ creditors to reduce 

their debt by as much as 50 to 70 percent. 

• Promised to negotiate with consumers’ creditors for a non-refundable retainer 

fee, monthly administrative fees of $29.95 to $39.95, and 25 percent of any savings realized by a debt settlement, resulting in consumers paying hundreds or 

even thousands of dollars in fees. 

• Told consumers to stop paying their creditors directly, claiming that consumers’ 

failure to pay their creditors will demonstrate a ‘‘hardship condition’’ that will 

enable BBFS to negotiate on their behalf and instructed them to set a bank account into which to deposit a specific amount each month to cover the fees and 

negotiated debt amounts. 

• Claimed that they would settle each creditor’s account once the consumer saves 

half the amount owed on each debt. 

• Told consumers to sign power of attorney forms, claiming that the forms would 

enable BBFS to contact creditors on the consumers’ behalf and instruct debt collectors to stop calling consumers directly. 

• Instructed consumers not to talk to any creditors who contacted them directly. 

• Told consumers that negative information may appear on their credit reports 

while they worked with BBFS, but that the information was temporary and 

that BBFS would direct consumers to a company to get assistance repairing 

their credit. 

• Failed to negotiate with consumers’ creditors or to contact debt collectors as 

promised, even after consumers called to let them know that they had sufficient 

funds set aside to pay a settlement. 

• Caused consumers to incur late fees, finance charges, overdraft charges, and 

negative information on their credit reports, and to face various types of legal 

41 

action by creditors or to file for bankruptcy, leaving them in worse financial condition than before. 

Status: Settlement 

ADDENDUM B: RECENT FTC CREDIT COUNSELING

AND OTHER DEBT MANAGEMENT CASES

1. AmeriDebt, Inc., DebtWorks, Inc., Andris Pukke, and Pamela Pukke, also 

known as Pamela Shuster 

Press release on September 10, 2008 at: http://www.ftc.gov/opa/2008/09/ 

ameridebt.shtm Complaint filed on November 19, 2003 

Complaint alleged that: 

• AmeriDebt falsely claimed they were a non-profit corporation operating for 

charitable purposes. 

• Despite its claims to the contrary, AmeriDebt did not teach clients how to handle debt. Instead, they sold them into ‘‘debt management plans’’ (DMPs) which 

had monthly fees. 

• AmeriDebt falsely claimed that there were no up-front fees. When they collected 

these fees, they held onto them and did not disburse them to creditors. 

Status: Settlement. It was one of the biggest debt management/credit counseling 

deception cases brought by the FTC ever, ultimately $12.7 million was returned to 

more than 280,000 customers. 

2. Select Personnel Management, Inc., an Ontario, Canada, corporation d/b/a Select Management Solutions, and James Stewart, individually and as an officer or 

director of Select Personnel Management, Inc., d/b/a Select Management Solutions 

Press release on August 19, 2008 at: http://www.ftc.gov/opa/2008/08/ 

smsomax.shtm 

Complaint filed on: February 2, 2007 

Complaint alleged that: 

• The Canadian telemarketer, Select Personnel Management, Inc., falsely told 

U.S. consumers that they could reduce their credit card interest rates and that 

they were affiliated with the consumers’ credit card companies, violating Section 

5 of the FTC Act and the FTC’s Telemarketing Sales Rule (TSR). 

• The telemarketer promised consumers to effect credit card rates between 4.75 

percent and 9 percent, thus saving consumers at least $2,500, and that if consumers did not save that amount their money would be refunded. 

• Consumers paid $675 (plus $20 for shipping) for promotional materials that 

eventually resulted in three-way telephone calls with the telemarketer, consumers and their credit card companies where the companies were asked to 

lower their interest rates. The requests were usually denied and that was often 

the extent of the services provided. 

• Consumers who did not receive the promised savings, did not receive a refund 

despite claims to the contrary. 

Status: Ongoing, complaint recently amended. 

3. Randall L. Leshin, Randall L. Leshin, P.A. also d/b/a Express Consolidation, 

Express Consolidation, Inc., Consumer Credit Consolidation, Inc., and Maureen A. 

Gaviola 

Press release on May 8, 2008 at: http://www.ftc.gov/opa/2008/05/express.shtm 

Complaint filed on: January 8, 2007 

Complaint alleged that: 

• Express Consolidation, Inc. illegally tele-marketed millions of consumers under 

the guise of a non-profit that only charged a monthly administrative fee. 

• Instead, Express Consolidation, Inc. charged a fee equal to the monthly payment in addition to a monthly administrative fee. 

• Despite their claims, Express Consolidation, Inc.’s services did not reduce the 

consumer’s total debt and did not provide any services to improve the customer’s credit history, record, or rating. 

Status: Settlement. The settlement included a $40 million judgment, based on the 

money the defendants received through the scam. However, the payment was drastically reduced because of the defendants’ inability to pay. 

42 

4. Debt Solutions, Inc., a Florida corporation, also doing business as DSI Financial, Inc., and Accelerated Financial, Inc.; DSI Financial, Inc., a Florida corporation, 

also doing business as Accelerated Financial, Inc.; DSI Direct, Inc., a Florida corporation; Pacific Consolidation Services, Inc., a Washington corporation, also doing 

business as DSI Financial, Inc., and Accelerated Financial, Inc.; Kenneth Schwartz, 

individually and as an officer of Debt Solutions, Inc., DSI Financial, Inc., and DSI 

Direct, Inc.; Jennifer Ruth Whalen, aka Jennifer Ruth Krizan, individually and as 

an officer of Pacific Consolidation Services, Inc., and DSI Direct, Inc.; David 

Schwartz, individually and as a manager of Pacific Consolidation Services, Inc.; and 

GREG MOSES, individually and as a manager of Pacific Consolidation Services and 

DSI Direct, Inc. 

Press release on May 23, 2007 at: http://www.ftc.gov/os/caselist/0523002/ 

0523002.shtm 

Complaint filed on: March 21, 2006 

Complaint alleged that: 

• Debt Solutions Inc. charged consumers hundreds of dollars for a ‘‘debt elimination program’’ that, despite its claims to the contrary, did not greatly reduce 

interest rates and result in thousands of dollars in savings. 

• Through unsolicited phone calls and online marketing, the defendants falsely 

told consumers upon enrolling in the program they would be assigned a financial consultant who would help them to greatly lower their interest rates. 

• Instead, most consumers who did enroll did not receive lower interest rates and 

those that did only saw reductions of around 1 percentage point. 

• Very few consumers received the promised refund. 

• Consumers were not told that the promised savings would take decades to 

achieve and that the majority of savings would result from increasingly paying 

more every month, not reduced interest rates. 

Status: Settlement 

5. Credit Foundation Of America, a California Corporation; TTT Marketing Services, Inc., a California Corporation; Credit Defenders Of America, Inc., a California 

Corporation; Credit Shelter Of America, Inc., a California Corporation; Sure Guard 

Credit Corporation, Inc., a California Corporation; ANTHONY P. CARA, individually and as a director or officer of Credit Foundation of America and TTT Marketing Services, Inc., WALTER F. VILLAUME, individually and as a director or officer of TTT Marketing Services, Inc. and Sure Guard Credit Corporation, Inc.; TODD 

A. RODRIGUEZ, individually and as a director or officer of TTT Marketing Services, 

Inc., and Sure Guard Credit Corporation, Inc.; ROBERT BROWN, individually and 

as a director or officer of Credit Defenders of America, Inc.; and BRYAN TAYLOR, 

individually and as a director or officer of Credit Shelter of America, Inc. 

Press release on June 15, 2006 at: http://www.ftc.gov/opa/2006/06/cfa.shtm 

Complaint filed on June 15, 2006 

Complaint alleged that: 

• The Credit Foundation of America, Inc. sold debt management services by falsely claiming that consumers were pre-approved for a service to consolidate their 

credit card debts to single monthly payment at a much lower interest rate 

(sometimes as low as zero percent). 

• Consumers’ individual circumstances were not taken into consideration when 

they were being recruited to enroll. Many enrollees lost the large enrollment 

fees they paid. 

• Credit Foundation of America, Inc. claimed it was exempt from the do-not-call 

requirements of the FTC’s Telemarketing Sales Rule (TSR) because of its taxexempt status with the IRS. However, it primarily generated profits for for-profit companies. 

Status: Settlement. Credit Foundation of America, Inc. ultimately agreed to pay 

$926,754 in consumer redress and civil penalties. 

6. Integrated Credit Solutions, Inc.; Flagship Capital Services Corp.; Lighthouse 

Credit Foundation, Inc.; Mary H. Melcer; and J. Steven McWhorter, Defendants, 

and Jeffrey E. Poorman; and Daniel M. Melgar, Sr., 

Press release on: May 3, 2006 at: http://www.ftc.gov/opa/2006/05/lighthouse.shtm 

Complaint filed on May 3, 2006 

Complaint alleged that: 

43 

• Lighthouse Credit Foundation Inc. falsely advertised itself as a non-profit enterprise that could assist consumers with debt management plans. 

• The Foundation misled consumers when they told them they could dramatically 

lower their interest rates, they would provide financial counseling, and that 

their monthly administrative fee was tax-deductible. 

Status: Settlement. The Lighthouse Credit Foundation Inc. and its co-defendants 

were ultimately ordered to pay more than $2.4 million in consumer redress. 

Senator LAUTENBERG [presiding]. Just for the comfort level of the 

witnesses you are being heard, even though we’re looking at empty 

chairs. So don’t be discouraged. The work that you’ve done is appreciated. 

And we’ll see the testimony is there. I appreciate the fact that 

you’ve done that. That we have your words in print and I have a 

chance to look it over. 

The situation you describe is of a serious emergency nature. And 

just adds fuel to the fire that this country is now in front of us. 

So please, Mr. Himpler, we’d like to hear from you. 

And you don’t have to be concerned about where you’re glancing. 

It’s—I am now the acting Chairman. So I’ll try to act patiently and 

listen very keenly. Thank you. Please. 

STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT, 

AMERICAN FINANCIAL SERVICES ASSOCIATION 

Mr. HIMPLER. Thank you, Mr. Acting Chairman. My name is Bill 

Himpler. I’m the Executive Vice President at the American Financial Services Association, the national trade association for the consumer credit industry protecting access to credit and consumer 

choice. 

We want to commend the members of this Committee for convening this important hearing to explore what can be done about 

unscrupulous actors who exploit consumers’ fears about their debt 

obligations and worse still, the fear of the possibility of losing their 

home. I appreciate the opportunity to testify on consumer protections for people with distressed finances who are trying to negotiate to avoid bankruptcy. Let me state at the outset that AFSA 

shares the concerns of Congress and the members of this committee about the growing number of consumers who are having difficulty making payments on a variety of debts and organizations 

that scam consumers with fraudulent credit repair and rescue programs. 

Not only do these scams affect individual borrowers like Mrs. 

Dix. They also affect creditors and the broader market to the extent that they promote the removal of accurate and timely information from consumer credit reports. This results in inaccurate assessments of the true credit standing of consumers and thereby undermines the legitimate efforts to assist consumers in resolving 

their credit difficulties. 

We believe instances of these scams can be reduced through four 

measures. 

The continued availability of legitimate counseling and hardship 

plans that Mr. Plunkett testified to. 

Consumer education. 

The enhancement of the FTC’s initiatives to crack down on bad 

actors. 

44 

And more widespread enactment of the Uniform Debt Management Services Act. 

And I’d like to touch on each of these. 

AFSA member companies routinely cooperate with legitimate 

consumer educators and advocates such as the National Foundation for Consumer Credit Counseling Services. In conjunction with 

various CCCS organizations, most creditors offer a variety of standardized, in-house hardship plans and work out programs to assist 

troubled consumers in dealing with temporary and permanent situations. These programs require no third-party involvement and no 

negotiation. All the consumer has to do is contact his or her creditor, explain his or her situation and ask what options are available 

to him or her. 

Getting the consumer to admit that they are in trouble in the 

first place and make the initial call remains our chief obstacle. 

Minimizing this problem requires education of consumers about 

their options and promoting financial literacy. Along these lines 

AFSA is a long-time advocate for personal finance education that 

helps people make informed decisions as well as avoid scams. 

Today that need for consumer education is greater than ever before as products are more complex. Our association’s education 

foundation has developed an array of financial literacy brochures 

in English and Spanish in partnership with other trade organizations, regulatory groups and governmental agencies. All of these 

brochures are provided at no cost to the consumer. 

We also want to bring to your attention the fine work of the FTC 

in developing an excellent series of simple, informative pamphlets. 

These pamphlets educate consumers on how to help themselves, explain their rights as consumers and describe various financial products and how various financial products and credit reports operate. 

These pamphlets also warn consumers about scams and specifically 

advise them on how to spot scams and how to avoid become victims 

of them. 

Equipping consumers with the information they need to obtain 

legitimate help is clearly the most effective method for preventing 

harm to consumers. Yet because some consumers cannot resist the 

promises of easy solutions like the ones that my good friend, Travis 

mentioned on late night cable that are very alluring, effective enforcement must also continue. 

AFSA fully supports the government’s efforts to crack down on 

fraudulent consumer assistance scams and lauds the FTC’s work in 

this area. A prime example is the FTC’s Operation Clean Sweep 

announced last October which cracked down on 33 credit repair organizations. The FTC partnered with 22 states to pursue organizations engaging in activities such as claiming the ability to permanently remove negative information from consumers’ credit reports, 

even when that information is accurate and non-obsolete, requiring 

advance payment for such services and failing to provide the mandated Federal and state notices. Operation Clean Sweep sought to 

enjoin these fraudulent and illegal practices and force these organizations to repay consumers. 

The FTC has also pursued mortgage foreclosure rescue companies which have falsely claimed the ability to stop foreclosure in return for a fee. As you can imagine this has rarely happened. InVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00048 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
45 

stead consumers, like Mrs. Dix, were put in worse financial position, deprived of options and made to suffer avoidable injury to 

their credit standing because of delays in starting negotiations. 

AFSA has supported the FTC in these efforts and last year the 

FTC held a workshop entitled, ‘‘Consumer Protection and Debt Settlement Industry.’’ We submitted comment letters in response to 

the FTC noting that debt settlement companies often block or discourage consumer communication with lenders. However, in many 

cases a debt settlement company can’t even be reached leaving 

lenders without a means to resolve the debt with the borrower. 

Additionally AFSA believes that states should be encouraged to 

enact the Uniform Debt Management Services Act. It provides the 

states with a comprehensive act governing these services, and will 

mean a national administration of debt counseling and management in a fair and effective way. 

In closing, Mr. Chairman, AFSA believes the availability of legitimate credit counseling services and consumer education can reduce incidence of scams targeting vulnerable consumers. We believe that the FTC in conjunction with state law enforcement officials is best equipped to address the need to protect consumers 

against these unscrupulous actors. AFSA supports allocating additional resources to the FTC to continue its enforcement actions 

such as Operation Clean Sweep. 

In addition, we encourage the FTC to utilize its authority to promulgate a trade rule against deceptive and misleading ads that 

promise secret programs that will reduce a consumer’s obligation 

by 60 to 80 percent. With that, Mr. Chairman, I’d be happy to answer any questions. 

[The prepared statement of Mr. Himpler follows:] 

PREPARED STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT, 

AMERICAN FINANCIAL SERVICES ASSOCIATION

Chairman Rockefeller, Ranking Member Hutchison and Members of the Committee, good morning. My name is Bill Himpler, and I am the Executive Vice President at the American Financial Services Association (AFSA). AFSA is the national 

trade association for the consumer credit industry, protecting access to credit and 

consumer choice. The association encourages and maintains ethical business practices and supports financial education for consumers of all ages. AFSA has provided 

services to its members for over 90 years. AFSA’s 350 member companies include 

consumer and commercial finance companies, ‘‘captive’’ auto finance companies, 

credit card issuers, mortgage lenders, industrial banks, and other financial service 

firms that lend to consumers and small businesses. 

Mr. Chairman, AFSA commends you and your colleagues for convening this important hearing to explore what can be done about unscrupulous actors who exploit 

consumers’ fears about their debt obligations, or worse still, the possibility of losing 

their homes. I appreciate the opportunity to provide testimony to the Members of 

the Committee on consumer protections for people with distressed finances who are 

trying to negotiate mitigation strategies so that they can avoid bankruptcy. 

Let me state at the outset that AFSA members share Congress’ concern about the 

growing number of consumers who are having difficulty making payments on a variety of debts and organizations that scam consumers with fraudulent credit repair 

and rescue programs. Not only do such scams affect individual borrowers, but they 

also affect creditors and the broader market to the extent that, among other things, 

they promote the removal of accurate and timely information from consumer credit 

reports. This results in inaccurate assessments of the true credit standing of consumers, promoting inaction and delay, thereby undermining legitimate efforts to assist consumers in resolving credit difficulties. 

We believe instances of these scams can be reduced through four measures: (1) 

the continued availability of legitimate counseling and hardship plans, (2) consumer 

46 

education that helps people make wise financial decisions, (3) enhancement of the 

Federal Trade Commission’s initiatives to crack down on bad actors and (4) more 

widespread enactment of the Uniform Debt- Management Services Act (UDMSA). In 

the time that I have, I’ll touch upon each of these areas. 

Credit Counseling and Hardship Plans 

Distressed consumers are particularly susceptible to rosy claims of fraudulent 

credit repair and mortgage rescue organizations. They are lured by too-good-to-betrue claims of easy solutions to tough problems and empty promises of help when 

they feel overwhelmed. As the Federal Trade Commission has observed, ‘‘only time, 

a conscious effort, and a personal debt repayment plan’’ can improve a consumer’s 

credit report. Similarly, only time, a conscious effort and commitment to a personal 

debt repayment plan can resolve a difficult financial situation. 

AFSA member companies routinely cooperate with legitimate consumer educators 

and advocates such as the National Foundation for Credit Counseling (NFCC) and 

Consumer Credit Counseling Services (CCCS). For example, assistance plans are 

pre-negotiated between individual creditors and various CCCS organizations. Distressed consumers can easily participate in these plans with little or no negotiation 

necessary. The consumer simply needs to show eligibility by explaining the source 

and extent of distress. 

Most creditors offer a variety of standardized in-house hardship plans and workout programs to assist troubled consumers in dealing with temporary and permanent situations. These programs require no third-party involvement and no negotiation. As established programs, again, all a consumer has to do is contact his or her 

creditor, explain his or her situation and ask what options are available. Getting 

consumers to admit that they are in trouble and make the first call or engage a 

creditor’s customer service or collections personnel can be problematic. Minimizing 

this problem requires educating consumers about their options and promoting financial literacy. 

Consumer Education 

AFSA is a long-time advocate for personal finance education that helps people 

make informed decisions as well as avoid scams. Today, that need for consumer education is greater than ever before, as products are more complex with variable rate 

loans, adjustable rate mortgages, credit card loans, various derivatives and the like. 

The AFSA Education Foundation has developed an array of financial literacy brochures in English and Spanish in partnerships with other trade organizations, regulator groups and government agencies for use by adult consumers and AFSA members in the areas of vehicle financing, mortgage loans, personal loans, and personal 

financial management. All of these brochures are provided at no cost to consumers 

upon request, as well as downloadable online at www.afsaef.org. 

Each educational piece includes information on what to do if a person encounters 

difficulties in meeting financial obligations. First, you should contact your creditor, 

explain your situation and work out a repayment schedule. Second, if your situation 

requires addition help, contact a non-profit budget and credit counseling agency, 

often called a consumer credit counseling service. These agencies can work directly 

with consumers and their creditors to help resolve debt problems. 

We also want to bring to your attention the fine work of the Federal Trade Commission (FTC) in developing an excellent series of simple, informative pamphlets. 

These pamphlets: 

• Educate consumers on how to help themselves (again, third party involvement 

is not necessary, even if occasionally helpful); 

• Explain consumers’ rights; and 

• Describe how various financial products and credit reports operate. 

The pamphlets also directly warn consumers about scams—specifically advising 

them on how to spot scams and how to avoid becoming victims of them. These resources are freely available from the FTC on its Website and can be printed and 

distributed as educational handouts and pamphlets by various organizations. Equipping consumers with the information they need to obtain legitimate help and avoid 

becoming victims is clearly the most effective method of preventing harm to consumers. 

Enhancement of Ongoing FTC Initiatives 

Nonetheless, because some consumers cannot resist promises of easy solutions, effective enforcement must also continue. AFSA fully supports government efforts to 

crack down on fraudulent consumer assistance scams, and lauds the FTC’s work in 

this area. 

47 

A prime example is the FTC’s ‘‘Operation Clean Sweep,’’ announced last October, 

which cracked down on 33 ‘‘credit repair’’ organizations. The FTC partnered with 

24 state agencies in 22 states to pursue organizations engaging in activities such 

as: (i) claiming the ability to permanently remove negative information from consumers’ credit reports, even when the information is accurate and not obsolete, (ii) 

requiring advance payment for credit repair services, and (iii) failing to provide 

mandated Federal and state notices. ‘‘Operation Clean Sweep’’ sought to enjoin 

these fraudulent and illegal practices, prohibit further violations and force these organizations to pay reparation to consumers and forfeit ill-gotten gains. Other similar 

efforts were announced before and after this particular operation. 

The FTC has also pursued mortgage foreclosure ‘‘rescue’’ companies which have 

falsely claimed the ability to stop foreclosure in return for a fee. In many instances, 

these ‘‘rescue’’ companies promised a refund of all fees if unsuccessful in avoiding 

foreclosure. This rarely happened. Instead, consumers were put in a worse financial 

position, deprived of options and made to suffer avoidable injury to their credit 

standing because of delays in starting negotiations and poor or nonexistent followthrough with negotiations when begun. The FTC’s actions have sought to prohibit 

further deceptive behavior and to compel such companies to pay consumer redress 

and forfeit fraudulently obtained funds. 

AFSA has supported the FTC in these efforts. In September 2008, the FTC held 

a workshop entitled, Consumer Protection and the Debt Settlement Industry, to explore the growth of the for-profit debt settlement industry and to analyze how its 

model is affecting consumers and businesses. AFSA submitted two comment letters 

in response to the FTC’s request. In the first letter, we noted that many debt settlement companies actually do harm to both consumers and creditors by engaging in 

questionable practices, abusing the Fair Credit Reporting Act, abusing the power 

given to them by consumers, perpetrating fraud, delaying in remitting payment, engaging in deceitful actions, and facilitating false complaints. 

AFSA staff attended the workshop and learned that the FTC was looking for specific information from lenders on debt settlement companies. In response, we submitted a follow-up letter, which is included as part of this testimony. During discussions with its members, AFSA learned that debt settlement companies often block 

or discourage consumer communication with the lender. However, in many cases the 

debt settlement company cannot be contacted and no further communication is received from them. Thus, the lenders are left without a means to resolve the outstanding debt. 

One of AFSA’s members noted that, with the exception of one debt settlement 

company, once customers got involved with a debt settlement company, generally 

one of two things will happen: (1) They realize that their credit is being affected 

and the debt settlement company is not doing anything but taking their money and 

they will start making payments again; or (2) the lender never hears from the customer again and the account is written off to bad debt. 

Greater Enactment of the UDMSA 

In addition to the measures I’ve discussed so far, AFSA believes that the states 

should be encouraged to enact the Uniform Debt-Management Services Act 

(UDMSA), which was promulgated by the Uniform Law Commissioners. It provides 

the states with a comprehensive act governing these services that will mean national administration of debt counseling and management in a fair and effective 

way. UDMSA also provides fairer and better services to debtors. Four states have, 

to date, adopted the UDMSA. In March 2008, several important amendments were 

made to the Act; with these amendments, up to 20 states are expected to introduce 

the Act in 2009. 

In closing, AFSA believes the availability of legitimate credit counseling services 

and consumer education can reduce incidents of scams targeting vulnerable consumers. We believe that the FTC, in conjunction with state law enforcement officials, is best equipped to address the need to protect consumers against these unscrupulous actors. AFSA supports allocating additional resources for the FTC to continue its enforcement actions, such as Operation Clean Sweep. In addition, we encourage the FTC to utilize its authority to promulgate a trade rule against deceptive 

and misleading ads that promise ‘‘secret programs’’ that will reduce consumer obligations by 60 to 80 percent. 

Thank you, Mr. Chairman. I would be happy to answer any questions. 

The CHAIRMAN [presiding]. Mr. Himpler, sorry for the inconvenience everybody. People are going back and forth and voting, and 

48 

lots of major committees are meeting right now, so it just makes 

it complicated. 

Mr. Himpler, I would think it would be safe to assume that your 

organization was involved in lobbying for the Bankruptcy Abuse 

Prevention and Consumer Protection Act of 2005? 

Mr. HIMPLER. That’s correct. 

The CHAIRMAN. There are several provisions of that legislation 

that bother me greatly. I’d like to ask you about them. But I want 

to discuss one in particular that puts consumers at great risk. 

A number of your members offer credit cards with significant 

credit lines to people that have just emerged from personal bankruptcy. This makes no sense to me especially when you look at the 

bankruptcy bill which prevents a person emerging from bankruptcy 

from having credit card debt discharged again for 8 years. It’s the 

law. 

You now have a truly captive market of consumers who would 

get no relief if they get into trouble again. By not handling this 

credit wisely, no fault of their own, adding to the people susceptible 

to be swindled. So my question is in light of predatory behavior engaged in by some of your credit card issuers which creates more 

desperate people susceptible to financial fraud, would you support 

making these card issuers bear the risk of their lending decisions 

and let these debts be discharged if the consumer needs bankruptcy protection again? 

Mr. HIMPLER. I do believe that the Act affords consumers that 

very protection. But obviously we would support that. 

The CHAIRMAN. You would support that. Commission Harbour 

and Mr. Himpler both, I would like to ask you both to respond to 

the following questions. Both the FTC and the AFSA, your organizations are engaged in education and fraud prevention activities 

where your message has reached limited audiences. 

On the other hand, you know, you’re trying to make your statements for whatever reason but if people don’t have Internet, you’re 

targeting fraudulent advertising to people who need your help and 

advice but may not have the means to receive it. So my questions 

are, to each of you, if the fraudsters have the ability to reach the 

broadcast scope of distressed consumers why can’t your organizations? 

Ms. HARBOUR. I would like to respond to that. The Federal Trade 

Commission has a three-prong approach to reaching consumers and 

eradicating fraudulent behavior. We have targeted law enforcement. We have our consumer education and outreach and we have 

our research and empirical policy studies. 

You’re speaking to the education and outreach prong. We disseminate information to consumers in many ways. And I understand a keen issue of yours, Mr. Chairman, is the digital divide. 

Not everyone has access to high speed broadband. And your concern is, is our information reaching your constituents? 

Well, we deliver and disseminate information, not only through 

the FTC website but we send it to consumers who call our toll-free 

help line. We also do it through the media. 

The CHAIRMAN. How do they know about that? 

Ms. HARBOUR. May I go through everything we do to reach the 

American consumer? I believe that we are unparalleled in reaching 

49 

out to the American consumer to inform them about ways to help 

them in this area. We have a network of over 1,000 communitybased organizations that link to our materials or can order our materials. 

We do have limited resources. But our strategy is to be wholesalers of the information rather than retailers. And because of this 

we work through 10,000 community-based groups that distribute 

information to members, to clients and to constituents. 

We also use very innovative approaches to reach out to consumers. For instance in January when we settled the Bear Stearns 

case for $28 million, we sent redress checks back to 86,000 consumers. And in those redressed checks we put an educational bookmark about mortgage servicing in each one of those envelopes with 

checks. 

Another thing that we have done is develop a series of educational materials that are unparalleled in this area on how to 

manage a mortgage if the lender files for bankruptcy. We have a 

real estate market glossary on how to talk the talk for consumers 

who may not be as versed in that area. We’ve developed a number 

of educational materials regarding deceptive mortgage advertising. 

The CHAIRMAN. Commissioner, I hate to say this, but I’ve got—— 

Ms. HARBOUR. OK. 

The CHAIRMAN.—minus 2 seconds left. And I want Mr. Himpler 

to answer also. 

Mr. HIMPLER. Mr. Chairman, welcome back. Our association 

agrees with you that more needs to be done. The Commissioner hit 

the nail on the head in terms of resources being limited. We also, 

through our Education Foundation, produce pamphlets that are 

similar to the ones that the FTC does. And we like the ones that 

the FTC does that our companies use in terms of their transactions 

with consumers. 

At the end of the day, however, going back to something that Mr. 

Plunkett said regarding in particular cable TV and late-night TV 

where these ads are bombarding consumers. That is a heck of a lot 

of resources to go up against. We would fully endorse Congress appropriating additional funds for the FTC to increase its enforcement, and to also promulgate a trade rule in terms of deceptive 

and misleading advertising in this area, particularly in the state of 

the economy that we’re in right now. 

The CHAIRMAN. My time is up. And there’s nobody else. So I’ll 

go right ahead. 

[Laughter.] 

The CHAIRMAN. Increase the resources. Now it’s sort of my impression you’ve got what, about 1,100 to 1,400 people working for 

you including 40 full-time lawyers. 

Ms. HARBOUR. We have 1,094 employees at the Federal Trade 

Commission. 

The CHAIRMAN. So the question in my mind is that everybody 

says well, we need more resources. As one of our Senators said earlier, maybe what’s needed is there has to be a different mentality. 

I mean, there’s obviously not a shortage of people. 

If we gave you another 300 people what would be the chance or 

the promise that we would get a big result? I mean, maybe being 

more of a cop and less of a monitor mentality is better. 

50 

Ms. HARBOUR. When I gave you the figure of 1,094 I believe that 

is lawyers and non lawyers. In the consumer protection area, the 

area we’re speaking about now, we have 270 lawyers. But in that 

area we have a very large footprint, and financial services is one 

of our many important areas where we protect the American people. We have advertising practices, health fraud, Do Not Call, telemarketing, rebates, business opportunity scams. 

This is a small, but very important area which we enforce. So 

what we’re asking for, Mr. Chairman, is not only additional resources, we are asking for streamlined APA rulemaking authority 

so that we can strategically go in there and stop this, so that we 

can have rules and standards so that people and fraudsters understand where and what and what they cannot do. 

We are asking for expanded civil penalty authority so that we 

can get monies from these wrongdoers. And that would serve as a 

deterrent. We are asking for rules to implement the Fair Debt Collection Practices Act. 

We are also asking to expand the authority, independent litigating authority, so that we can go into district court and ask for 

our own civil penalties against these wrongdoers. It’s not just the 

additional FTEs and funding. It’s the additional authority so that 

we can be more effective at what we do. 

The CHAIRMAN. OK. How many—there have not been a great 

many cases that you have solved. There’s something like, you’re 

averaging about 1.5 cases a year. Correct me if I’m wrong. 

Ms. HARBOUR. The Chairman is never wrong, but that one 

doesn’t sound quite accurate to me. 

[Laughter.] 

Ms. HARBOUR. 1.5 in what area, sir, in? 

The CHAIRMAN. 25? 

Ms. HARBOUR. Let me just say this. In the area of financial services, what we’re talking about today, we have been active in this 

area for decades. 

Now it is true. I know, Mr. Chairman, you had some concerns 

about the number of cases that have been brought in the mortgage 

rescue foreclosure area. Understand, the—and I want to say that 

we feel that we should be bringing more cases and we are bringing 

more cases. In fact, in the credit repair area right now we have 

nine pending litigations, four confidential investigations going on in 

the mortgage foreclosure rescue area. We have 16 confidential investigations going on. 

The CHAIRMAN. Aren’t there a couple million people out there 

who are facing these kinds of problems? I’m just trying to figure 

out what the bulk of the problem is out there, and then how many 

folks that you’re working on. 

Ms. HARBOUR. It is true. There are millions of consumers who 

are in need of help. And there are many bad actors out there. 

But let me put this in context, Mr. Chairman. The downturn in 

the economy happened—— 

The CHAIRMAN. Yes, that’s just going to increase the number of 

people. 

Ms. HARBOUR. Yes, in 2008, we saw the trends coming. And we 

have been increasing our cases in litigation in this area. But what 

that means when we see that there’s more of a need in the finanVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00054 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
51 

cial services area, we shift some of our work from the ad practices 

area, from the Do Not Call area, that’s necessary. And it is being 

done. 

So there are even more cases in the pipeline now. Last year, in 

2008, in the area of credit repair we brought nine cases. But we 

now have 13 cases pending. We will have more. We are on the lookout. We are being vigilant. 

But what it means is we are moving resources from some of the 

other areas to this very important increase—— 

The CHAIRMAN. But how do I deal with—you’ve got 13 cases 

pending. The recession is getting worse. That means there are 

going to be more people in trouble, more people, therefore, getting 

scammed. As the people in trouble go up, the number of fraudsters 

will go up. 

So why am I meant to be impressed by 13? 

Ms. HARBOUR. Well I’m definitely not trying to impress you because I said we certainly could do—— 

The CHAIRMAN. However you interpret the question. 

Ms. HARBOUR.—Can do more here. But as I had said earlier, we 

approach these cases in a three-prong manner. We do it by targeted law enforcement. We also do it by consumer outreach and 

education. And we try to do it with policy and where the law needs 

to be changed so we can be more prophylactic. 

In the area of foreclosure rescue scams we have a task force that 

we have joined with. We have seven task forces that we have either 

joined or created with state and local officials. We are in some of 

the areas that are hardest hit. And we’re trying to be strategic in 

that way. 

We have a task force in Atlanta, Tampa, Cleveland, Michigan. 

We’re working with the local enforcers on trying to see trends. And 

work to identify solutions. 

Yes, we will be increasing some of the cases that we bring in this 

area. But as I was saying, this acute downturn in the economy 

happened September 2008. We saw this trend coming. We immediately started shifting more resources to this area. 

We have a large footprint. And when we shift resources to this 

area, we bring resources from some of the other areas. We’re saying we would like a little more resources. And we would like greater authority under the law to be more—— 

The CHAIRMAN. I hear your words. The Chairman of the Consumer Protection Subcommittee is here, Senator Pryor. And you 

may have some questions. I’m sure you do. 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Mr. Chairman. Thank you for your 

leadership. 

The CHAIRMAN. Take your time. 

Senator PRYOR. Thank you. As you know we all had to rush over 

and vote. And we appreciate the panel for being here. 

Ms. Harbour, let me ask you if I may about the state and Federal 

relationship. It’s my understanding, I’ve been in contact with my 

state’s Attorney General, Dustin McDaniel. It’s our understanding 

that there is a good working relationship there. 

52 

I’d like to get your thoughts on that relationship with all the 

state attorneys general and other state agencies and entities out 

there that you work with. And also would like your ideas on how 

to improve it if it needs to be improved. 

Ms. HARBOUR. Senator, you’re asking the right person. I was a 

state enforcer for 13 years. And I believe I was in the New York 

Attorney General’s office when you were Attorney General. So I 

think the Federal/State relationship is just swell. 

We work together very well. In fact in the area of mortgage foreclosure rescue scams, as I was telling the Chairman, we are working with a number of state attorneys general and local and state 

officials on our task force where we’re trying to fight mortgage rescue scams. We have done this in some of the areas that are hardest 

hit—Atlanta, Tampa, Cleveland. 

I believe we have a Southeast regional office that is working with 

a state attorney general to investigate and prosecute. I think that 

we should always keep the door open for joint, parallel Federal/ 

state investigations. I think it helps the American consumer. 

You have more cops on the beat looking out for their interests 

at the state level and at the Federal level. And I am in favor of 

a strong and healthy working relationship between state and Federal Government. 

Senator PRYOR. Let me ask this. You talked about how when you 

saw the recession and the financial crisis happening in late last 

year you shifted resources. Do you need more resources in your 

agency? 

Ms. HARBOUR. Absolutely, Senator. Absolutely. As I was telling 

the Chairman, we have a very large footprint at our agency. We 

do quite a bit. 

We have 270 lawyers in the Consumer Protection area. And we— 

financial services is one of many areas that we enforce. And just 

to name a few, telemarketing, business opportunity, pretexting, Do 

Not Call, our data security and identity theft cases. We all have— 

these are very important areas as well. 

But in order to respond to the unprecedented number of consumers who are at risk, in harm’s way, we just need more resources. It is frustrating that we cannot bring 100 cases to help 

consumers in foreclosure. We don’t have the resources to bring 100. 

We try to be targeted in—well, maybe I shouldn’t say that. Maybe 

we can. 

We’re looking. But we know that we want to be even more vigilant. And we are looking to bring more cases. And we feel that we 

will do more and we want to do more in this area. 

Senator PRYOR. Let me ask on the resource issue. Do you see the 

states as part of your resources, kind of an extension of what you 

can do out there in the states? 

Ms. HARBOUR. Absolutely. In fact, in the mortgage foreclosure 

rescue area what we’ve seen is that a lot of these companies are 

local and regional in nature. In fact some of the scammers are operating in actual neighborhoods. And the state attorneys general, 

you guys are the cops on the beat. You’re the closest to the 

scammers. 

And when we partner I think it provides more effective law enforcement to the American consumer. So I would advocate for havVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00056 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
53 

ing an even closer relationship with the state attorneys general in 

this area. 

Senator PRYOR. You mentioned the task force that you have on 

financial—mortgage foreclosure rescue scams task force. And I assume you have a pretty healthy representation of states there on 

that task force. Has that been working well? I mean, are there lessons learned there? Things we need to be doing better? 

Ms. HARBOUR. I think the task force is working very, very well. 

As I said it’s operating in Atlanta and Tampa, Cleveland, Michigan, Northern California, Los Angeles and Illinois. Perhaps there 

is even room to expand it. It is a seven-region task force, but if 

there is interest by the attorneys general in other regions. I can 

say that the FTC would be interested in joining those as well. One 

of the most important things is getting the word out to the American consumer about some of these scams. Also bringing targeted 

law enforcement and working with the state attorneys general. 

Senator PRYOR. The Chairman has mentioned that one of the 

things that the Committee should be working on is the FTC Reauthorization bill this year. Do you feel like the FTC needs more statutory authority in this area or do you have enough? It’s just a matter of resources. 

Ms. HARBOUR. It’s both. What we’d like? We would like streamlined APA rulemaking authority. We would like expanded civil penalty authority. We would like rules to implement the Fair Debt 

Collection Practices Act. And we would also like to expand the 

FTC’s independent litigating authority. 

This way we could go into court, district court, and we could seek 

injunctive equitable relief and we could seek civil penalties. This 

would give us more enforcement tools to help the American consumer. Even if we were to get a lot more resources today without 

this additional APA rulemaking authority and civil penalty authority, we would not be as effective as if we got the whole package. 

Senator PRYOR. I know that I have other colleagues waiting. But 

I did just have one last question for you Madam Commissioner. 

And that is that, as an example, West Virginia and Arkansas and 

other states have large rural areas. And Internet access is hard 

and sometimes getting information in those areas is harder than 

it is in more urban, densely populated areas. 

How do you feel your outreach is going with regard to rural areas 

and with people who don’t have access to the Internet or can’t afford access to the Internet? 

Ms. HARBOUR. And just to address that question briefly. The 

Commission gets information out to consumers in a number of 

ways. And in states that perhaps are not—where the digital divide 

is in play and there is not high-speed broadband and other Internet 

access for your consumers, we can actually send our pamphlets to 

consumers or they can call our help line, our toll-free help line. But 

we also work with community-based groups. 10,000 communitybased groups that distribute our information to members, to clients 

and to constituents. 

We also work with libraries all across the Nation. And if you 

have an idea that we haven’t thought of to help disseminate the 

word to your constituents and to your consumers, we would be very 

happy to hear it. Our education and outreach at the Federal Trade 

54 

Commission is award-winning. Our information reaches consumers 

and it helps them. 

The CHAIRMAN. The Committee appreciates Senator Pryor. I 

want to call on Senator Lautenberg. 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thanks, Mr. Chairman. It’s so discouraging when we look at what’s happening to our people by the forces 

at work in terms of the losses of homes and property and assets 

and spirit. It’s a terrible dilemma for us. 

And among the worst things is to perpetuate the abuse by having 

these scoundrels take advantage of our people. And Mr. Plunkett, 

you don’t have to just see the tube at night. I don’t watch a lot of 

television but during the day we kind of watch the news and even 

there the advertisements really kind of had me scratching my head 

and say how are you going to do it? You’ve got all these things and 

just one thing and we’ll take care of it and get you up to date and 

so forth. 

And Mrs. Dix, we heard what you had to say. It was very important that you brought that experience here. 

And Mr. Chairman, I’m delighted to welcome to this panel Commissioner Pamela Jones Harbour. We’ve worked together. And I 

know how concerned and industrious you are about trying to stem 

the tide of these fraudulent happenings. 

So the witnesses were valuable. And it seemed like we weren’t 

listening. But we will be reading. And we did listen also. 

It’s difficult I know, Commissioner Harbour, for most consumers 

to know the difference between a scam and a legitimate program. 

People are desperate. They’re reaching out for help however they 

can get it. And to watch their obligations mount in front of them 

while their opportunities for income decline. So I’m pleased that 

the FTC has implemented outreach programs to try to tell people 

about the legitimate resources available to them and warning them 

about these possible scams. 

When did the outreach efforts begin? When did the FTC start to 

be alert to this? 

Ms. HARBOUR. We are always reaching out to consumers. Now in 

the financial services area we have always had educational materials. When the scams shift and when we learn about other aspects 

of fraudulent behavior going on out in the marketplace then we tailor our educational brochures to those activities. 

In fact, I believe that we are going to update all of our relevant 

written materials, and develop what is called a micro-site on our 

website. And this is going to focus on very extensive tips on saving, 

spending, budgeting, dealing with debt, debt collection, debt negotiations, settlement repair, advance fee loans, and your home. It’s 

going to be very, very comprehensive. 

Senator LAUTENBERG. Has the volume of effort picked up substantially or has this been an ongoing program that—— 

Ms. HARBOUR. Our consumer education is ongoing. In fact I 

think the more we do it, the better we get at it. And we’ve won 

awards for this. 

55 

And as I said, we’re small but mighty. We only have staff in 

seven states. Yet, we disseminate absolutely nationwide. And I 

think maybe even outside of our borders as well. 

Senator LAUTENBERG. How effective do you think it’s been? How 

do you measure something like that? 

Ms. HARBOUR. Well I don’t have the stats about how many 

awards my staff has won on their education and outreach. But I 

know that they’ve won some major awards for the substance, the 

effectiveness and the thoroughness of our education and our outreach to the American consumer. 

Senator LAUTENBERG. Your testimony talks about the FTC’s distribution of educational materials. And it recommends steps that 

consumers can take if they have trouble meeting their mortgage 

payments. How do you distribute these things? How do you get 

widespread coverage? 

Ms. HARBOUR. Again, we have relationships with 10,000 community-based groups that will distribute our information to members 

and constituents and clients. In fact we also have a relationship 

with Members of Congress, I believe. We make our materials available for your newsletters. 

Senator LAUTENBERG. I don’t want to keep you on this but perhaps you could give us, send in a report about how you measure 

effectiveness because those are the things we talk about constantly. 

Mr. Chairman, if I might. I have a question for Mrs. Dix. May 

I do that? 

The CHAIRMAN. You may. 

Senator LAUTENBERG. Mrs. Dix, you testified that if you had not 

called your state’s attorney general to find a company to help you, 

your home would have been lost? 

Mrs. DIX. Yes, it would have. 

Senator LAUTENBERG. Had you heard of this company before, this 

Mountain State Justice before calling the attorney general? 

Mrs. DIX. No, sir. I didn’t. 

Senator LAUTENBERG. Did you get any material from your mortgage lender suggesting that you try to contact a legitimate foreclosure rescue company? 

Mrs. DIX. No, I didn’t. 

Senator LAUTENBERG. So you felt like you were left hopeless out 

there? 

Mrs. DIX. Yes, until somebody told me about the attorney general. 

Senator LAUTENBERG. We’re happy that you did finally get some 

relief there. I ask unanimous consent that my opening statement 

be included in the record. 

The CHAIRMAN. So ordered. 

[The prepared statement of Senator Lautenberg follows:] 

PREPARED STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY

Mr. Chairman, thank you for holding today’s hearing on consumer protection. 

Let me begin by welcoming our witnesses, particularly Commissioner Pamela 

Jones Harbour, whose home is in New Jersey and understands how tough the credit 

crunch and economic slowdown have been on our state. 

56 

Commissioner Harbour is a strong advocate for consumers at the FTC and I want 

to thank the Chairman for bringing her here to testify today. This is clearly a critical time for our government to be standing up for consumers. 

The unemployment rate in our country is the highest it’s been in 16 years. And 

those men and women who do have a job are working longer, working harder—and 

after getting less for their labor. That means more Americans are struggling to pay 

their mortgages, which is one reason New Jersey’s foreclosure rate increased 75 percent from 2007 to 2008. 

It means more Americans are struggling to pay their expenses, from credit cards 

to utilities, which means bills are piling up and collection agencies are calling. And 

because they’re vulnerable and will take any help they can get, Americans are more 

susceptible to scams. 

Scam artists that have no problem taking advantage of anyone, anywhere, anytime—the. people running foreclosure scams, for example—are coming out of the 

woodwork. Some companies have demanded illegal up-front payments from consumers for their services—and then never deliver what they promised or what the 

cash-strapped consumer paid for. 

We must crack down on these crooks and the scams they are running. 

I know this Committee will do its part. Mr, Chairman, I look forward to working 

with you in partnership with Commissioner Harbour and the FTC to protect Americans from these criminal scams. 

The CHAIRMAN. Senator Klobuchar? 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. 

Thank you for holding this hearing. Thank you to all of you for 

being here. 

Thank you, Mrs. Dix, for sharing your story. And Commissioner 

Harbour, it’s good to see you again. And Mr. Cox, from Minnesota, 

thank you. He actually has done several forums in Minnesota on 

consumer issues with me. And is a renowned expert in our state. 

So thank you for doing that. 

I actually wanted to ask you, Mr. Cox, as my home state guy a 

few questions about your work. When you look at the relationship 

between the—I know you’ve done a lot of work in the foreclosure 

area, between foreclosure rescue fraud and other types of fraud 

we’ve been discussing today such as credit repair scams and credit 

and debt management. What is the relationship between those that 

you see, the foreclosure fraud and some of the other kinds of credit 

repair scams that we see? 

Mr. COX. Thank you, Senator Klobuchar. I thought as Minnesota’s only Senator you might get more time. 

Senator KLOBUCHAR. That’s right. And I am asking the Chairman for 10 minutes. I’m actually considering amending the D.C. 

Voting Rights bill to give me two votes. 

[Laughter.] 

Senator KLOBUCHAR. Because we sort of have taxation without 

representation. But please, go on, Mr. Cox. 

Mr. COX. Alright. Foreclosure rescue scams really fall into two 

categories. And almost all of them you can put into these archetypes and it works. Even though market values are tanking, there 

are people, particularly elderly people, who are still in foreclosure 

who have equity in their homes and the reconveyance scams are 

still occurring. 

That doesn’t have much relationship to these debt settlement 

and credit repair problems. That’s its own unique thing and reVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
57 

quires legal services attorneys and others who can help individuals 

as well as these state laws. The foreclosure consultant scam is a 

very parallel problem from a consumer protection regulatory perspective to the debt settlement, debt management problem. 

It’s a vital service. People need foreclosure prevention services. 

And the National Federation of Consumer Counselors groups do a 

fantastic job. I’ve worked with those people for many, many years 

in helping borrowers in foreclosure. 

The problem is that the complexity of the transaction and the 

difficulty of getting accurate information to people makes it so that 

there’s also going to be these scams. So the foreclosure consultant 

scams, and the debt settlement scams are very similar. I think that 

we need the kinds of swift rulemaking and standard setting in 

order to address that. 

Senator KLOBUCHAR. What do you think the best, briefly, what 

are the best provisions you think in Minnesota law or other laws 

around the country that would be helpful for Federal law? 

Mr. COX. Well the foreclosure consultant law has one key provision. You don’t get to take anyone’s money up front. You have to 

provide the service before you can get the money because almost 

all the legitimate counselors are non-profit that doesn’t affect the 

legitimate service providers. 

It, however, prevents people from getting their money taken because at the end of the process they just won’t pay if they’re in a 

situation like Mrs. Dix. So that’s the key provision. 

Senator KLOBUCHAR. That’s not in the Federal law right now? 

This idea of having—that you wouldn’t have to pay up front for 

services? 

Mr. COX. There is no Federal law specifically related to that. 

Senator KLOBUCHAR. Yes. OK. Another idea that you would like 

to see? 

Mr. COX. Well, there was a provision in the, I believe one of the 

states passed a law that I thought added an interesting provision 

which made these organizations fiduciaries, which again makes it 

easier to bring these legal actions. And also we need to redefine 

what foreclosure is to bring in people who are in distress, which 

those laws did as well which brings more of the services within the 

context. 

Senator KLOBUCHAR. OK. Very good. Thank you. Mrs. Dix, just 

from your practical experience what do you think would be the best 

way to get information out to people both so they’re not—I mean 

we’ve heard a lot from our leaders here of how they think it should 

be done. But if you think about your circumstance and other people 

you know, what’s the easiest way to try to get that information so 

you call the right person? 

Mrs. DIX. I think maybe going out to the public, TVs, more advertising, a little bit more. 

Senator KLOBUCHAR. So that you can actually see it. You’re 

watching a show and you see a commercial. Hey, if you’re in this 

kind of trouble watch out and call this number? 

Mrs. DIX. Right. 

Senator KLOBUCHAR. Because I haven’t seen that much of that. 

Mrs. DIX. I haven’t either. 

58 

Senator KLOBUCHAR. I’ve seen a lot of like prescription drug commercials, but I haven’t seen a lot of this trouble that people have. 

Alright. Good. 

Mr. Himpler, AFSA is the—I know the work that you do, your 

national trade association for the consumer credit industry. I believe that my staff talked to you about this before. But could you 

talk about how you’re good actor people that work with you that 

haven’t done bad stuff, how they’ve been impacted by the bad actors? And how you think you solve that? 

Mr. HIMPLER. Thank you, Senator. I think everything that both 

Mrs. Dix and the Commissioner and Mr. Cox have mentioned is 

right on the money because when these scam artists take advantage of consumers like Mrs. Dix and often times they encourage 

consumers to end all communications with lenders. Then as lenders, the lenders can’t find these organizations to work out anything. 

So the lender is left without any way to do any sort of work out 

with the consumer. Everybody loses. The consumer’s credit falls 

into disrepair. And a true accurate depiction of what their credit 

standing is left disabled by this entire transaction with credit repair organizations like these. 

So we do need to do a better job of getting the information out 

to the consumers, PSAs, the brochures that the FTC and other organizations and our education foundation put out. But in these 

tough economic times, not enough can be done in this area. 

Senator KLOBUCHAR. Alright. Very good. Thank you, all of you. 

The CHAIRMAN. Thank you, Senator. Senator Begich? And then 

Senator Warner. 

STATEMENT OF HON. MARK BEGICH, 

U.S. SENATOR FROM ALASKA 

Senator BEGICH. Thank you very much, Mr. Chairman. Is that 

on there? There we go. 

Thank you all very much. And I get the bird’s eye view here. I’m 

at the little kids table. 

[Laughter.] 

Senator BEGICH. The Chairman did offer me to move up. And I 

appreciate that. 

The CHAIRMAN. Can you see the witnesses? 

Senator BEGICH. I like this. I feel like I could be a witness or ask 

questions. So it depends on what’s going on. 

[Laughter.] 

Senator BEGICH. So that’s a real little kids table. That’s very 

good. 

Let me ask. And Mr. Chairman we rode on the train just a second ago. And I’m going to give this for the record. This is an interesting—this is one of those promotional cards from a very reputable organization, a company. And the effective annual percentage rate is 51.65 percent. 

I mean, you know, most people would look at this company and 

not consider them, you know part of the scam. But the fact is that 

you have that kind of interest rate is a loan shark rate. I mean, 

it’s outrageous. 

59 

So I’ll give this if I can to the record. It’s just an unbelievable, 

you know, I consider it a scam. But I’m sure the company that associated with the credit card company didn’t think it was. It was 

a promotional 51 percent. 

The CHAIRMAN. The information will be included in the record. 

[The information referred to follows:] 


226BEGI1.eps
60 

Senator BEGICH. There we go. Thank you. And I’ll give this for 

the record. 

Does the FTC have kind of the, for the financial advisors or the 

people that are helping folks get out of the non-profits, do you have 

almost like a Good Housekeeping seal, someone that you can turn 

to? You know, when I buy a toaster I know a UL is a good product. 

Without the UL it’s a piece of junk. If you have that I’m going to 

be frank with you, I never hear it. 

And so do you have something that a consumer can say, you 

know, if you’re not this than I’m not even going to waste my time 

talking to you as a work-out person. 


226BEGI2.eps
61 

Ms. HARBOUR. Senator, you don’t hear about it because we don’t 

have that. We do not put a Good Housekeeping-type stamp of approval on businesses or on brokers or on lenders. 

Senator BEGICH. I’m more interested in the people that are trying to help out folks to get out of the situations they’re in. You 

know you hear all the advertisements. Come to us, we’ll solve all 

your credit problems then sometimes they’re scamming you or 

they’re not. 

And then there are some of the good ones, the non-profit organizations that I’m familiar with are very good organizations. But you 

know, how does the consumer—I mean, I heard an ad a couple 

days ago. And I thought, wow, this is a good company. Then I find 

out it really is another business trying to take your money. 

Ms. HARBOUR. No, that’s an excellent question. And as I was preparing for this hearing I asked myself that. As a consumer how 

would the American consumer know whether these companies are 

legitimate or not? And then I thought about it and I went over 

some things and I came up with three ways. 

First is you contact your state attorney general. 

Senator BEGICH. Assuming that a consumer knows that. 

Ms. HARBOUR. Assuming, that’s right. 

Senator BEGICH. It’s not a high likelihood. 

Ms. HARBOUR. Or you contact the Better Business Bureau and 

see if there were any complaints about that particular business or 

you could go to your local consumer protection agency. But the 

issue is that we need to educate the American consumer about 

these options. Otherwise they will fall prey to these scam artists. 

And they will fall prey in greater numbers because the American 

consumer really is in financial straits now. 

Senator BEGICH. But do you think that you have a role? 

Ms. HARBOUR. Absolutely. 

Senator BEGICH. To create that kind of list? Because the consumer—— 

Ms. HARBOUR. Oh. 

Senator BEGICH. I mean, you know, the consumer is busy. I 

mean, Mrs. Dix your whole issue. I mean you were dealing every 

minute of your life trying to figure out how to solve this problem 

and by a chance and circumstance you were able to be told to call 

the AG. 

The average consumer—— 

Ms. HARBOUR. Senator, my absolutely was, absolutely we have a 

role, but not absolutely creating that list. 

Senator BEGICH. Why not? 

Ms. HARBOUR. I would push back on that. 

Senator BEGICH. I know more about toys and what’s good and 

bad from the Federal Government than I do about what consumer 

organizations. 

Ms. HARBOUR. Well how I would answer that question? Through 

our outreach and our education, we can get at that through the 

back door. For instance, with the fraudulent mortgage foreclosure 

rescue scams we have some red-flag pieces of advice that we have 

available to every consumer in America telling them what to watch 

out for. For instance we say avoid any business that guarantees to 

62 

stop foreclosure processes, no matter what. Usually they’re going to 

be fraudulent if they say 100 percent certain. 

We say avoid any businesses that are going to instruct you, the 

consumer, not to pay your lender or your lawyer or your housing 

counselor. Any business, that collects a high, upfront fee before 

they do anything for you between $300 to $5,000, that’s the way 

we reach the American consumer. 

Senator BEGICH. Let me ask you something. I have to watch your 

clock there because I don’t have one. So I think I have about 30 

seconds left. 

So let me try to ask. I know you mentioned the success of your 

education was measured by awards you’ve received. But how do 

you measure from the consumer end, the real consumer? 

How do you know it’s reaching them other than, you know, 

you’ve got some awards for good advertisements and so forth? 

What data can you show me? What data can you show me that consumers who needed this information actually got it in their hands? 

Ms. HARBOUR. That’s a very good question. And what it sounds 

like you’re asking for do we have any empirical research that has 

actually seen the effect of our work. I want to get back to you on 

that. 

That could be a study that we do. How do we measure how effective we are? Certainly our desire and our, you know and our zeal 

to help the American consumer is there, but you need more of a 

metric than that. 

Senator BEGICH. Right. 

Ms. HARBOUR. And that’s a very good question. And let me get 

back to you. 

Senator BEGICH. OK. I’d be very curious. I know that we do a 

lot of that. I’m a former mayor and we, you know, just figure out 

effectiveness of the products and delivery of information. It’s all 

about which consumer group we’re trying to hit. And then what result we get out of it. 

And again that would be very interesting. I have some other 

questions, but I know my time is up. And I’ll just wait if there’s 

another round. 

Ms. HARBOUR. Thank you. 

Senator BEGICH. Thank you very much. 

The CHAIRMAN. Thank you, Senator Begich. Senator Warner? 

STATEMENT OF HON. MARK WARNER, 

U.S. SENATOR FROM VIRGINIA 

Senator WARNER. Thank you, Mr. Chairman. And panel, I’m 

sorry I missed the first half of this hearing. But I want to follow 

up on some of my colleagues’ comments, Senator Begich and Senator Klobuchar. 

Commissioner Harbour, I understand that you’ve got a report 

coming out today based off some workshops you’ve been doing 

about the Fair Debt Collection Practices Act. 

Ms. HARBOUR. That’s correct. 

Senator WARNER. And as we talk about how we inform consumers of what assistance is out there, the flip side of that is oftentimes how do some of these debt collection groups actually legally 

check the box that they’ve notified the consumer? And one of the 

63 

things I saw or at least referenced to in the testimony that you 

were talking about using new technologies. And I’ve heard some 

kind of wild stories about people saying they’ve, the debt collection 

folks have met the notification requirements by using Facebook 

and using, you know, some technologies that might not be traditional. 

Have you all thought through from both a kind of an outreachto-consumer standpoint and then how you’re going to use these 

new technologies, particularly web-based. And from the reverse 

standpoint of what would qualify as legal notice going back out 

from the debt collectors to the consumer how robust these organizations can be in using these new technologies on the outward contacting? 

Ms. HARBOUR. Our report that issued today was a result of a 

two-day workshop that we held last year. And the report contains 

a number of recommendations, legislative recommendations to protect consumers. What we found from our workshop, we found two 

problems. 

Well, we found more than that, but the two problems I want to 

identify are that debt collectors have inadequate information when 

they try to collect from consumers. So in our report what we’re recommending is that the Fair Debt Collection Practices Act be 

amended regarding those validation notices. Those are the notices 

that are required to be sent out by the collectors. 

But what we’re recommending is that those notices should disclose the name of the original creditor because a lot of times there’s 

inadequate information that’s being given to the consumers by the 

original creditor. We recommend that the debt be broken down by 

principal, by interest and by any other charges. This way the consumer knows what it is that they’re being asked to provide, we 

think that this would solve the inadequate information problem. 

The second issue that I wanted to talk about that was raised in 

the workshop was that debt collectors generally don’t provide adequate information to consumers about their rights under the Fair 

Debt Collection Practices Act. So what our report is recommending 

is that the notices that are sent should include the two rights that 

consumers have under the Fair Debt Collection Practices Act. And 

that is, first, and a lot of consumers do not know this, the right 

to demand that the debt collector cease communicating with them. 

And then second, the right to be free of attempts until the debt is 

verified. And consumers can—they have to ask for that in writing. 

But as far as the specific part of your question that talks about 

new technologies. We also recommend that the FDCPA is amended 

to prohibit debt collectors from collecting—contacting consumers by 

way of their mobile phones unless the consumer says, yes, you may 

contact me by this way of new technology. And the reason we believe this is important is because a lot of times the debt collectors 

will call up or text the consumer and the consumers have to pay 

for the text. 

Senator WARNER. Right. 

Ms. HARBOUR. It doesn’t make any sense. So unless a consumer 

wants to be solicited by a debt collector and wants to pay for the 

charge on the mobile phone we’re recommending that it not happen. And I guess that’s with all the other new technologies—— 

64 

Senator WARNER. Well think about it if you, you know, the ramifications if you were to make a posting on Facebook or a posting 

on some of these community-based sites. It seems to me that this 

should be a relationship between the debt collector and the consumer. And until it is fully verified, all the debt, you don’t need it 

to be, in effect, broadcast widely and distributed widely over some 

of the common shared sites like Facebook. 

Ms. HARBOUR. And also, Senator, the—— 

Senator WARNER. So have you looked at how you might restrict 

the use of some of these technologies. It might be good communication devices but actually might be sharing this information on a 

broader level or a more inappropriate—— 

Ms. HARBOUR. Well, I think that that’s an area that we are looking at. And if we were able to amend the Fair Debt Collection Practices Act that is something that we certainly would be giving a lot 

of thought to and coming up with something legislatively. 

Senator WARNER. Great. 

Ms. HARBOUR. Also there are statutory penalties that have not 

been amended since 1977. So we would want to look at that as well 

and recommend that they’re upgraded. 

Senator WARNER. Great new tools, but they can be abused in 

terms of some of these new technology communication devices. 

Ms. HARBOUR. Yes. 

Senator WARNER. So I’d love to hear back some more on that. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Warner. Senator Thune? 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman for holding the hearing on a topic that’s often overlooked and is a consequence of the 

economic recession and that’s consumer protection laws and how 

those impact people out there who are struggling. I think anybody 

in this economy whether you’re a factory worker or a senior citizen, 

somebody who is trying to live on a reduced income, trying to continue to make a mortgage payment. Everyone feels the effects of 

the recession. 

And I think one of the consequences of that or affects of that is 

and we’re seeing that is the historically high number of home foreclosures, increasing number of consumers and small businesses 

who are filing for bankruptcy. And any time you have those kinds 

of things going on, a record number of consumers who are facing 

financial distress, the risk of fraud and abuse is greatly elevated. 

And so particularly in these times it’s important that consumer 

protection laws are in force as intended by the Congress. 

I think it’s important that consumers be aware of the protections 

that are afforded them under the law. And that those who seek 

debt counseling and financial management services are not victim 

to the fraudulent activities of bad actors that are out there in the 

debt servicing sector. And I guess what I would like to come back 

to is something the Senator from Alaska was talking about and 

that is if there isn’t this sort of gold-standard list that exists out 

there of good actors is it possible to work with some of the people 

65 

at the table and based on some of the testimony this morning to 

put together a series of sort of voluntary standards? 

Not something that we would necessarily legislate, but that people could go to and say, OK, if you meet these certain standards 

you get on this list. You get on this—you become someone who is 

recognized as being a legitimate, high quality actor with regard to 

this industry. And is that something that might be considered? 

I mean I think there has been some good testimony this morning 

about some of the suggestions of things that could be a part of 

those included in that list of standards. Is that something that 

would make sense? 

Ms. HARBOUR. My response to that is I would like to work with 

or speak to the Better Business Bureau. My sense is that is more 

in line with what they perhaps would do. Would that be helpful to 

the American consumer to know, which businesses are legitimate 

and which businesses are not? Absolutely, especially in this climate 

of economic downturn, absolutely. 

And perhaps, you know, that’s something we can look into and 

see if it’s not our agency who comes up with that list if there is 

an agency that can do that. So we can get back to you on that, Senator. 

Senator THUNE. OK. 

Well and I don’t know. Even if it’s not—I’m not saying it necessarily, the Better Business Bureau is good too. And they maybe 

can compile some of that type of data already. 

But if the FTC, which is the agency of government that most 

consumers look to for these types of protections were to compile a 

list based upon a sort of agreed upon set of standards that are considered to be, the gold standard, so to speak and again, based upon 

recommendations from people like those who have testified this 

morning. That I guess was I’m just throwing that out there as an 

idea because I’m not trying to suggest that Congress ought to get 

in and legislate those standards. But that there are things based 

upon industry input that say these are good actors and these are 

the things that good actors do, you know, just a thought. 

Ms. HARBOUR. So you’re saying a best practices list? 

Senator THUNE. Yes. Yes. Exactly. 

Ms. HARBOUR. In a way. That’s certainly something that is more 

in our footprint. 

Senator THUNE. Right. 

Ms. HARBOUR. And I will definitely look into that. 

Senator THUNE. OK. 

Mr. PLUNKETT. Senator, could I throw out a thought on your 

question? I’m Travis Plunkett, the Legislative Director of the Consumer Federation of America. And I’ve worked with, in the credit 

counseling area in particular, a number of legitimate operators on 

the issue of voluntary standards. 

And one thing we encountered and one risk I see for the Federal 

Trade Commission there is the question of, you know you may be 

a good actor today. You change your business practices and in 6 

months you’re not. So it’s the question of keeping up with and monitoring the situation. 

I mean if you’re talking about individual companies as opposed 

to general principles you offer to consumers, you know, avoid this 

66 

kind of company. But if you’re saying here’s the list of good guys 

and if you’re not on the list you’re a bad guy then boy, what an 

enforcement trick that is to try and keep up with month to month. 

Who’s on and who’s off and are they complying and did they comply 

6 months ago, but they’re not now. That could be an enforcement 

drain. 

Senator THUNE. Well I don’t disagree with that. I guess the only 

suggestion I would make is that there are, it is not like if you’re 

on the list you fall off the list because you’ve fallen into the bad 

actor category or you’re doing something that is fraudulent out 

there. To me, it would be more of an incentive for inducement for 

companies if you had a set of these. 

These are recommendations that you do this, this, this and this. 

And obviously if it’s a fairly straightforward list of things that companies would do to stay on that list, sure, I mean, companies that 

could fall off the list. I suspect it’s going to be somewhat self-policing. People are going to find that out fairly quickly. 

And it may not be 100 percent, entirely current, 100 percent of 

the time. But I think it would at least present for a consumer some 

sort of indication of which companies out there are going about this 

in the right way and following these practices and those that 

aren’t. 

Ms. HARBOUR. Another way to approach that Senator; we had 

asked for rules to implement the Fair Debt Collection Practices 

Act. And if were allowed to implement rules in a sense that is best 

practices and if they fell short we could actually go after them. 

So rules in this area might achieve the objective that you’re 

speaking of. 

Senator THUNE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Thune. I’m going to ask that 

some graphs be passed out to the witnesses and also to the two 

Senators if they wish to have this. 

[The information referred to follows:] 

Fraud or Scam Time Interval Total Actions 

Filed by the FTC Case Example Case Example 

Foreclosure Rescue Past 2 years 6 FTC v. Mortgage 

Foreclosure Solutions, 

Inc.—approx. 1,000 

affected consumers 

FTC v. United Home 

Savers, LLP—approx. 

3,000 affected 

consumers 

Credit Repair Past 10 years 42 FTC v. Hargrave & 

Associates Financial 

Solutions—approx. 

29,600 victims 

FTC v. Clean Credit 

Report Services, Inc.— 

approx. 45,510 victims 

Credit Counseling/ 

Debt Management Past 6 years 14 FTC v. AmeriDebt, 

Inc.—287,000 affected 

consumers 

FTC v. Debt 

Management 

Foundation—approx. 

14,000 affected 

consumers 

The CHAIRMAN. Commissioner, you’ve been doing most of the 

talking this morning. And that has been a little bit frustrating to 

me because I want to hear from Mrs. Dix, but I also want to say, 

to ask Professor Cox and Mr. Plunkett, who haven’t had much 

chance to talk. 

67 

The figures we’re looking at here show the FTC total actions filed 

by the FTC over a period on foreclosures over a period of 2 years, 

six. Over a period of 6 years, 14. Over a period of 10 years, 42. I 

mean it’s just the credit repair—well you can see the thing before 

you. 

You’re saying how good things are going and if we had a little 

bit more money and we had some more lawyers and this and that, 

we could have a bigger footprint and do more things. But all I’m 

looking at, unless this is incorrect which I want you to tell me. 

There isn’t much happening. There is not much happening. There 

are very few people being helped because I assume that, you know, 

total actions filed by the FTC is a fairly heavy statement. Now I’m 

finished. 

Mr. Plunkett, I want to ask you too and Mr. Cox, if you feel that 

the FTC is as effective as they purport to be in what I’ve listened 

to this morning or are they not? Be frank. 

Mr. PLUNKETT. Would you like me start, Senator? 

The CHAIRMAN. Sure. 

Mr. PLUNKETT. My area would be credit counseling and debt 

management. And the sort of model case is the one you cite here, 

the Ameridebt case. And my opinion is they’ve been effective on 

credit counseling. The numbers don’t tell the whole game. 

The Ameridebt case was huge. They were the poster child for bad 

credit counseling. And because of this case and the simultaneous 

enforcement efforts by the IRS to drive phony non-profits out of the 

business of credit counseling, the situation, as I testified to, is better. It’s not perfect. There are still problems. Better on credit counseling. 

On debt settlement the Federal Trade Commission has been 

playing a catch-up game. This business appears to have exploded 

in the last three, 4 years because there’s such incredible demand 

by consumers for these services. They’re looking for something that 

helps them more than credit counseling because credit counseling 

can’t keep up, but is short of bankruptcy. And there really is nothing legitimate, so I’d like to see the Federal Trade Commission do 

more there. 

I know these cases are expensive. But I think there’s a lot to do. 

The ultimate problem though is they’re playing a catch-up game 

and we need to get out front with strong bright-line laws that 

make their enforcement job easier. 

They’re not just looking at what’s unfair or deceptive. They can 

go in and say, you are not complying with the law because you’re 

offering a service and charging for that before you deliver on that 

service. And that’s where Congress can help. 

The CHAIRMAN. Mr. Cox? 

Mr. COX. Thank you. One of the nice things about being a professor is you can say exactly what you think. 

[Laughter.] 

Mr. COX. I agree with everything Mr. Plunkett said. I’ll tell you 

from having worked for more than a decade with the FTC, they 

were truly the shining light of Federal/state cooperation. You know, 

I had relationships with those people. You could call them. We’d 

work together. We’d say, you do this, I do that. 

68 

So it was the exact opposite of trying to work with bank regulatory agencies that were utterly hostile to consumer protection, in 

my experience, and to state cooperation. Having said that, I agree 

with Commissioner Harbour completely. The FTC needs better authority. They need to be able to move swiftly and they need to be 

able to pass rules without cumbersome Magnuson-Moss restrictions. 

What I will also say is the FTC needs to differentiate more clearly, in my experience, between when they have a scam which is 

what Ameridebt was. I actually started that case and passed all 

our files over to the FTC many years ago in Minnesota along with 

another state. I believe it was Missouri. 

You know, the FTC just needs to move more quickly and act like 

a cop when they need to act like a cop. And for instance we’re talking about the education materials. Forget brochures. 

I mean, that’s really nice. That’s fine. But you have to think like 

the bad guy. You have to figure out how you’re going to get on TV 

and say, don’t listen to the rest of these commercials if you want 

to do effective education. 

So I just think you got to, you know, you’ve got to have a more 

aggressive mind set when it comes to these kinds of scams. And 

then you have to be sophisticated and understand when you’re regulating in a more established industry where the businesses are 

mostly credible you have to have a different touch. And you have 

to think about where you are. 

But when it comes to the things on this chart, just get out there. 

And get out in front of it. I mean, we’re really, we’re 5 years ahead 

of the FTC on the foreclosure rescue issues. 

The CHAIRMAN. Ok. Thank you. With Senator Begich’s permission, Mrs. Dix could you just kind of walk us through what you 

went through? 

Mrs. DIX. Yes. I have a statement here. As you know my name 

is Nancy Dix. I’m 67 years old. I live in a double-wide manufactured home in Ansted, West Virginia. 

After my husband died of a heart attack in 2001 I was contacted 

by a lender to refinance my home with promises of saving me 

money. My husband had always handled things like this one. So 

I didn’t know much about it. 

I trusted the people I dealt with because I thought they were 

professional, looking out for my best interest. I later found out that 

I’d actually been taken advantage of. In the spring of 2002 I spoke 

to a mortgage broker called Infinity which told me it would save 

me money. 

Infinity sent an appraiser out to my house and valued my prop- erty at $97,000. I later learned that it was actually only worth 

$59,000. After the appraisal Infinity told me a man will be coming 

to my house to sign the papers. 

When the man came I learned the first time that my payments would be $800 a month. This is higher than I expected and a lot 

for me to afford on a fixed income. I asked about the payments and 

was told that in a few months they could lower my payment to 

$600. 

The signing was rushed and no one explained anything to me. 

And I signed the papers. And I was confused. 

69 

The loan ended up at the bank called Flagstar. The total amount 

of the loan was $86,700 with an APR of 9.48. Under this loan I was 

required to make payments of over $245,000 over 30 years. 

After signing I began making payments. I contacted Flagstar 

after a few months to lower my payments. Flagstar told me that 

I would have to come up with $8,000 out of my pocket before they 

could lower my payments. Money I did not have. 

I struggled to make payments over the years and was forced ultimately into bankruptcy. When I tried to catch up with my payments with Flagstar they wanted me to pay a larger amount than 

I could afford on my fixed income. Flagstar wanted me to pay 

$1,800 a month and my income was $2,000. 

Also, Flagstar forced/placed expensive insurance on my account 

which made me further behind my monthly payment. On July 

2005, Flagstar said it started sending my payments back to me. 

Eventually my home was sent to foreclosure with a sale for December 15, 2005. 

Around this time I was contacted by an outfit from Houston, 

Texas called Mortgage Rescue. They told me to send them some information about my finances and $921. They would stop the foreclosure. 

So on November 8, 2005, I sent them the information and the 

money. They responded to me by letter I received only days before 

the foreclosure. The letter said for me to call Flagstar and work out 

a forbearance agreement, but I would have to pay the entire 

amount I was behind and a $5,000 deposit to Flagstar to stop the 

foreclosure. 

Mortgage Rescue knew I did not have this money. I could have 

worked out a deal with Flagstar at any time without sending Mortgage Rescue $921. Basically they took my money for nothing. 

I later found out that Mortgage Rescue is not even licensed to do 

business in West Virginia. I never got my money back. Luckily I 

was able to call the West Virginia Attorney General who had the 

foreclosure put off. I was sent to Mountain State Justice, a nonprofit, legal service office. They worked it out so I could keep my 

home. 

If I had not called the attorney general or found Mountain State 

Justice I would have lost my home. I would be in my late 60s, retired, widowed, with nowhere to live. I think at times about other 

people who have given their hard-earned money to scam artists 

like Mortgage Rescue. 

I hope you are able to do something to prevent these crooks from 

taking advantage of people who are desperate like I was because 

they are facing loss of their homes. Thank you. 

The CHAIRMAN. Thank you. Senator Begich, I thank you for your 

indulgence. When you have finished your line of questioning I’m 

going to ask Mr. Plunkett and Mr. Cox and Mr. Himpler to comment on what Mrs. Dix said because I think it’s profound. I think 

it’s all over this country. And I think it’s horrible. 

Senator BEGICH. Thank you, Mr. Chairman. And I didn’t realize 

that she had not given her testimony. That was very—— 

The CHAIRMAN. That was my fault. 

70 

Senator BEGICH. No problem, Mr. Chairman. I read it. I thought 

it was very interesting because I have heard of Infinity before and 

some other actions. 

But let me, I hate to keep banging on this issue. And I understand from the consumer folks that it might be difficult to manage 

and so forth. Now I come from the real estate industry. We know 

who the good characters are and the bad characters. 

When I was Mayor of Anchorage we had people who were running B and B operations, (bed and breakfasts) and we sorted out 

the good and the bad. And we created a list. It’s not complicated. 

And the consumer needs as much information as possible to know 

who’s right. 

So let me reverse it. This list here which, Mr. Chairman, I was 

going to ask a similar question. So thank you for this information. 

And I was asking your staff. I had them screwing around and I 

apologize. 

I was asking another question was out of all these people who 

are still—or these people that have had claims or actions or in 

process of having actions. I’m assuming some of these probably are 

still in business. And that’s my point. 

If you’ve already started issues with them, consumers should 

know that. Because it’s one more bit of information that they need 

to know who is—because how do you get information of all these 

folks that you have litigation on. How do you get that to the consumer? 

Do you have it on a website that’s not in the legalese? I’m not 

a lawyer. And you know, do you have a list that says these are the 

folks that we have pending actions against at this time, settled or 

not. 

Ms. HARBOUR. We usually have press releases whenever we settle matters. It’s up on our website. 

Senator BEGICH. I understand. Do you have a list that a consumer could go to your website and say, ah, these are the people 

at the FTC are busy—— 

Ms. HARBOUR. Yes, we do. We do have a list. 

Senator BEGICH. And are they written in this format, ‘‘FTC 

versus blah, blah, blah’’ or is it listed as ‘‘these are companies we,’’ 

in very, simple, my language, English, not lawyer language, that 

says—— 

Ms. HARBOUR. Well, I’ll get back to you on the lawyer language. 

But I know there are listed. I know it’s listed. But I will definitely 

get back to you whether it’s listed in lawyer-like language or 

whether it’s in plain English. 

Senator BEGICH. And then those groups that you associate with 

and I forget the numbers, thousands. Do you send them the list 

that says these are organizations that we are currently investigating or have had settlements with? So those organizations who 

actually do the work with consumers, do they know this? 

Ms. HARBOUR. I will get back to you on that. I can’t answer that 

question right now. 

But if I could just address this paper which I suppose is pointing 

out what the FTC hasn’t done enough of. I would like to say that 

we do have in the foreclosure rescue area, we do have 16 pending 

71 

investigations today. In the credit repair area, we have 13 matters 

today. In the debt counseling area, we have seven. 

We get it. You know, we shift resources when the need occurs. 

The downturn happened September 2008. It was an acute economic 

downturn. We responded immediately. In fact we had been responding anyway because we saw the trend. 

In 2007, credit issues were number 10 on the list of complaints 

in Consumer Sentinel. In 2007, number 10; I’m sure most of these 

cases have been started before then. We are always the cop on the 

beat. We’re always pursuing these cases. 

Your quibble with us is we didn’t do enough of them. We have 

always been in this game. Once the economic downturn occurred 

we immediately shifted resources and the numbers that you don’t 

see are the numbers of what we are doing confidentially. 

I even had some push back to even mention what we’re doing 

confidentially. But I knew Senator, Chairman, that it was very important to you to make sure that we are being responsive to the 

American consumer. So yes, there are 16 investigations right now 

in the foreclosure area. There are 13 in the credit area. There are 

7 in the debt counseling and there are 10 in the Fair Debt Collection Practices Act. 

As far as returning value to the American consumer. In the CompuCredit case we returned $114 million. This was settled in 

September 2008. Bear Stearns, $28 million. So this piece of paper 

does not—— 

The CHAIRMAN. You’re using up all the Senator’s time. 

Ms. HARBOUR. Oh, I’m so sorry. 

The CHAIRMAN. I mean—— 

Senator BEGICH. Let me—I appreciate it. My point is at any level 

trying to inform the consumer is what I—when I saw the hearing 

on the schedule, to me is very important. It’s how the consumer, 

how would someone like Mrs. Dix know what to do and not to do, 

and not. And the first stage is who is a good character/bad character. That’s my issue. 

And then my flip-back is over to the Association. And I know I’m 

out of time. But to the Association, you have an obligation and a 

responsibility. 

And I don’t know what your procedures are. So if you could get 

to me at some point. I know we’re going to run out of time. 

The CHAIRMAN. No, go ahead. 

Senator BEGICH. I would just want to know as an association, 

when you have like this, you know, Mortgage Rescue which may 

not have been part of your association. But if you have ones that 

have caused these issues what do you do to get them out? And get 

them out quick? And then how do you notify? 

Mr. HIMPLER. We represent the lenders, not the debt collectors. 

Senator BEGICH. Well your assumption is all lenders are good. 

I’m asking the broader question here. Today we have major problems. And I tell you in Alaska we just did a huge case against several lenders for fraud. So I’m just trying to let me broaden it then 

to lenders. 

As an association how do you clear the deck? 

Mr. HIMPLER. I think the basic point that both of you gentlemen 

have made—the Commissioner has tried to respond to in terms of 

72 

setting a minimum standard threshold above which the FTC and 

other regulatory agencies can say, these are good actors. We, as an 

association have a best practices voluntary standard that all of our 

companies have to meet to be members in good standing. Those are 

posted on our website. 

Any consumer, any Senator or any regulatory body can take a 

look at those. And that is how we ensure that our lenders are 

above reproach. 

Senator BEGICH. I will stop, Mr. Chairman. 

The CHAIRMAN. What do you do when somebody goes from nonprofit to profit? Do you measure that? Do you say, you can’t do 

that? 

Mr. HIMPLER. I’m not sure I follow you, Senator. 

The CHAIRMAN. Well the eight-year rule I was talking about in 

the beginning in my first question to you. 

Mr. HIMPLER. I apologize. I’m not following you, Senator. 

The CHAIRMAN. Alright. Let me get back to what I said I was 

going to do. And that is call on Mr. Plunkett and Mr. Cox and you 

to comment on Mrs. Dix’s situation. How did that come to be? How 

could that have been stopped? 

We’ll start with you, sir. 

Mr. PLUNKETT. Senator, we should, the entire consumer community and this includes the enforcement community, need to do a 

better job of educating consumers. But I’m appalled at what I 

heard from Mrs. Dix. I heard a lot about these scams. 

And it’s a losing battle unless we can get out front with strong 

laws that and good enforcement resources that agencies like the 

FTC can use to stop these scams before they start. Otherwise we’re 

just playing catch-up. We’re scrambling to inform consumers about 

businesses that they should never have had to deal with. 

The CHAIRMAN. Please? 

Mr. COX. Thank you, Mr. Chairman. I agree with Mr. Plunkett. 

You need bright lines because that allows for clear, efficient law 

enforcement. You have to bring everything as a UDAP case, it just 

takes way too long. And you need to get way out in front and enforce them. 

And again, when you’re dealing with scams, I think you need to 

arrest people and put them in jail. You just have to have a more 

aggressive mentality. Now that’s not the FTC’s job. But we need 

to, you know, we need to develop a comprehensive enforcement 

strategy where we take the worst of the worst, we put them in jail. 

We put them on TV. And we parade them. 

In 2004–2005, I was screaming we should be doing that with 

subprime mortgage lending companies. And I think I was right 

about that. I mean, we just have to put the fear of God in people 

when they are doing that kind of level of bad practice. Mrs. Dix 

never should have been subjected to that. 

The CHAIRMAN. Before I call on you, Mr. Himpler. I so relate to 

what you’re saying, Mr. Cox. I think this is an ‘‘under the radar’’ 

world or an underworld, if you want to call it. Nobody knows about 

it except the victims who get clobbered by it. 

In spite of all the words from the Commissioner and you’re a 

very good Commissioner. I fully recognize that. I am just appalled 

by these figures. I mean, I’m just appalled by them. 

73 

This is over a ten-year period, six-year period, two-year period. 

And you’ve got—what do you have? How many do you have? Do 

you have 1,400 people working for you or is it 100? 

Ms. HARBOUR. 270 consumer protection attorneys. 

The CHAIRMAN. I’m not talking about attorneys. I’m talking 

about people. 

Ms. HARBOUR. Oh, people, 1,094. 

The CHAIRMAN. OK. So that’s a lot of people. And we could give 

you more people. I don’t know whether it would do any good. 

I just, I so relate to what you’re saying. It’s like anything which 

is out of sight, but tremendously damaging to people. If you do not 

hold people accountable. If you do not send people to jail. If you do 

not hold somebody up for ridicule. 

I won’t get into some things I’d like to, but I think that’s the only 

way it works. That’s the only way it works because then the word 

begins to get around in that underworld that if you do this, you 

will go to jail. Because there is a combination of states who are 

doing a very good job working with the FTC which says it can’t do 

that. States can. 

You know, attorney generals can. I think that’s got to happen. 

It has got to happen in order for people like Mrs. Dix not to have 

to go through what she went through. 

It won’t stop it because it’s unfortunately the nature. It’s human 

nature that when the crisis gets worse, more people are in trouble. 

More bad actors jump in to take advantage of them. 

I mean America has that side of it which nobody. That’s why 

we’re having this hearing. We’ve never had a hearing like this before. It makes me very angry. It makes me very upset that Mrs. 

Dix had to go through this. 

She wasn’t particularly thrilled about coming up here to testify. 

In fact that was about the last thing in the world she wanted to 

do. And then Mr. Plunkett who has this enormous Consumer Federation of America says he shocked by what he hears. So we have 

to do something about that. 

Mr. Himpler, what is your reaction to Mrs. Dix’s situation? 

Mr. HIMPLER. I am equally appalled. And Mrs. Dix, I’m truly 

sorry you faced this. I share the sentiments expressed by all of the 

witnesses. 

But I will return to something that I think, Mr. Cox said. As 

much as we want to utilize written materials to get information 

into the hands of consumers and again, I commend the FTC for 

their fine work in this area, we are at a very critical stage with 

the current situation in our economy. 

We need to get information to consumers on the airwaves, on the 

radio, on the TV. That has just got to happen because they’re being 

inundated. And I’m sure going home at night listening to the radio, 

Senator, you probably here four or five every time you commute. 

I know I do. And they’re very attractive ads. 

But we need to pull out all the stops in this area. And if I could 

beg your pardon for just one moment, not necessarily right in the 

jurisdiction of this committee. But one of the things we’re working 

on with the depository regulators that Mr. Cox mentioned, there’s 

an effort to do loan modification with respect to mortgages. 

74 

We’ve also got a crisis, if you will, in the auto sector. And a number of our members that provide auto financing through lines of 

credit through banks are having trouble keeping those lines open, 

particularly when they try and do the same sort of work-outs that 

are being encouraged on the mortgage side. 

I guess my last comment would be as we are trying to encourage 

lenders to do work-outs with consumers like Mrs. Dix, we need to 

make absolutely clear that working with your lender is absolutely 

important in terms of any sort of loan modification, rate reduction, 

payment reduction and the like. Because while folks read about it 

in the paper all of the fine work the Administration and Congress 

are doing to encourage lenders to do work-outs. It gets very confusing if they see ads late at night for people encouraging them to 

follow up on those initiatives and they’re not the same people. 

The CHAIRMAN. I’m not sure Congress is doing any particular 

fine work on that. But it’s nice of you to say that. 

Mr. HIMPLER. I want to be invited back. 

[Laughter.] 

The CHAIRMAN. We have a lot of work to do here. Let me ask the 

Commissioner this. Why can’t we find a means to send the most 

vulnerable consumers, like consumers who have missed, let’s say, 

one or two or maybe even three mortgage payments some information about the kinds of fraudsters who may be trying to seek and 

take advantage of them before they come under the spell of those 

fraudsters? There’s got to be some mechanism to do that. 

Do you keep track of people who are getting in this kind of trouble? 

Ms. HARBOUR. There are millions of consumers now that are 

probably facing foreclosure. I am trying to think of some way we 

could warn them other than what we are doing. Perhaps television 

advertising, I don’t think we’ve ever done that. Maybe that is something we can look into. 

The CHAIRMAN. You probably can’t afford that. 

Ms. HARBOUR. Exactly. Let us give some careful thought to this 

and we will get back to you. 

The CHAIRMAN. Please, please, please. 

Ms. HARBOUR. We know how important this is to the American 

consumer and to this committee. 

Mr. HIMPLER. Senator, to that point starting last fall the lending 

community worked with the Administration and formed a group 

called Hope Now that—— 

The CHAIRMAN. The former Administration? 

Mr. HIMPLER. The former Administration. And one of the principles was identifying at-risk borrowers who were either on the 

verge of missing a payment or had missed a payment or two to 

take aggressive action in terms of the lenders reaching out to those 

borrowers to work with them to bring them current and work out 

the situation directly. 

The CHAIRMAN. Well, you know, I don’t know what it’s going to 

take. But we’re, on this committee, we’re going to work. And nobody is sacred except you, Mrs. Dix. 

[Laughter.] 

Mrs. DIX. Thank you. 

75 

The CHAIRMAN. Nobody is sacred. We’re not doing our jobs. You 

say Congress is doing its job. The Congress is not doing its job. 

This committee is not doing its job to be helpful. 

This is a massive problem where people kind of disappear under 

the water silently. I remember watching my son when he was 2 

years or a year and a half old, a year old or half a year old, sitting 

in a swimming pool, top of the steps, so it was up to about his 

throat. And my wife and I were sitting on opposite sides of the 

swimming pool reportedly each of us keeping an eye on him. 

But for a moment we didn’t. And then he suddenly just sort of 

floated down underwater. And fortunately I saw him and I went in 

and I got him and he was OK. But it was one of the scariest things 

I’ve ever been through in my life because you tend to love your 

children. And I have a feeling this is what Mrs. Dix brings to this 

hearing. 

Didn’t particularly want to come. Is probably angry as the dickens and doesn’t know where to turn, happened to get bailed out by 

an attorney general. That might have been lucky. 

How you two got together I don’t know. But that was lucky. I’m 

really happy about that. But that is not happening to millions of 

people out there. 

And in the meantime I’m still holding this up. And I’m absolutely 

shocked. And I appreciate the effort, but that doesn’t count anymore. 

It’s like the Stimulus package or the Banking package or the 

Health Care Reform or energy. You’ve got to do it right. It has got 

to work or else it doesn’t mean anything. 

People will just keep slipping underwater and nobody will know 

about it because newspapers won’t write about it and the press 

won’t cover it because it’s not a murder. It is a murder. It’s just 

a murder without blood. 

I don’t know. So we’re going to keep working on this thing. I 

want you to know that. We will be aggressive. 

I thank all of you for coming here today. I think it’s, frankly I 

think it’s great that the Commerce Committee has this kind of 

committee. Commerce—everybody says well, that must be you do 

the economy of the United States. Well, we do hundreds of huge 

things from oceans to skies to aviation, transportation, railroads, 

all kinds of things. But we’ve got to focus on this too and maybe 

this foremost. 

So for the information of all Senators who were not here, but 

their staff might be. We’ll leave the record open until the close of 

business on Friday, March 6, 2009, for any questions or statements. 

In the meantime we’re going to try and figure out how we can 

put a fire under the FTC and under the American people and 

maybe get some public service TV going. Everybody’s going broke. 

Radios are going broke. TV is going broke. Everybody is going 

broke. It’s a great world and that doesn’t matter. 

We have an obligation to the Mrs. Dixes, we flat out do. And 

we’re not fulfilling it. We’re not even noticing it. We’re not even noticing it. 

76 

And I’m interested in these states. Maybe more of this should go 

to the states. The problem is a lot of states wouldn’t care. They 

wouldn’t do a thing. 

Minnesota would. A lot of other states wouldn’t. So anyway, on 

that tender note, this hearing is adjourned. 

[Whereupon, at 12:10 p.m. the hearing was adjourned.] 

(77) 

A P P E N D I X 

PREPARED STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM TEXAS

Thank you, Chairman Rockefeller, for holding this morning’s hearing. The effects 

of the troubled economy are being felt nationwide with rising unemployment rates, 

a distressed housing market, and depleted retirement savings. We are witnessing 

a visible increase in the number of consumers who have mounting unpaid bills and 

they are losing their homes. This is alarming in and of itself, but more disconcerting 

is the fact that some individuals may use this opportunity for their own gain and 

prey on those in trouble. 

Financial distress—especially the worry of losing a house—can lead to desperation 

and it is imperative that disreputable companies not be allowed to profit from the 

misfortune of others. There are a number of Federal laws aimed at protecting the 

public from dishonest conduct in the financial services industry and the FTC is 

tasked with the responsibility of stopping such practices when the need arises. Besides shutting down bad actors, it is essential that consumers be knowledgeable 

from the start so they can make responsible, educated financial decisions, and know 

what their options are if they ever find themselves in trouble. They should know 

how to reach trustworthy help and be aware of the warning signs of any fraudulent 

companies that may promise to help them. 

I want to thank all of the witnesses for agreeing to be here today and I look forward to a constructive conversation. 

MICHAEL C. DILLON, Manchester, NH. 

Hon. JAY ROCKEFELLER, Chairman, 

Commerce, Science, and Transportation Committee, 

Washington, DC. 

RE: ‘‘CONSUMER PROTECTION AND THE CREDIT CRISIS’’ FEBRUARY 26, 2009 

Dear Mr. Chairman, 

Admittedly, I am at somewhat of an advantage in that I have been able to study 

previous testimony and address it at my leisure but I feel that I need to rebut some 

of the Commissioner Harbour’s testimony given during this hearing. 

I am nothing more than a consumer living in New Hampshire. However, I am one 

of the 281,1000 Federal Trade Commission-certified victims of mortgage servicer 

Fairbanks Capital Corp. n/k/a Select Portfolio Servicing Inc. as certified for USA v. 

Fairbanks in 2003/2004. My personal experience with and observance of Federal 

Trade Commission actions differs from the portrait that Commissioner Harbour 

painted for you during her testimony. 

It is my personal experience, and that of many, many other Fairbanks/SPS victims, that the Federal Trade Commission did little to originally protect homeowners 

victimized by Fairbanks/SPS or to enforce the terms of the settlement of USA v. 

Fairbanks. While the class action was settled back in 2004, I hear from Fairbanks/ 

SPS victims attempting to save their homes from illegal foreclosures via my website, 

GetDShirtz.com, literally to this day. Some of these victims have been dealing with 

Fairbanks/SPS’ illegal and fraudulent servicing actions for ten or more years. One 

disturbing complaint that I hear more often than I care to is that Fairbanks victims 

never received notification of the class action and therefore were unable to preserve 

their legal rights by opting out of it. 

Despite the fact that this has been brought to the Federal Trade Commission’s 

attention on more than one occasion, the FTC has taken no apparent action. In fact, 

the Federal Trade Commission has received more than 500 pages of complaints from 

consumers/Fairbanks victims post USA v. Fairbanks settlement and, to the best of 

my knowledge, has only taken action to modify the original settlement to the benefit 

78 

of Fairbanks/SPS in September 2007. To this day, no action has been taken by the 

Federal Trade Commission to enforce the original settlement terms or protect consumers/homeowners harmed by Fairbanks/SPS’ actions. 

The Federal Trade Commission has, in its possession, approximately 60–100 boxes 

of information and/or evidence that it has collected through its investigation of Fairbanks/SPS. Yet, when asked, it is the Commission’s position to deny the very victims it portends to protect and the public in general access to the vast majority of 

this information despite the fact that this information may very well assist homeowners/victims to prove their own cases of illegal foreclosure brought by Fairbanks/ 

SPS against them. Through a Freedom Of Information Act request I have been 

granted access to a supposed total of six of those boxes of information. Much of what 

I have been given is simply consumer complaints. The remainder of the information 

is largely media coverage of the investigation and several private actions filed by 

consumers that have been redacted to ‘‘protect’’ victims’ identities. How the Federal 

Trade Commission can legally redact publicly filed court actions I am not sure. But 

the bottom line is that it has been my personal experience that the Federal Trade 

Commission is, in fact, not doing everything it can to protect consumers or help consumers protect themselves. 

Commissioner Harbour stated that the Federal Trade Commission needed additional authority to bring actions against corporations for violations of The FTC Act, 

FDCPA, TILA, and the CRO Act. The fact is that the Commission already has this 

authority and has used it many times in the past against those corporations that 

choose to violate the acts. Unfortunately, for whatever reason, the Commission does 

not seem to want to enforce these laws and regulations to their fullest capacity. In 

2008 the Commission waived all but $8,000.00 of a $1.2 million civil penalty levied 

against a mortgage XXX because of ‘‘the defendants inability to pay’’ the fine. This 

is an extremely disturbing trend that can be tracked via the Commission’s own 

website at www.ftc.gov. A search of the phrase ‘‘defendants inability to pay’’ at the 

FTC site reveals approximately 280 instances where defendants have been given 

waivers of civil financial penalties because of the defendants inability to pay them. 

How could civil action from the Federal Trade Commission serve as any kind of deterrent of ‘‘bad acts’’ if corporations can expect to have the financial penalties 

waived by the Commission? 

Commissioner Harbour cites FTC v. EMC/Bear Stearns as one of the Commission’s ‘‘success stories’’ in informing consumers/victims of the Commissions actions. 

Based on my own limited knowledge of the case, combined with conversations that 

I have had and comments that I have read by EMC victims, FTC v. EMC/Bear 

Stearns should be considered an embarrassment to the Commission as opposed to 

anything even remotely resembling victory or evidence of the Commission’s efficacy 

in protecting consumers. I say this because FTC v. EMC/Bear took place more than 

4 years after the settlement of USA v. Fairbanks. If USA v. Fairbanks had been 

any kind of deterrent to the mortgage servicing industry, the Commission never 

should have had to bring charges against EMC/Bear Stearns to begin with. The fact 

of the matter is that USA v. Fairbanks was viewed by the servicing industry as 

nothing more than the cost of doing business in the United States. The lack of enforcement of the Fairbanks/SPS settlement did absolutely nothing to deter other 

servicers from committing virtually identical illegal practices in their own business 

models. 

The Commission brought virtually identical charges in FTC v. EMC/Bear to those 

brought against Fairbanks/SPS. There may actually have been more charges 

brought in FTC v. EMC/Bear than were brought in USA v. Fairbanks. But, for 

some reason, the Federal Trade Commission chose to settle EMC/Bear for nearly 

half of the $40 million settlement obtained in USA v. Fairbanks. Additionally, EMC/ 

Bear was settled before the actual number of victims involved in the case was even 

determined. The day after the EMC/Bear settlement was announced, I received a 

return telephone call from FTC Attorney Lucy Morris’ office as I had inquired about 

the number of victims involved in EMC/Bear. I was told that that number had not 

been determined as of that time but the FTC was expecting ‘‘tens of thousands’’ of 

victims to be included in the action. How could the Commission accurately determine the amount of restitution and/or redress that needed to be extracted from 

EMC/Bear if the Commission had no idea how many victims were actually affected 

by EMC/Bears’ illegal actions? 

Commissioner Harbour cited the fact that the fact that the Commission used the 

redress checks from FTC v. EMC/Bear as a measure of ‘‘reaching out’’ to the 86,000 

consumers eventually determined to be victims of EMC/Bear Stearns. There are several serious problems in utilizing this method of informing consumers/victims. I 

have personally heard from at least one EMC victim that, to this day, has not been 

notified of the action or received any kind of restitution. This despite EMC’s attempt 

79 

to literally rewrite her chain of title at her county registry of deeds. This victim has 

provided evidence of this action taken by EMC to me so I do not state this in any 

kind of uninformed or speculative manner. If the Commission failed to inform one 

victim, how many others did the Commission miss? 

Secondly, the 280,000 victims certified in USA v. Fairbanks were required to give 

up any legal rights to pursuer Fairbanks/SPS in any further legal action in order 

to obtain their redress/restitution. In providing restitution/redress checks to the 

86,000 consumers that the Commission deemed to be victims of EMC/Bear were 

these victims required to do so as well? Was this properly explained to the 86,000 

victims before they cashed their redress/restitution checks? Did the 86,000 victims 

fully understand the legal ramifications of accepting the redress/restitution checks? 

Did they, in fact, give up any legal rights in accepting those checks? 

Most importantly, we are only now finding out the necessity to have servicers, 

note holders, trustees and others involved in bringing both judicial and non-judicial 

foreclosure actions prove that they have legal standing to bring those actions. It is 

becoming increasingly apparent that more and more original notes have been ‘‘lost’’ 

or are otherwise unable to be produced by the supposed owners and/or foreclosing 

entities. Such being the case, did the Commission due proper diligence in confirming 

that EMC/Bear had the proper legal standing to be servicing each of the 86,000 

loans involved in FTC v. EMC/Bear Stearns or did the Commission simply assume 

that EMC/Bear had proper legal standing at the time of settlement? 

Mr. Chairman, I am all for laws and regulations that protect consumers in any 

manner, shape and/or form. In my own humble opinion, there are already sufficient 

laws and regulations to protect consumers from the ‘‘bad actors’’ that Commissioner 

Harbour and the Federal Trade Commission supposedly prosecute. The problem lays 

in the enforcement —or more precisely the lack thereof—of these laws and regulations. To the best of my knowledge, the Federal Trade Commission is a civil enforcement entity. Herein lies the problem. Any ‘‘civil’’ penalty brought by the Commission 

has the potential to be waived if a corporation is determined ‘‘unable to pay’’ the 

penalty or any portion thereof. Even if a corporation is held to the full civil penalty 

imposed by the Commission, in many cases the penalty is so insignificant compared 

to the corporation’s income that it is viewed as nothing more than the cost of doing 

business in the United States. In the years leading up to the Commission’s investigation of Fairbanks, Fairbanks was reportedly making upwards of $100 million 

per month. A review of their financial records or The PMI Group’s SEC filings may 

be able to confirm this. Fairbanks/SPS ‘‘voluntarily’’ settled USA v. Fairbanks for 

between $40 and $55 million. Of that amount, Fairbanks’ majority shareholder, The 

PMI Group, guaranteed $35 million. The minority shareholder, Financial Security 

Assurance, provided an additional $10 million. Testimony was provided in USA v. 

Fairbanks stating that Fairbanks/SPS was in such poor financial condition that defense counsel, plaintiff counsel and the Commission expressed concern as to whether 

Fairbanks would survive beyond the class action. Yet, 6 months after the settlement 

was approved, Fairbanks/SPS was purchased by Credit Suisse and immediately obtained $6 Billion in servicing business. If a corporation cannot provide proper restitution as a result of a Federal Trade Commission investigation, settlement or verdict, why is that corporation given the opportunity to continue to do business via 

reduced fines or ‘‘waivers’’ of monetary penalties as opposed to being dissolved? Despite the Commission having the ability to seek additional restitution from defendants if/when their financial situations improve, the Commission does not always 

seek to do so, as in the case of USA v. Fairbanks/SPS. 

As long as corporations have no fear of any criminal prosecution by the Federal 

Trade Commission or other enforcement body, these ‘‘penalties’’ levied by the Commission will be viewed as nothing more than the cost of doing business. It is also 

my opinion that, as long as the Federal Trade Commission is allowed to function 

in the manner in which it has for at least the last 10 years, consumers have no 

hope of being properly protected or compensated for the illegal acts perpetrated 

against them by corporate greed. 

I would be more than happy to attempt to answer any questions that the Committee may have at any time. 

Sincerely, 

MICHAEL C. DILLON

80 

FEDERAL TRADE COMMISSION

Washington, DC, March 23, 2009 

Hon. JAY ROCKEFELLER, Chairman, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Chairman Rockefeller, 

I am writing to follow-up on questions that were raised during the Federal Trade 

Commission’s February 26, 2009 testimony regarding the credit crisis and consumer 

protection and questions for the record that were provided by Senator Warner and 

Senator Boxer. I welcome this opportunity to provide the information requested and 

also to provide some additional information about the FTC’s consumer protection 

mission. 

I. The Bureau of Consumer Protection 

As you know, the Commission has two law enforcement missions: competition and 

consumer protection. On the consumer protection side, the FTC has 270 attorneys 

who are responsible for enforcing more than forty Federal consumer protection laws 

and regulations. In Fiscal Year 2008, the Commission filed 68 new consumer protection law enforcement actions in Federal district court, on issues ranging from the 

financial matters we discussed at the hearing, to telemarketing fraud and false advertising, data security and violations of the National Do Not Call registry. In 2008, 

Commission staff obtained orders providing monetary redress for consumers totaling 

$215 million, and obtained orders requiring an additional $14 million in payments 

to the U.S. Treasury for civil penalties and the disgorgement of ill-gotten gains. In 

2008, the Commission’s law enforcement actions stopped ongoing illegal conduct victimizing millions of consumers. In addition to litigating cases, attorneys in the Bureau of Consumer Protection are conducting numerous ongoing rulemakings, investigating and preparing significant reports, such as the 2008 study on food marketing 

to children and adolescents and reports on behavioral advertising and debt collection, providing guidance to industry to help them comply with the rules we enforce, 

engaging in outreach to stakeholders through workshops and seminars, and providing support to other law enforcement agencies, including criminal authorities. 

Unlike other agencies that do not litigate their own cases, FTC staff are responsible for investigating and litigating almost all o f the consumer protection cases we 

bring. Investigating fraud cases can be quite challenging and resource-intensive, 

and FTC staff have developed the skills needed to track down recalcitrant defendants, unravel complex corporate webs, locate bank assets and other hidden funds, 

find witnesses, and develop a sufficient evidentiary record to allow us to convince 

a Federal court to issue injunctions to stop the fraud and ultimately redress consumers. The consumer protection cases brought by the FTC often proceed to litigation, and 

substantial staff resources are dedicated to litigating these cases that do not settle. 

Indeed, at the moment, the Bureau of Consumer Protection is actively litigating approximately 55 cases. Many of these cases are complex litigations with sophisticated 

opposing counsel and require the agency to devote substantial resources to extensive 

discovery, motions practice and ultimately trials. To best leverage its limited resources, Commission staff work closely with other state, local, and international law 

enforcement agencies and we occasionally coordinate law enforcement sweeps with 

these other agencies. Additionally, Commission staff frequently work with criminal 

law enforcement agencies to encourage the criminal prosecution of crimes arising 

from acts investigated by the Commission. 

II. Follow-up Requested at the Hearing 

A. Is it advisable for the Federal Trade Commission to compile a list of bad actors 

so consumers know which companies to avoid? 

It would be extremely difficult to compile and maintain an accurate and reliable 

nationwide list of bad actors. In the first instance, it would be difficult to create 

such a list, given the scope of the marketplace and the types of businesses under 

the FTC’s jurisdiction. Any such list also would be out of date quite soon because 

bad actors committing fraud change their names and lines of business very quickly. 

In addition, there are legitimate companies that the FTC has charged with violating 

the law, and in some instances in very serious ways, but nevertheless they later 

change their business practices and comply with the law. Such a company could remain mistakenly on a ‘‘bad actors’’ list even after it has come into compliance. 

The FTC does inform the public of companies and individuals who have been 

named as defendants in Commission law enforcement actions. The agency specifiVerDate Nov 24 2008 12:52 Jun 15, 2009 Jkt 050180 PO 00000 Frm 00084 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\50108.TXT SCOM1 PsN: JACKIE
81 

cally publicizes and makes available on its website the names of companies and individuals that the Commission has named in its lawsuits. However, the agency only 

does so after it has developed evidence sufficient to provide at least reason to believe 

that they have violated the law. Consumers may consider this information in deciding whether to do business with a company or an individual. 

Overall, however, the best strategy to warn consumers about bad actors is 

through consumer education about bad business practices. That is why the FTC’s 

multi-media consumer education campaigns give consumers the tools and information they need so that they can independently assess each company’s marketing 

practices, spot red flags, and stop before paying a had actor for any promised service 

that may not be provided. 

B. Why doesn’t the FTC engage in television public service advertising? 

Commission staff have not found the production of video public service announcements (PSAs) for network or cable TV to be a cost-effective use of our limited budget. A study by the Kaiser Family Foundation, released in January 2008 (see http:// 

www.kff. org/entmedia/entmedia012408nr.cfm), found that TV stations donate an 

average of 17 seconds per hour to public service advertising, and only 9 seconds per 

hour in prime time. 

Much of that PSA time is given to messages produced by the networks themselves, on issues they choose. An example of this is the ‘‘The More You Know’’ campaign by NBC Universal. Nevertheless, many large-scale public education campaigns still include a TV PSA component, so there is intense competition to get 

PSAs on the air, even though available time slots are not ideal and are ad hoc. 

The Commission has had success with other types of public service announcements. We have created PSAs to run in the classified advertising sections of newspapers and other print publications, and we have created PSAs for magazines on 

request. We also have produced PSAs for radio—both announcer copy and produced 

spots. We have anecdotal evidence that announcers read our public service copy and 

get it into their rotations—and that they download our produced spots from our 

website and use those as well. These radio spots often have led to news interviews 

with FTC staff attorneys. We have created videos for distribution on the web that 

local cable access shows have aired. Cable access stations are much more generous 

than networks at placing PSAs, but their viewership is relatively low. Some of the 

FTC’s videos can be seen at www.YouTube.com/FTCVideos. 

Video is, nonetheless, a critical component of most successful outreach efforts, and 

I believe that producing informational videos, posting them to the web, and releasing them to the press and to interested partner organizations is one of the most efficient and cost-effective ways for us to reach a wide audience. Our recent videos illustrate the power and reach of our efforts in this area: we released two videos telling people that AnnualCreditReport.com is the one authorized source for the free 

credit reports that the law entitles consumers. One week following the release of 

the videos, we have reports indicating they were the subject of almost 100 influential blogs as well as news stories in 37 markets. Many of the stories and posts included embedded videos, and all included a link to either www.FTC.gov/freereports 

or www.YouTube.com/FTCVideos. At this writing, the videos have logged some 

40,000 views on the FTC’s YouTube channel. 

C. How does the FTC measure the effectiveness of its consumer education campaigns? 

The FTC produces, promotes, and disseminates educational messages and materials to the widest possible audience through multi-faceted communications and outreach programs. These efforts involve the use of print, broadcast, and electronic 

media, the Internet, special events, and partnerships with other government agencies, consumer groups, trade organizations, businesses, and other organizations. We 

design our materials and campaigns to be relevant to the specific audiences most 

affected by the topic at hand. 

Commission staff have developed creative and effective ways of reaching all types 

of consumers to arm them with the information they need. Indeed, the form in 

which the information is presented is important to consumer education campaigns 

and, therefore, the FTC uses a variety of products to educate consumers and businesses. For example, the FTC uses print materials, mini-CDs containing all of the 

FTC’s credit materials, websites, videos, radio public service announcements, bookmarks, and signs on public transit vehicles. 

The FTC uses a number of ways to measure the reach of various aspects of a consumer education campaign. For example, we track the distribution of printed publications—what publications are ordered, how many, and by what organizations. We 

also track visits to the websites we host that provide information online. In so doing, 

we are able to monitor the type of information that is of most interest to businesses 

82 

and consumers. The FTC also tracks media usage of its consumer education information, and we pay close attention to what consumers report to our counselors on 

our toll-free help line and to our website. This information is helpful in tracking 

trends in fraud and other consumer protection issues over time. In addition, the 

FTC has conducted two national telephone surveys about consumer experiences 

with fraud, and other quantitative and qualitative opinion research on specific consumer experiences. 

However, the U.S. and global marketplaces are incredibly dynamic—with many 

factors at work—so it is difficult to attribute changes in behavior and awareness 

over time to a single factor, such as a specific consumer education campaign. Moreover, it is often unclear whether an increased number of consumer complaints reflects the fact that a practice is becoming more widespread or that consumers have 

an increased awareness about where they should report the unlawful practice. Although the FTC can monitor certain aspects related to its consumer education campaigns, such as the number of visitors to a ‘‘branded’’ website, the number of publications ordered, the partner organizations ordering information to disseminate on 

our behalf, or the media pick-up, it is difficult to extrapolate from those numbers 

the extent to which preventive efforts have been effective. 

D. What specific outreach is the FTC doing regarding mortgage foreclosure rescue 

scams beyond online consumer education? 

In February 2008, the FTC started to use a variety of methods to alert people to 

mortgage foreclosure rescue scams. Working with the media, Federal, state and 

local agencies, partner organizations and others—to help us extend our reach and 

get the biggest bang for our buck—the FTC produced and distributed public service 

announcements for print, online and radio; produced brochures that have been distributed by law enforcement partners, placed articles in community newspapers 

across the nation, encouraged Congressional staff to run the information in their 

own constituent newsletters; and participated in local law enforcement task forces. 

Indeed, FTC staff sent an article adapted from our consumer education materials 

to a national syndicated news service, which, in turn, sent it to more than 10,000 

community newspapers. The English version of the article generated more than 

1,000 placements in more than 30 states with a readership of more than 127 million. The Spanish version has generated more than 35 newspaper articles in 5 states 

with a readership of more than 2.6 million. 

Educating consumers about these scams remains a high priority and we are working with coalitions of mortgage servicers and others active in the mortgage arena 

to do targeted foreclosure rescue scam prevention education throughout the Nation. 

Additionally, moving forward, our outreach plans on foreclosure rescue scams and 

loan modification scams include using public transportation systems to get out the 

HOPE Now telephone number and related websites, and producing videos for the 

Web and for use at events about foreclosure rescue and loan modification scams. 

III. Question for the Record from Senator Warner 

Question. A recent FTC report recommends that reforms to the Fair Debt Collection Practices Act are warranted with respect to ‘‘new and emerging technologies.’’ 

Specifically, the report recommends that debt collectors be permitted to contact 

debtors by cell phone if they have prior consumer consent. However, I’ve heard 

about debt collectors using social networking websites such as Facebook and 

MySpace to contact and/or harass debtors. Other than the issue of contacting debtors by cell phone, what are the FTC’s plans, if any, to protect debtors from overzealous debt collectors with respect to social networking websites and other ‘‘emerging’’ technologies? 

Answer. In the FTC’s Debt Collection Workshop Report, entitled ‘‘Collecting Consumer Debts: The Challenges of Change,’’ the Commission stated that third party 

collectors (‘‘debt collectors’’) generally should be permitted to use all communications 

technologies, including new and emerging technologies such as social networking 

sites, to contact consumers. The FTC emphasized however, that debt collectors who 

use such new technologies to contact consumers must not engage in unfair, deceptive, or abusive acts and practices in violation of the Fair Debt Collection Practices 

Act (FDCPA), and creditors collecting on their own debts must not engage in unfair 

or deceptive acts and practices in violation of Section 5 of the FTC Act. 

While the FTC’s report concluded that the FDCPA should be modernized to adapt 

to changes in new technology, current law clearly prohibits certain practices now. 

For example, a debt collector would violate the FDCPA if it posted information 

about a consumer’s debt on the public portion of his or her page on a social networking site. Section 805(b) of the FDCPA generally prohibits collectors from revealing the existence of a debt to anyone other than the consumer, the consumer’s 

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spouse, or the consumer’s attorney. Section 806(3) of the FDCPA also generally prohibits collectors from publicizing lists of consumers who allegedly refuse to pay 

debts. A collector rho posts information about a consumer’s debt on the public portion of his or her page on a social networking site likely would violate one or both 

of these FDCPA provisions. 

The Commission intends to closely monitor the use of new technologies by debt 

collectors to make sure that they are complying with the law. With regard to social 

networking sites, in particular, the FTC has received very few complaints about collectors contacting consumers via social networking sites or posting information 

about consumers on these sites. State officials who enforce laws similar to the 

FDCPA likewise report an absence of debt collection complaints relating to social 

networking sites. Although there currently appear to be few consumer complaints 

about this topic, because communication through social networking sites is likely to 

continue to increase, the FTC will monitor this area to prevent collectors from violating the law in connection with using this method of communication to contact 

consumers. 

IV. Questions for the Record from Senator Boxer 

Question 1. Where does the FTC rank combating mortgage foreclosure scams on 

its priority list? 

Answer. Combating mortgage foreclosure scams is a top priority. We have brought 

cases against mortgage foreclosure rescue scams targeted at homeowners facing 

foreclosure, and are now seeing companies make deceptive loan modification offers 

to borrowers who are not yet in foreclosure. We are devoting substantial resources 

to law enforcement and consumer education initiatives in this area. 

Question 2. What are you seeing that is new with respect to mortgage scams? 

Answer. With the advent of the array of Federal-sponsored or supported loan 

modification programs, marketers are now touting loan modification programs in 

addition to the prevalent foreclosure assistance scams. Some loan modification firms 

recruit unemployed mortgage brokers who know the mortgage market and can impress borrowers with their technical knowledge. 

Question 3. Is additional legislation needed to address mortgage fraud? 

Answer. The FTC has used its existing authority under Section 5 of the FTC to 

reach unfair or deceptive acts or practices in this area. The omnibus budget bill just 

passed by the Congress directs the Commission to initiate a rulemaking regarding 

mortgage loans. We anticipate using this new authority to address unfair or deceptive loan modification or foreclosure assistance practices, in addition to other practices related to mortgage loans. 

Question 4. The State of California has taken steps to discourage mortgage fraud 

by working to prohibit mortgage brokers and real estate agents from collecting fees 

before rendering services. Would the FTC support this type of legislation? 

Question 5. Have you found cases where attorneys are participating in mortgage 

foreclosure rescue fraud? Is there legitimate work being performed by either brokers 

or lawyers that would merit an advanced fee? 

Answer. In response to questions 4 and 5, I agree that advance fees charged by 

companies purportedly offering mortgage loan modification or foreclosure assistance 

services are extremely problematic as many consumers report that, after paying the 

fee, the companies do little or nothing to help consumers as promised. However, we 

know that some state laws, such as California’s law, exempt attorneys from coverage of the advance fee ban which has led to some companies either adopting ‘‘law 

firm’’ in their name or affiliating with a law firm or lawyers to take advantage of 

the exemption. We are discussing the effect of these state laws with state enforcers 

and are exploring uses of the FTC’s existing authority to determine the best way 

to address this practice. 

Question 6. Have you seen an increase in cases where homeowners who have not 

received Notices of Default are being targeted in mortgage fraud? 

Answer. Yes, as discussed in response to Question 2, above, marketers are now 

touting loan modification services, particularly in light of both private and government-backed loan modification plans that are being widely publicized. Generally, 

based on our enforcement experience in mortgage foreclosure fraud, both homeowners in foreclosure as well as homeowners who were not in financial trouble have 

consistently been targeted. 

Notices of Default bring up a troubling problem. Some states have an expedited 

non judicial foreclosure procedures (e.g. Georgia) such that, when homeowners receive notice of default, it is almost too late to do anything to save the mortgage 

other than pay the entire arrearage plus fees. Promises of foreclosure assistance in 

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those instances are particularly pernicious given that the chance of averting foreclosure is unlikely. 

Conclusion 

I appreciate this opportunity to respond to your questions in connection with the 

FTC’s recent testimony. If you or your staff have additional questions or comments, 

please contact me or have your staff contact Jeanne Bumpus, the Director of our 

Office of Congressional Relations, at (202) 326–2946. 

Sincerely, 

PAMELA JONES HARBOUR, 

Commissioner. 

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