Leading Debt Relief Firm Supports FTC Ban on Up-Front Fees

COLUMBIA, Md., July 29 /PRNewswire/ -- CareOne Services supports the Federal Trade Commission (FTC) Rule issued this afternoon aimed at cleaning up the debt settlement industry by banning the high fees often charged to consumers before services are provided. The new regulations raise standards and prohibit the abusive practice of charging high upfront fees for services that may never be delivered. Under the previous structure, debt settlement companies could charge thousands of dollars in nonrefundable upfront fees, even if the consumer never successfully settled any outstanding debt.  

While the new Rule is the right step to better protect consumers, CareOne believes it does not go far enough in protecting all consumers from abusive practices and creating transparency and uniformity in the debt relief industry.

The biggest shortfall of the Rule is that nonprofit providers are exempt from the FTC's regulatory authority even though many provide debt settlement services, a gap acknowledged by the FTC. The result is that more than 85 percent of the debt relief industry will be exempt from the new rules. CareOne believes that all providers of debt relief services should adhere to high standards, regardless of tax status. This is particularly important given the fact that several significant cases of consumer abuse in the industry have arisen from nonprofit debt relief providers. To protect all consumers, CareOne is urging Congress and the newly created Consumer Financial Protection Bureau to extend the consumer protections of the FTC Rule to all organizations that provide debt relief services.

"CareOne supports these higher standards and we feel it would highlight the commitment of the Consumer Financial Protection Bureau to truly look out for the best interest of consumers if it were to apply these standards to all debt relief service providers," said Mike Croxson, CareOne president. "The entire industry should be held to a higher standard. If 85 percent of the industry is exempt from the rules, then there is no question we will see the same kinds of abuse in the nonprofit sector as we have seen among many for-profit debt settlement providers. Not paying taxes is not a guarantee that a service provider is honest and operating with the consumer's best interests in mind."

In exempting the majority of debt relief providers from the new Rule, the FTC falls short of the transparency and uniformity promised by the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed just last week by the President. The newly created Consumer Financial Protection Bureau should write uniform rules that are consistently applied to all debt relief providers or Congress should update the FTC's authority over nonprofits in this area. Otherwise, there will remain the risk that millions of consumers will face abuse at the hands of unscrupulous debt settlement companies. 

"The limitations of the Rule will quickly be exploited by those organizations which do not fall under the scope of the new guideline," Croxson said. "In many cases, it was abuses by these organizations that initially spurred the FTC to draft the Rule."

CareOne believes the following elements are most important as part of the new FTC rules.

• Affordability: High upfront fees charged before services are provided are now banned. Any fees that are charged should be commensurate with the services received.

• Disclosure: The rules require companies to disclose what services will be offered, the related costs and the length of time it will take before consumers will receive debt relief.

CareOne provides credit counseling for free and debt management programs in 41 states. In addition, it introduced debt settlement services in 9 states in 2009 and plans to expand the service to more states this year. Unlike the vast majority of debt settlement providers, CareOne has never charged high upfront fees. The costs of its services are tied directly to achieving successful settlements for consumers. It also provides free advice and financial education to potential clients to ensure that settlement really is the best solution for them.

"Some academics, debt settlement companies and even industry associations have claimed that it would be very difficult or impossible for providers to offer debt settlement without charging up-front fees," Croxson said. "However, CareOne rolled out a debt settlement program in 2009 that operates by charging minimal or no fees up front. That means our settlement customers can settle their first debt much faster."

One of the programs that CareOne has developed is a service guarantee. It promises that when consumers enroll in a debt settlement program, they have up to 180 days to determine if it is right for them. If it is not, CareOne will refund any fees paid, no questions asked. CareOne believes a service guarantee program should be included in any debt settlement legislation, and currently offers the program in states where it is allowed.

CareOne's service guarantee program is a mark of a legitimate and reliable debt relief provider as opposed to relying on a provider's tax status or their membership in a trade association.

Historically, debt settlement services have been mostly provided by for-profit companies, but nonprofit organizations are increasingly announcing settlement services. Unless Congress acts by giving the FTC authority over these nonprofits or until the Consumer Financial Protection Bureau issues comprehensive rules pursuant to its authority, there will be little federal oversight and nonprofit debt relief companies will collect billions of dollars in fees from consumers without the appropriate protections for consumers.

About CareOne Services

CareOne Services Inc. is a debt relief company formed in 2002 to provide consumers with multiple solutions to complex money issues. CareOne takes a holistic approach to assisting customers in debt and reviews each situation to create achievable financial solutions. CareOne's services include credit counseling, debt management and debt settlement.

CareOne also provides the My CareOne community (MyCareOne.CareOneCredit.com), a free online resource for consumers that includes educational tools, blogs and forums where more than a million people share their experiences and receive support from others in similar situations.

Headquartered in Columbia, Md., CareOne has helped more than 2 million people. In 2009, it provided consumers with the tools and assistance to pay down more than $294 million in debt. CareOne provides services in 41 states. For more information, call 1-800-364-6981 or visit CareOneCredit.com.

SOURCE CareOne Services