There have been several interesting developments recently in the debt industry:
1. A large debt settlement company in California was targeted by the Federal Trade Commission and put under receivership, and the principal owner’s personal assets were frozen pending litigation by the government. A federal judge has granted the FTC a temporary restraining order against Homeland Financial Services and four other companies. (The multiple companies were really all part of the same operation.) As with most FTC press releases that pertain to debt settlement companies, it’s quite clear that the government doesn’t have a clue as to what debt settlement is really all about. However, in the case of this particular operation, it does appear that the enforcement action was warranted. Homeland Financial had generated hundreds of unresolved complaints with the Better Business Bureau. Most of the complaints related to the company’s reluctance to refund fee money to unsatisfied customers. This is a clear indication of arrogance and/or incompetence on the part of the owners or executives. It’s also a strong indication that the company’s representatives failed to properly explain the program to prospective clients. Complaints happen when people feel cheated, and when they don’t understand what they are signing up for. Since debt settlement is an alternative to bankruptcy, it has both positive and negative aspects. Unfortunately, it’s too easy for a sales rep to focus on the good features, and to downplay or omit discussion of anything negative. A company that endorses such a marketing approach is just asking for trouble. It’s unfortunate that the bad actors reflect poorly on the good players in the industry, many of whom are really working hard to adhere to rigid standards for business practices. I recently attended a trade conference hosted by TASC (The Association of Settlement Companies), where clear standards were one of the key topics of discussion. It’s too bad the folks at Homeland Financial ignored the need for standards, as well as participation in a trade association that’s working hard to clean up the industry.
2. In the wake of the recent 4-part series in the Boston Globe that exposed the underbelly of the Massachusetts collection industry, two of the collection companies cited in the series have closed operations in Massachusetts rather than go through the state licensing process. Boo-hoo. The bad guys had to leave town. Score one for the little guy. It’s great to see a serious piece of journalism actually accomplish a result like this. Hundreds of other collection agencies have been sent notices by Massachusetts authorities to get licensed or cease operations. Let’s hope major newspapers in other states catch on and start doing investigations of their own.
3. Congress passed, and President Bush is expected to sign, the Financial Services Regulatory Relief bill, which includes clarifications to the Fair Debt Collection Practices Act. Most of the updates deal with technicalities, such as the language of the “mini-Miranda” warning (“this is an attempt to collect a debt,” etc.), the rules regarding collection activity within the initial 30-day dispute period (collection activity is ok in the absence of a known dispute by the consumer), and whether or not certain forms of communication (privacy notices, 1099-C forms, etc.) constitute debt collection attempts. One of the most important provisions of the bill is the exemption of certain bad check collection firms will not be regulated as debt collectors under the FDCPA. (This is an incredibly bad idea. See my blog post of May 4, 2006 for further info on this point.) Naturally, there was nothing in the bill that benefited consumers in any way.