The American Bankers Association and six other major financial trade groups are urging Congress to take a closer look at the debt settlement industry, warning lawmakers that current oversight under the Federal Trade Commission’s Telemarketing Sales Rule may not be enough to address what they describe as deceptive and harmful practices. In a letter sent last week to key Senate and House committee leaders, the associations called for proactive legislation to modernize federal oversight and close what they view as structural gaps in the current regulatory framework.
The letter, signed by organizations including the American Bankers Association, ACA International, America’s Credit Unions, the American Financial Services Association, and others, expresses concern that certain debt settlement companies continue to mislead consumers despite existing FTC enforcement actions.
According to the associations:
- Many debt settlement companies require a minimum of $7,500 in debt to enroll and charge fees ranging from 15% to 25% of total enrolled balances.
- The median enrolled debt across seven accounts was $27,500, and programs can take years to complete.
- One study estimated that approximately 25% of enrollees did not resolve a single account.
The letter also highlights the industry’s “strategic default” model, where consumers are instructed to stop making payments and cease contact with creditors while funds accumulate in a designated account for future settlements. The associations argue that this approach can result in worsened credit scores, increased collection activity, higher balances due to interest and fees, and potential litigation exposure.
While acknowledging that the FTC has brought enforcement actions and maintains a list of banned providers, the groups argue that enforcement alone is reactive and resource dependent. They are urging Congress to consider legislation that would codify key Telemarketing Sales Rule protections and establish additional safeguards to ensure consumers receive accurate information and understand the risks involved.
