New FTC Rules for Debt Relief Services Turn Up the Heat on Lead Generators and Affiliate Marketers
This is a Guest Post by Jonathan L. Pompan, Esq., Venable LLP, Washington, DC
Less than two days after the close of LeadsCon East 2010, on July 29, 2010, at the White House, with Vice President Biden at the podium, the Federal Trade Commission (the “FTC” or the “Commission”) announced its long-awaited amendments to the Telemarketing Sales Rule (“TSR”) targeting the sale of “debt relief services” (the “Final Rule” or the “rule”). The new rules will require lead generators and affiliate marketers to re-evaluate marketing methods and exercise additional due diligence when evaluating business relationships.
Under the Final Rule, virtually all debt relief service providers that promote their services through inbound or outbound telephone calls, including calls arising from lead generators and online advertising, will be subject to a host of new and existing requirements under the TSR – most notably, a ban on advance fees before services are provided and a renewed emphasis on companies that provide “substantial assistance.”
The FTC’s stated goal for the new rule is to curb deceptive and abusive practices in the telemarketing of debt relief services. The revisions to the TSR were inspired largely by advertising for debt settlement services that promised extraordinary results that consumer’s never achieved despite paying significant fees. As a result the FTC, state Attorneys General, and other state regulators brought enforcement actions in the debt relief space because, to use FTC Chairman Jon Leibowitz’s words, “many of these companies pick[ed] the last dollar out of consumers’ pockets – and far from leaving them better off, push[ed] them deeper into debt, even bankruptcy.”
The rule defines the term “debt relief service;” ensures that, regardless of the medium through which such services are initially advertised, telemarketing transactions involving debt relief services will be subject to the TSR; mandates certain disclosures and prohibits misrepresentations in the telemarketing of debt relief services; and, most significantly, prohibits any entity from requesting or receiving payment for debt relief services until such services have been fully performed, accepted and documented to the consumer.
A few other highlights of the rule:
- under the TSR it is illegal to provide “substantial assistance” to another company if you know they are violating the rule or if you remain deliberately ignorant of their actions (in the case of debt relief services the FTC made clear this may expressly apply to lead generators, back-office processors, and “dedicated account” providers, among others);
- strict parameters are established regarding “dedicated accounts” utilized to set aside funds for settlement and settlement company fees;
- there are very specific and strict guidelines for the types of substantiation necessary before certain marketing claims can be made; and
- the rule can be enforced by the FTC, the new Bureau of Consumer Financial Protection, state Attorneys General, and through private litigation, including class actions.
The Final Rule is likely to cause debt relief providers – primarily for-profit debt settlement companies – to have to transition to new business models and to develop compliance programs that reflect strict advertising and marketing requirements. It also will impact the activities of lead generators, affiliate marketers, back-office service providers, payment processors, banks, and others that provide substantial assistance to debt relief providers, even if they do not sell or provide debt relief services directly to consumers.
In short, according to the FTC, those who provide such “substantial assistance” will now be required to review the policies, procedures and operations of debt relief companies to ensure they are complying with the Final Rule, or risk violating the law themselves. The FTC warns businesses, “[i]f you work with debt relief companies, review their policies, procedures and operations to make sure they’re complying with the Rule. Willful ignorance isn’t a defense.”
While the agency has lead generators in its sights, providers of debt relief services that use lead generators to obtain leads also are directly in the line of fire. At the July 29 press conference, Chairman Leibowitz promised “aggressive” enforcement of the new debt relief rules.
As a result of the FTC new rule for debt relief services, all providers, advertisers and marketers of debt relief services – including, lead generators – should carefully review their operations, policies and procedures, including advertising and marketing (e.g., websites, inbound telephone scripts, print, radio, television and Internet advertisements, customer relationships, etc.) in light of the new rule.
The Final Rule will be published in the Federal Register shortly, and is available now on the FTC’s website. The provisions of the Final Rule will take effect on September 27, 2010, with the exception of the advance fee ban provision, which will take effect on October 27, 2010. Importantly, the advance fee ban does not apply retroactively, so it does not apply to contracts with consumers executed prior to October 27, 2010. In addition, the FTC has issued guidelines for complying with the TSR, including the new debt relief rules.
For a detailed summary and analysis of the FTC’s Final Rule, see the article: FTC Issues Final Rules for Debt Relief Services: Landmark Changes for Service Providers, Advertisers and Marketers of Debt Relief Services, available at www.venable.com/ccds/publications.
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Jonathan Pompan is an attorney in the Washington, DC office of Venable LLP. Mr. Pompan’s practice focuses on advertising and marketing regulation and enforcement, as well as working with debt relief service providers. For more information, please contact Jonathan L. Pompan at 202/344-4383 or jlpompan[at]venable.com.
This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to a specific fact situation.
