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At the White House on 29 July 2010, with Vice President Biden on the panel, the Federal Trade Commission (the "FTC" or the "Commission") published its long-awaited changes to the Telemarketing Sales Rules ("TSR") aimed at the sales of the " Final Rule" or the "Rule". The final rules will apply to practically all suppliers of redemption products that advertise their products through incoming or outgoing phone conversations, covering leads generator phone conversations and on-line advertisements, a prohibition on prepayments before products are sold, new and current TSR obligations and other TSRs.
While the TSR does not cover trustworthy non-profit credit advisory services, the new rules may have a potential effect on such services as they now come under the responsibility of the new Consumer Protection Bureau, which the executing agency will share with the FTC for breaches of the TSR. A final version of the rules will soon be available in the Federal Register and on the FTC website.
Final clauses will enter into force on 27 September 2010, with the exceptions of the system of advances, which will enter into force on 27 October 2010. FTC has adopted policies for compliance with the TSR, as well as the new discharge regulations. FTC's declared objective for the new regulation is to reduce misleading and improper practice in the marketing of deleveraging service providers.
Most importantly, it forbids any company from requiring or obtaining payments for remission of debts until such payments have been fully provided, received and recorded for the benefit of the customer.
Couple more heights of the rule: 1 ) it is unlawful to give "substantial assistance" to another entity if you know that it is breaking the rules, or if you intentionally ignore their acts (this includes, but is not limited to, explicitly applying to leadservers, back-office processes and suppliers of "dedicated accounts"); 2 ) it sets stringent limits for "dedicated accounts" used to allocate resources for settling and firm volume commissions; and
There are very particular and stringent rules for the kinds of justifications that are necessary before certain marketers' rights can be asserted; and (4) the rules can be enforceable by the FTC, the new Bureau of Consumer Financial Protection, state attorneys general, and through civil disputes, even collective redress. This final regulation should result in a shift for issuers of debt forgiveness - primarily for-profit credit regulators - towards new businesses and the development of regulatory programmes that address stringent promotional and merchandising needs.
This will also affect the activity of leading producers, affiliated marketing firms, back offices, payments processing firms, banking institutions and others who significantly support debtors, even if they do not directly offer or offer consumer forgiveness to debtors. Briefly, in the FTC's view, those providing such "substantial support" are now obliged to re-examine the guidelines, processes and practices of credit release firms to make sure that they are abiding by the final rule or are themselves breaking the laws.
The following is a synopsis of the main terms of the Final Provision, the FTC Statement of Basis and Purpose ("SBP") and the revised Rules of Procedure for Discharge Service. Please be aware, however, that the debate is general in character and how the final rule may affect your operations and relations.
Furthermore, we find that this is not a debate about all the TSR needs, including rules on the do not call register and other telemarketing practice. Whilst the FTC's rules on discharge service have their technological origin in the TSR published under the terms of the Flemish Marketing and Consumer Fraud and Abuse Prevention Act (the'Telemarketing Act'), the FTC has long been actively pursuing execution claims to eradicate misleading discharge practice.
Over the past seven years, the FTC has filed more than 20 complaints against false not-for-profit credit advisors, credit regulators and creditors. It has also published a number of warnings to consumer warnings about fraud involving remission of debts and sent warnings to the press. The FTC also has the power to contest credit repairs under the Credit Reparatur Organizations Act and has an outstanding rule to treat mortgages assistance Relief Services.
Prosecutors General and other state regulatory authorities have also been very actively pursuing prosecutions against forgiveness firms after filing over 200 cases in recent years. Almost every state has legislation that regulates a certain level of indebtedness adjustment, which includes indebtedness regulation, indebtedness control and credit counseling, and has used these legislation to control indebtedness remission services.
The FTC published on 30 July 2009 a Communication on the suggested set of rules in which it requested comment on the suggested changes to the TSR on deleveraging. On 4 November 2009, the FTC organised a special open platform where Commission officials and stakeholders could discuss the changes and questions posed by the commentaries.
Categories of enterprises subject to the rules. Under the new rules, for-profit vendors of credit recovery products and telecom marketers of credit recovery products will be required. TSR defined "telemarketing" as "plan, programme or campaign" to initiate the buying of goods or a service with more than one intergovernmental call.
Furthermore, under the TSR, it is unlawful for a individual to give "substantial assistance" to another vendor or a telemarketer if that individual knows or is unaware that the vendor or telemarketer is involved in an act or conduct that is contrary to the rules. While the TSR generally exempt incoming consumer telephone conversations in reply to advertisements in print or in general via the medium, there is no such exception in the final regulation.
Under the final rules, which are in line with the suggested rules, incoming callers to discharge service providers are excluded from the scope of the exception. Consequently, practically all deleveraging operations with intergovernmental phone conversations are now covered by the TSR. and A. Definitions of forgiveness. FTC deals with lawyers in relation to the provision of credit discharge service.
On the basis of the case-law, the Commission ruled that an exception to the modified rules was'not justified' for lawyers involved in the Telemarketing of Discharge Business. This final policy does not apply to good faith non-profit organizations, but to those that incorrectly assert non-profit enterprise statute. Throughout the years, the FTC has instituted legal proceedings against firms it claims to be fake non-profit making in order to contain the allegedly dishonest and misleading behaviour.
In the final analysis, a number of specific practice is mentioned which it considers to be misleading or improper within the framework of the TSR and thus unlawful. Although the final provision contains similar rules to the proposal, it does differ in some crucial aspects. Under the FTC regulation, a prepayment will be made before it provides unlawful remission of debts throughout the United States with effect from 27 October 2010.
Some states, as noted above, already have legislation that regulates the provision of forgiveness service, prohibits advances to debtor service providers, and sets limits on charges that can be made. The Commission considers, as stated in the SBP, that, in the view of the records and its own comments, the regulation of the date of charging represents an appropriate use of the powers under the Telemarketing Act.
As a final rule, the FTC considers that the collection of an advanced charge for the provision of remission service is improper. TSR already prohibits the improper practices of imposing advances on three other types of service - credit repairs, collection service and offer of a credit or other credit prolongation, the provision of which is presented as "guaranteed" or with a high probability of successful.
In particular, the final rules include a prohibition on prepayments, but in a way that is different from the suggested one. Briefly, the final rules lay down three requirements before a debtor can charge a charge for the resolution of a particular debt: the debtor must enter into a forgiveness arrangement with the debtor or collection agency; the charge must be proportionate, i.e.
the charge must be in the same ratio to the overall charge for the payment of the overall amount of indebtedness as the amount of the indebtedness of the individual carries the overall amount of indebtedness (the'individual amount of indebtedness' and the'overall amount of indebtedness' relate to what the customer owes at the moment of the inclusion of the indebtedness in the programme); in other words, if the supplier pays part of the overall amount of indebtedness of a customer included in the programme, he may receive that same share of the overall charge.
On the other hand, if the supplier is guided by the proportion saved by the user through the use of his service, the proportion must be the same for each fault of the user. Consequently, advance payment - levied by a number of credit regulators and the life blood of many advertising and marketing operators - is banned.
In particular, the final clause allows the supplier to request its clients to deposit money into a'special banking account' for supplier charges and amounts paid to its creditors or collection agencies before ensuring discharge of debts, provided that certain requirements laid down in the final clause are fulfilled. It is a substantial modification of the suggested regulation - as it recognises the risks that the consumer will not pay for the service provided - and requires a thorough investigation by the debtor who chooses to make use of this option.
The final rule, which is of particular importance to credit bureau and debit managers' (DMP) vendors, forbids them from imposing an establishment or other charge before the client has registered with a LMP and made the first payments under the LMP, but would not stop the vendor from making successive periodical payments (e.g.
This is a demand for good faith charitable credit advisors that requires thorough review, even if the FTC does not have the authority to impose the final rule against such advisors. Suppliers may not, however, impose any preliminary or periodic charges in anticipation of the provision of the specified service, even if state law expressly permits such charges.
The final rule stipulates that suppliers must make several disclosure requirements when they telemarket their products and provide them to their clients. FTC rules prescribe four particular types of disclosure that must be made before a client accepts payment for the goods or provision of certain goods orervices. Prior to the client agreeing to the payment, the final provision stipulates that the suppliers of credit discharge shall clearly and unequivocally notify the client of: the amount of times required to obtain the results presented; the amount of saving required prior to the payment of a credit; if the supplier of credit discharge demands or demands that the client deposit money into a special banking address of an insurance company, that the client holds the money in the credit discharge he may at any moment without punishment derive from the credit discharge the client may derive from the credit discharge without punishment.
There were three supplementary exposures specifically related to forgiveness in the proposal, which were omitted in the final provision: that creditsors may make recovery attempts until the forgiveness is completed (combined with further necessary disclosure); that not all creditsors will agree to a decrease in the amount due.
This final rule adds a specific rule targeting misleading practice by suppliers of credit discharge solutions to the current prohibition of misrepresentation in the context of electronic communications. By the final rule, vendors or remote marketers of forgiveness utilities are prohibited from making false representations with respect to a significant aspects of the remission of debt, and it provides several illustrations, some of which are inaccurate: the following are examples:
is the amount of cash or percent of the amount of indebtedness that a client may be saving by using such services; the amount of elapsed period of times necessary to obtain the results presented; the amount of cash or percent of each receivable that the client is required to raise before the supplier initiates any arrangement with the client's debtors or collection agencies or makes any good faith proposal to negotiate, pay or change the conditions of the client's indebtedness;
Impact of the provision of the service on a client's credit standing; impact of the provision of the measure on the recovery effort of the client's debtors or recovery companies; whether a measure is provided or provided by a non-profit organisation. The SBP in this context contains substantial references to the special supporting documents needed to make various declarations on forgiveness payments.
The SBP, for example, states that when a credit recovery company declares that it will be saving the customer cash, the saving entitlements should mirror the experience of the company's own existing clients and must contain several important information. These guidelines should be reviewed thoroughly by anyone submitting loan remissions, saving loans or other statements on loan remissions.
As well as the abovementioned misstatements relating specifically to remission of debts, the TSR now also contains bans on incoming and outgoing remarketing of remission of debtservices. SBP provides indications of the significance of these bans in relation to the provision of credit discharge service, using receivables often used in the commercialisation and sales of credit discharge service.
After the final provision, any repayment of debts, any DMP or any other scheme for settling debts must be made in written form by a debtor. Suppliers must keep these records for at least 24 month. Leibowitz pledged the "aggressive" implementation of the new regulations on the reduction of debts at the July 29 news briefing. TSR and the final rule are enforcable by both the FTC and the Prosecutor General's Office and offer the possibility to enforce injunction claims, criminal sanctions and claims for protection throughout the country.
In addition, the TSR may be enforceable by the Bureau of Consumer Financial Protection under the Consumer Financial Protection Act, which amends the Telemarketing Act. Legally, the FTC is only empowered to impose the rules against those suppliers of credit discharge that are within its competence. The same exceptions shall be made for the Telemarketing Act and the TSR.
This means, as mentioned above, that the power of the FTC to impose the new rules would not apply to trustworthy non-profit credit advisory institutions. A new Bureau of Consumer Financial Protection was given the power to implement the TSR through changes to the Telemarketing Act that came into force with the entry into force of the Consumer Financial Protection Act, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Consequently, the Office has the power to impose the FTC's changes to the TSR in respect of remission of debts against trustworthy non-profit credit advisory firms, even though the FTC itself has no competence over such firms. If, for example, the Bureau were to apply the rules to trustworthy non-profit credit advisory firms, it would not be allowed to charge an upfront DMP set-up charge.
Thats carrying the scrutiny by the non-profit credit consulting industy and other non-profit organizations offering Debt Release service, especially as new less than whole equilibrium DMP routines and other comparison items are gaining momentum. Click here for the new TSR discharge rule chart. While the FTC did not announce any new enforcements at the news briefing, we believe it has a number of non-public inquiries ongoing in reaction to perceptions of abuse by credit regulators and others, as well as affiliated marketing agents and leadsetters.
It is also important to note that several prosecutors and other state regulatory agencies have open inquiries and ongoing claims against a number of creditors. Moreover, it is not uncommon for the FTC to consult with the Attorneys General in order to prosecute infringers soon after the entry into force of a new regulation (such as the Credit Repair Organizations Act).
Finally, the FTC employees have made public that the final rule applies in supplement to the current commitments under Section 5 of the FTC Act, which would allow the Commission to take enforcing measures even if the relevant operations are outside the TSR. V. Debt Regulation Industry Legal Challenge Possible.
FTC is entitled to carry out regulatory processes under the Telemarketing Act using the notification and comments processes of the Administrative Procedure Act. Moreover, in contrast to the FTC's outstanding draft rule on the provision of mortgages aid, this rule was not explicitly approved by law. Rather, the FTC uses the Telemarketing Act's misleading and abuse standards as the foundation for the publication of the final rule.
Consequently, although appropriate, the use of the Telemarketing Act by the FTC to govern the deleveraging sector is aggressively, as a "debt relief" provision has not been explicitly approved by it. While the FTC may be expected to believe that it is on solid soil, there are some important issues as to whether the rules are feasible because of their origin.
Therefore, counterparts of the credit regulation sector may potentially seek to question the FTC's ability to deliver the Telemarketing Act rules. Chances of the industry's future prosperity are unclear, given that the FTC set a precedent during the decision-making process and the judicial authorities give governments the power of judgment.
However, as noted above, employees at these FTCs have published a guidance document to help companies meet the new regulations on the cancellation of debts, which includes details of best practice and best practice. Both the new policy and the guidance document on how to act in accordance with it are available on the Agency's website at http://www.ftc.gov/opa/2010/07/tsr.shtm. Published panel on suggested changes to deleveraging the telemarketers selling policy, available at http://www.Venable. com/ftc-hosts-public-forum-on-proposed-debt-relais-am-telemarketing-sales-rule/; Free Trade Center Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC), FTC) Commission for Financial Services (FTC) Commission for Financial Services (FTC), FTC) Commission for Financial Services (FTC), FTC)
For several years, many in the credit management sector and among consumers had been asking themselves in public who would be the hangman of today's profit-oriented credit regulation based on upfront payments to sustain their businesses and fund advertisements and markets.
By announcing the final regulation, the FTC has taken strong measures to enact regulations and provide guidelines for the provision of remission service. 1 ) Will the final policy be enforcable? 2) How will the Bureau of Consumer Financial Protection apply the policy? 3) How will suppliers of financial protection products respond to and meet the new regulatory framework?
For those who are unable or reluctant to perform the contract, how long can they go on before the FTC, public prosecutors or consumer (acting under a right of recourse ) obtain them in criminal prosecution or civil litigation? and (5) What happens to the clients of collection agencies when a business decides or is compelled to shut its door?
Additionally, until just a week ago, for non-profit credit counseling firms, the suggested guideline had only been a political affair that was simple to uphold. However, now non-profit credit advisory firms may face new regulatory compliances under the Bureau of Consumer Financial Protection, which the law enforcement agency will be sharing with the FTC under the Telemarketing Act.
Furthermore, the new office is likely to see the FTC as a guide in the development of its own set of regulations, encompassing credit advice regulation, credit planning service regulation and other types of forgiveness. Since non-profit credit advisory firms are evolving new service offerings to meet the needs of financially distressed customers who are very similar to those covered by the TSR, such as less than balanced DMP programmes, they should take into account the basic needs set by the FTC.