WASHINGTON, D.C.—Millions of American families have suffered serious financial setbacks during the economic downturn. Sometimes it’s because someone in the family has lost their job. Sometimes it’s because a family member has gotten sick and medical bills are piling up. As we all know, even people who think they have good health insurance can end up owing thousands of dollars out of their own pockets.
For thousands of American and West Virginian families, our economic downturn has meant falling farther and farther behind. It means struggling every month to pay bills. And it means thinking seriously about what happens if they can’t make even their minimum monthly payments to their creditors.
One person who found himself in this situation was Mark Spaulding, who lives in South Charleston, West Virginia. Between the credit card bills and the hospital bills, he and his wife owed more than $23,000 dollars. He wasn’t behind on these bills yet, but he was worried. He had a job and he believed in paying what he owed, but he wasn’t sure how he was going to pay it all off.
So he looked for help and he found a California company called “U.S. Debt Settlement” that looked reputable. He called a toll-free number and talked to a sales representative named Holly Slater. She told him U.S. Debt Settlement could act as his “financial representative” and could negotiate with his creditors to cut his debt by as much as 50 percent.
William and Holly Haas of Concord, New Hampshire had a similar experience with a debt settlement company called “Consumer Credit Counseling of America.” I am very pleased to welcome them to our hearing today. Thank you Mr. and Mrs. Hass for sharing your story with us.
What Mr. Spaulding, and the Haas family, and thousands of other Americans have learned the hard way is that these debt settlement companies are not what they claim to be. They promise to reduce consumers’ debts by 40, 50, or even 60 percent, and then collect thousands of dollars in fees up front.
Today, we will learn that these companies keep the fees, but don’t keep their promises. In reality, signing up to work with these companies usually makes struggling consumers’ financial situation much worse. They fall farther behind on their debts, they see their credit scores plunge, and they get sued by their creditors.
In written testimony, Mr. Spaulding says he followed U.S. Debt Settlement’s advice for 14 months and paid them more than $2,400 dollars in fees. Today he owes 40 percent more on his debts than he owed when he signed up with the company, his credit score is ruined, he has two court judgments against him, and he has been advised that he should think about declaring bankruptcy.
This is outrageous. It is appalling and it is wrong. These debt settlement companies are kicking people when they are down. And even though they take patriotic names like “U.S. Debt Settlement” or “Consumer Credit Counseling of America,” their actions are profoundly un-American. This is a serious and growing problem, and I am pleased to report that our state attorneys general and the Federal Trade Commission are fighting these fraudulent companies. We are going to hear testimony about these companies from newly sworn-in FTC Commissioner, Julie Brill, and from Phil Lehman, an Assistant Attorney General from North Carolina.
Much of this Committee’s work and my attention as Chairman over the last year has focused on consumer protection—that includes safeguarding consumers from fraudulent business practices. We have the authority to conduct independent investigations. Last October, I used this authority to ask the GAO Special Investigations office to conduct a covert investigation of the debt settlement industry.
I told them I wanted to know what really happens to a consumer who calls one of these 1-800 numbers. We will hear the results of that investigation today, and I think members of this committee, and the American public, will find them pretty alarming.
I want to thank today’s witnesses. I look forward to your testimony.