WASHINGTON, DC — Senator John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, today sent letters to 56 Attorneys General alerting them to the results of a recent Committee investigation which found that debt settlement companies engaged in fraudulent, deceptive and abusive practices that were harmful to consumers.
“It is my hope that this information will assist you in your efforts to protect citizens of your state from the deceptive claims and practices of this industry,” Chairman Rockefeller states in his letters. “I look forward to working with you to end abuses in the debt settlement industry and to address other consumer protection issues.”
Chairman Rockefeller sent letters to the Attorneys General of all 50 states, and to the Attorneys General of the District of Columbia, Guam, American Samoa, Puerto Rico, the Northern Mariana Islands and the Virgin Islands.
KEY BACKGROUND INFORMATION:
The debt settlement industry was the focus of a recent Commerce Committee investigation. Chairman Rockefeller asked the U.S. Government Accountability Office’s Forensic Audits and Special Investigations team to go undercover to investigate the debt settlement industry after hearing numerous reports that debt settlement companies were taking advantage of financially distressed consumers. The results of the investigation were unveiled at a Commerce Committee hearing on April 22, 2010. More information can be found here:
A copy of the letter Chairman Rockefeller wrote to West Virginia Attorney General Darrell McGraw follows:
Dear Mr. Attorney General:
As Chairman of the United States Senate Committee that oversees consumer protection, I have been very concerned by the growth of consumer financial scams during the recent economic downturn. I am writing to share with you results of an investigation I recently asked the Government Accountability Office (GAO) to conduct into the debt settlement industry. It is my hope that this information will assist you in your efforts to protect citizens of your state from the deceptive claims and practices of this industry.
I initiated the GAO investigation after hearing numerous reports that debt settlement companies were taking advantage of financially distressed consumers. In exchange for large up-front fees, debt settlement companies promise to help struggling consumers significantly reduce their credit card debts. According to allegations made by numerous state law enforcement officials and consumer advocates, however, debt settlement companies do not help most consumers reduce their debts. In fact, the debt settlement industry’s practices tend to increase consumers’ debts and significantly harm their credit scores.
To find out what is actually happening to consumers, I asked GAO’s Forensic Audits and Special Investigations team to determine whether debt settlement companies are engaged in deceptive, unfair or otherwise abusive marketing practices. Attached you will find a copy of the report, “Debt Settlement: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers,” that GAO prepared in response to my request and presented as testimony before my Committee on April 22, 2010. The report describes 20 case studies in which GAO investigators made covert telephone calls to companies offering debt settlement services. The report compares the representations made on those phone calls to the evidence gathered by the Federal Trade Commission (FTC) and State Attorneys General in enforcement cases. In sum, the GAO found that debt settlement companies engage in fraudulent, deceptive and abusive practices that pose a risk to consumers.
I applaud the work that the State Attorneys General have already done to fight debt settlement industry abuses, including more than 128 separate cases they have already brought against individual debt settlement companies. In addition, I am grateful that Assistant Attorneys General from a number of states were willing to share their expertise on the debt settlement industry with the GAO investigators and with my Committee staff. I look forward to working with you to end abuses in the debt settlement industry and to address other consumer protection issues. I have instructed GAO to share with you information, upon your request, about the identity of the companies contacted during the investigation.