S. HRG. 111–1017 THE DEBT SETTLEMENT INDUSTRY: THE CONSUMER’S EXPERIENCE HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION APRIL 22, 2010 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 67–327 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 07:34 Jul 15, 2011 Jkt 067327 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\GPO\DOCS\67327.TXT SCOM1 PsN: JACKIE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION JOHN D. ROCKEFELLER IV, West Virginia, Chairman DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas, Ranking JOHN F. KERRY, Massachusetts OLYMPIA J. SNOWE, Maine BYRON L. DORGAN, North Dakota JOHN ENSIGN, Nevada BARBARA BOXER, California JIM DEMINT, South Carolina BILL NELSON, Florida JOHN THUNE, South Dakota MARIA CANTWELL, Washington ROGER F. WICKER, Mississippi FRANK R. LAUTENBERG, New Jersey GEORGE S. LEMIEUX, Florida MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia CLAIRE MCCASKILL, Missouri DAVID VITTER, Louisiana AMY KLOBUCHAR, Minnesota SAM BROWNBACK, Kansas TOM UDALL, New Mexico MIKE JOHANNS, Nebraska MARK WARNER, Virginia MARK BEGICH, Alaska ELLEN L. DONESKI, Staff Director JAMES REID, Deputy Staff Director BRUCE H. ANDREWS, General Counsel ANN BEGEMAN, Republican Staff Director BRIAN M. HENDRICKS, Republican General Counsel NICK ROSSI, Republican Chief Counsel (II) VerDate Nov 24 2008 07:34 Jul 15, 2011 Jkt 067327 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\67327.TXT SCOM1 PsN: JACKIE C O N T E N T S Page Hearing held on April 22, 2010 .............................................................................. 1 Statement of Senator Rockefeller ........................................................................... 1 Statement of Senator McCaskill ............................................................................. 78 WITNESSES Gregory D. Kutz, Managing Director, Forensic Audits and Special Investiga- tions, U.S. Government Accountability Office ................................................... 3 Prepared statement .......................................................................................... 6 Holly A. Haas, Consumer ........................................................................................ 28 Prepared statement .......................................................................................... 30 Philip A. Lehman, Assistant Attorney General, North Carolina Department of Justice ............................................................................................................... 51 Prepared statement .......................................................................................... 54 John Ansbach, Legislative Director, United States Organizations of Bank- ruptcy Alternatives .............................................................................................. 62 Prepared statement .......................................................................................... 66 Hon. Julie Brill, Commissioner, Federal Trade Commission ............................... 68 Prepared statement .......................................................................................... 70 APPENDIX Hon. Kay Bailey Hutchison, U.S. Senator from Texas, prepared statement ...... 91 Hon. Mark Pryor, U.S. Senator from Arkansas, prepared statement ................. 92 John Mark Spaulding, prepared statement ........................................................... 92 Letter, dated April 20, 2010, to Hon. John D. Rockefeller IV and Hon. Kay Bailey Hutchison from Jean Noonan, Counsel, American Coalition of Com- panies Organized to Reduce Debt (ACCORD) ................................................... 93 Letter, dated October 9, 2009, to the Federal Trade Commission, Office of the Secretary, from Gail Hillebrand, Financial Services Campaign Manager, Consumers Union ................................................................................................. 95 Response to written questions submitted by Hon. Mark Pryor to: Gregory D. Kutz ................................................................................................ 99 William and Holly Haas ................................................................................... 100 Philip A. Lehman ............................................................................................. 101 John Ansbach .................................................................................................... 102 Response to written question submitted by Hon. Kay Bailey Hutchison to John Ansbach ....................................................................................................... 104 Response to written questions submitted by Hon. Mark Pryor to Hon. Julie Brill ....................................................................................................................... 105 Letter, dated October 16, 2009, to Donald S. Clark, Secretary, Federal Trade Commission from Susan Grant, Director of Consumer Protection, Consumer Federation of America on Behalf of Consumer Federation of America, Con- sumers Union, Consumer Action, the National Consumer Law Center on behalf of its low-income clients, the Center for Responsible Lending, the National Association of Consumer Advocates, the National Consumers League, U.S. PIRG, the Privacy Rights Clearinghouse, the Arizona Con- sumers Council, the Chicago Consumer Coalition, the Consumer Assistance Council, the Community Reinvestment Association of North Carolina, the Consumer Federation of the Southeast, Grass Roots Organizing, Jackson- ville Area Legal Aid, Inc., the Maryland Consumer Rights Coalition, Mid- Minnesota Legal Assistance, and the Virginia Citizens Consumer Council ... 108 Article, dated August 6, 2009 entitled ‘‘Economic Factors and the Debt Man- agement Industry’’ submitted by Richard A. Briesch, Ph.D., Associate Pro- fessor, Cox School of Business, Southern Methodist University ...................... 121 (III) VerDate Nov 24 2008 07:34 Jul 15, 2011 Jkt 067327 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\67327.TXT SCOM1 PsN: JACKIE VerDate Nov 24 2008 07:34 Jul 15, 2011 Jkt 067327 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\67327.TXT SCOM1 PsN: JACKIE THE DEBT SETTLEMENT INDUSTRY: THE CONSUMER’S EXPERIENCE THURSDAY, APRIL 22, 2010 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 2:37 p.m. in room SR–253, Russell Senate Office Building, Hon. John D. Rockefeller IV, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, U.S. SENATOR FROM WEST VIRGINIA The CHAIRMAN. We will begin this hearing. And others are coming. I’ve been there, you know. I was late a lot. All right. This is important. This is very important. Millions of American families have suffered serious financial setbacks during the economic turndown, which promises to go on for a while. Some- times it’s because somebody in the family has lost a 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 end up owing thousands of dollars out of their own pockets, and that’s another hearing and another subject. For thousands of Americans and West Virginia families, our eco- nomic downturn has meant falling farther and farther behind. It also 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. And be- tween the credit card bills and the hospital bills, he and his wife owed more than $23,000. That is not unique. He wasn’t behind on these bills, yet 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. That’s—it’s hard to see from South Charleston to California, so he was doing this off the Internet, and had to make that judgment. He called a toll-free number. He talked to a sales representative named Holly Slater. She told him that 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 Con- (1) VerDate Nov 24 2008 07:34 Jul 15, 2011 Jkt 067327 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\67327.TXT SCOM1 PsN: JACKIE 2 sumer Credit Counseling of America. Notice the—sort of the integ- rity of these names. And I’m very pleased that they’re here with us. And they’re going to have something to say. What Mr. Spaulding and the Haas family has—and thousands of other Americans have learned the hard way, is that these debt set- tlement companies are not what they claim to be. And that is what we are talking about today. They promise to reduce debts by 40, 50, or even 60 percent, and then collect thousands of dollars in fees up front.