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Access to Utility Service: 10.10 Utility Allowances for Involuntarily Relocated Tenants

Public housing tenants are sometimes involuntarily displaced from a housing development because of a construction project which is federally financed. This occurs, for example, when the public housing authority has decided to re-develop the site as low-and moderate-income housing, using HOPE VI or other federal housing modernization program funding. These displaced tenants may be entitled to supplemental rent and utility payments to help defray increased costs in their new dwellings.

Federal Deception Law: 11.2.1.1 History and Effectiveness

Nonprofit credit counseling agencies largely came into existence in the middle of the twentieth century. In the early 1950s, as America’s consumer economy began to recover from the Second World War, merchants increasingly began to offer goods on credit to expand sales.16 Making it easier to buy on credit also made it easier to get into debt. Increased debt naturally led to higher losses for businesses when families could not pay their bills.

Federal Deception Law: 11.2.1.2 Debt Management Plans Described

After education, debt management plans (DMPs) are one of the most prominent tools that credit counseling agencies offer to assist indebted consumers. An estimated one-third of counseling agency clients enroll in DMPs.47 Under a DMP, a consumer agrees to send a lump sum to the credit counseling agency, usually on a monthly basis. The agency then distributes that payment to the consumer’s various unsecured creditors on a similar schedule, until the consumer has fully paid off all debts included in the plan.

Federal Deception Law: 11.2.1.3 DMP Pros and Cons

The little data available suggests that DMPs have a high failure rate, and that they are a significant source of counseling agency income. One NFCC report found that only twenty-one percent of DMPs to end that year ended because the consumer successfully completed the plan.

Federal Deception Law: 11.2.2.1 Overview

In contrast to credit counseling agencies that provide debt management plans, debt settlement firms do not send regular monthly payments to creditors. Instead, they claim that they will negotiate a lump-sum payoff of the consumer’s debts—usually after the consumer accumulates enough money in a special savings account (though few consumers are able to accumulate sufficient funds).70 Currently, debt settlement is only offered by for-profit entities. However, nonprofit credit counselors are exploring a safe alternative.

Federal Deception Law: 11.2.3 Debt Negotiation Services

Debt negotiation companies for a fee promise to negotiate interest rate reductions or other concessions from creditors in order to lower customers’ monthly payments. Unlike debt management plans or debt settlement, debt negotiators generally do not claim to implement full balance payment plans or obtain lump sum settlements.93

Federal Deception Law: 11.2.4 Debt Elimination

Purveyors of debt elimination schemes offer specious plans to eliminate debt without paying anything to the creditor, with variations limited only by the creativity of the scammers and the desperation of distressed consumers.96 Scammers may sell the consumer a paper document, such as a “bond for discharge of debt” or “redemption certificate,” that the consumer is to present to the creditor and that supposedly forces the creditor to abandon the debt.97 Some schemes purport to obtain the lende

Federal Deception Law: 11.3.1 Impact of the Distinction

An important distinction in the regulation of debt relief services is whether the entity is nonprofit, for-profit, or a for-profit entity masquerading as a nonprofit. Some state laws limit certain debt relief services only to nonprofits.108 The FTC Telemarketing Sales Rule, a major source of federal regulation of debt relief agencies,109 does not apply to legitimate nonprofits.

Federal Deception Law: 11.3.2 IRS Standards for Nonprofit Status

To be a tax-exempt nonprofit under federal law, an organization must be approved by the IRS under section 501(c)(3) of the Internal Revenue Code.114 It must also operate in fact as a nonprofit.115 Credit counseling agencies must meet additional requirements in section 501(q). Do not view an agency’s section 501(c)(3) status as determinative.

Federal Deception Law: 11.3.3 FTC Standards for Nonprofit Status

The FTC Telemarketing Sales Rule regulates debt relief agencies, but it only applies to agencies within the FTC’s jurisdiction. The FTC Act exempts nonprofits from the FTC’s jurisdiction as long as they are not organized to carry on business for profit or for the profit of their members.126 This standard under the FTC Act does not rely on the IRS’s section 501(3)(c) standard, nor is it dependent on a state law determination as to nonprofit status.

Federal Deception Law: 11.4.1 Introduction

The federal Credit Repair Organizations Act (CROA)132 and analogous state statutes provide strong consumer protections and private remedies concerning any form of debt relief services. If applicable, these statutes may be a consumer’s first approach to challenging abuses by any form of debt relief services.

Federal Deception Law: 11.4.2.1 Does the CROA Apply to Debt Relief Services?

Most federal CROA restrictions apply to “credit repair organizations.” This term is broadly defined to encompass any person who performs or offers to perform any service—for a fee or other valuable consideration—for the express or implied purpose of (1) improving any consumer’s credit record, credit history, or credit rating or (2) providing advice and assistance to any consumer with regard to any such activity or service.135 It is possible for a debt relief service to limit its advertising and other representations to avoid CROA coverage,

Federal Deception Law: 11.4.2.2 CROA Requirements for Credit Repair Organizations

The CROA prevents any credit repair organization from charging or receiving any money for the performance of any service before such service is fully performed.151 For example, when a debt settlement company states it will settle a consumer’s debt with a creditor for less than the outstanding obligation, then, if the CROA applies, it should not charge any fees or take money out of the consumer’s escrow payments until the debt is settled. A debt elimination company should not charge a fee until the debt is eliminated.

Federal Deception Law: 11.4.3 CROA Remedies

Contracts that do not comply with the CROA’s extensive disclosure and terms requirements are void and unenforceable.162 Any person who fails to comply with the CROA is liable to the consumer for either actual damages or the amount paid by the consumer to the credit repair organization, whichever is greater, plus punitive damages and attorney fees.163 The statute explicitly provides for consumer class actions.164

Federal Deception Law: 11.5.1 Introduction

The FTC’s Telemarketing Sales Rule (TSR) imposes specific restrictions and requirements on debt relief services that will often be applicable to credit counseling, debt settlement, debt negotiation, and debt elimination companies.167 However, these requirements are often inconsistent with an agency’s business model.

Federal Deception Law: 11.5.2.1 Definition of Debt Relief Service

The FTC Telemarketing Sales Rule (TSR) sets out requirements specifically applying to any “debt relief service,” defined as any program or service that is represented or implied to renegotiate, settle, or alter the terms of a debt between a person and one or more unsecured creditors or debt collectors.169 Similar services addressing mortgage debt are the subject of a separate rule,170 examined in another NCLC treatise.171 The TSR’s definition

Federal Deception Law: 11.5.2.2 Telemarketing, Telemarketers, and Sellers

The TSR applies to telemarketers or sellers engaged in telemarketing. A telemarketer is any person who, in connection with telemarketing, initiates or receives telephone calls to or from a customer.178 Telemarketing “means a plan, program, or campaign conducted to induce the purchase of goods or services by use of one or more telephones, and which involves more than one interstate telephone call.”179

Federal Deception Law: 11.5.2.3 Required Use of the Telephone

While the TSR generally applies to telephone calls in which the telemarketer initiates the call, the TSR applies to debt relief services not only when the debt relief service initiates the call but also when the customer initiates a call in response to the seller’s advertisement in any medium or to direct mail solicitation (via mail, email, or fax).182 Thus, the TSR generally applies to any debt relief service when consumers obligate themselves via a telephone communication.