2023 Regulatory Recap of the Debt Settlement Industry Activity and 2024 Regulatory Forecast

This article highlights the few newsworthy actions and events we wrote about the debt settlement industry throughout the year. The debt settlement industry did see some movement by regulatory bodies across the board, though not as much as in years past. Additionally, we saw a shift in focus on regulating the intersection between the debt settlement and marketing industries, including actions based on telemarketing calls. This summary includes regulatory activity involving the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and some newsworthy state-side regulatory activity, though it does not include legislative or civil litigation activity involving the debt settlement industry. 

As early as February, the FTC sued debt relief companies that had hired robocallers. In April, the Commission obtained multiple orders banning a credit card debt relief scheme. In May, it obtained a temporary injunction against two student loan debt relief companies. Then merely weeks later, in June, the Commission awarded more than $3 million to victims of a deceptive student loan debt relief scheme. By July, the FTC launched a massive “Operation Stop Scam Calls” initiative, along with over 100 federal and state law enforcement partners. The joint initiative involved attorneys general from all 50 states, the District of Columbia, and various government agencies. At the time of the announcement, their collective efforts had already resulted in more than 180 actions taken against operations responsible for generating billions of unwanted calls to U.S. consumers. The FTC’s actions throughout the year were not infrequent but were also not as prevalent as we have seen in past years in the debt settlement arena.

The CFPB chirped its regulatory appeal into the debt settlement space as well this year. In April, the CFPB released a new policy statement on abusive practices, calling out at least one debt relief company for abusive practices. According to a footnote within such policy statement, “ADSS’s acts or practices are abusive … because … ADSS has knowingly enrolled in its debt relief programs consumers whose financial conditions make it highly unlikely that they can complete the programs, and ADSS has nonetheless collected fees from consumers who had inadequate income to complete their debt settlement programs.” While the CFPB did not bring any major enforcement actions against debt relief companies as it has in years past, the Bureau still made it clear that the debt relief industry is on its regulatory radar, at least when it comes to abusive practices. 

In contrast to the CFPB, the State of California’s Department of Financial Protection and Innovation (“DFPI”) took a rather hard stance on shutting down state-side student debt relief scams in 2023. In February, the Department announced that it had entered into a Consent Order with an unlicensed student debt relief company based in Orange County and its owner. The Orange County-based company was accused of misleading student borrowers by giving them the false impression that it was affiliated with an official government agency during unsolicited telephone calls.

The DFPI also published a webpage solely dedicated to warning consumers about potential scams in the area. According to the webpage, student loan debt relief companies often contact American borrowers through mail, email, or phone; these companies claim to offer assistance in managing or reducing student loan repayments for a fee; however, many of these companies are charging fees for services that are either free or that borrowers can complete on their own.

Akin to the DFPI, the State of Minnesota’s Attorney General (AG) publicly announced in September that it had initiated some investigations into the student loan debt relief industry operating within the state. The Minnesota AG’s office announced that it had already begun investigating the operations of more than 50 student-loan debt-relief companies suspected of violating consumer protection laws in the State of Minnesota. While many of the targeted companies were headquartered in California, Minnesota’s sweeping crackdown was not limited to any particular state or region within the United States so long as the company was doing business within the State of Minnesota. 

While 2023 was scattered with some regulatory activity for the debt settlement industry, it was far from a stormy year for the space compared to prior years. In 2024, we will likely see the federal regulatory bodies continue to maintain the meager velocity of actions in the debt settlement space. Perhaps State regulators will take a more vigorous approach, likely more so in the student loan debt relief space. Though as far as debt settlement companies as a whole are concerned, we can likely expect not much difference in regulatory actions come 2024.