By Anthony J. Estrada

Over the past year, the Oregon Division of Financial Regulation (the “Division”) has had an uptick in cases against companies that claim to provide “debt validation” services to consumers. These companies offer to demand that creditors verify and validate their clients’ debts. When pressed, the companies claim this to be the extent of the services they provide and deny providing debt management services regulated by the Division. Their fees total 20-30% of their clients’ enrolled debts.

Debt validation companies frequently invoke the Fair Debt Collection Practices Act in their advertising materials to claim the majority of consumer debts cannot be properly validated. They describe the process to verify debts in terms that suggest it is difficult, confusing and onerous. Their agreements frequently include disclosures identifying specific activities the company does not perform, such as negotiating with creditors, but such disclosures are often ambiguous, buried in the agreement, and/or undermined by other language promising assistance in disputing debts and relief from collection-related harassment. The Division has received complaints from consumers claiming they understood the primary benefit of these companies’ efforts would be a reduction in their debts.

Debt validation companies obtain their clients’ authorization to communicate with creditors on their behalves. They draft and submit form letters demanding verification and validation of the enrolled debts. This is the primary service they provide, in exchange for which they receive thousands of dollars per client. The companies offer to provide clients with case managers to track the progress of their cases and advise them on interacting with creditors, but complaints suggest the companies are often non-responsive to consumer communications. It also seems common for these companies to offer credit repair services or to “transfer” clients to affiliated entities for credit assistance.

The business model for these companies appears designed, at least in part, to evade the Division’s regulatory authority over debt management companies, as set forth in ORS chapter 697. The services they deny performing in their disclosures often overlap with “debt management services” as defined in ORS 697.602(2). However, in addition to the Oregon Debt Management Service Provider Law, which often applies despite their assertions to the contrary, these companies may run afoul of the Oregon Unlawful Trade Practices Act. Their fees are exorbitant, they provide extremely limited services, and their representations are confusing at best.

Finally, the consumers affected by these companies are financially vulnerable and often have limited means with which to seek redress. Similarly, the Department of Justice lacks the funds and staffing to take on cases of this size and scope with regularity. Consumer attorneys are and will continue to be an invaluable resource to consumers seeking relief in these matters.