Risk Management & Mitigation Flashcards

Under the FTC Telemarketing Sales Rule, when may a debt relief provider first collect a fee for settling a specific debt?

Answer: After at least one debt is settled, the client agrees to the settlement, and the client makes at least one payment under it

The TSR advance-fee ban allows fees only after a debt is actually settled, the consumer agrees, and at least one payment is made under that settlement.

A debt relief company wants to reduce regulatory risk on its dedicated savings accounts. Which arrangement meets TSR requirements?

Answer: Funds held at an insured financial institution, owned by the client, with an administrator not affiliated with the provider

The TSR requires the dedicated account to be at an insured institution, owned by the consumer, and run by an administrator unaffiliated with the debt relief provider.

A client asks to cancel and withdraw all funds from their dedicated account. Under the TSR, within what timeframe must the funds be returned?

Answer: 7 business days

Consumers may withdraw at any time without penalty and must receive their funds, minus fees already earned, within seven business days.

Which disclosure is required before enrolling a consumer in a debt settlement program to reduce misrepresentation risk?

Answer: The likely negative effects, such as credit damage, continued collection activity, and possible lawsuits

The TSR requires disclosing that not paying creditors may hurt credit, increase balances, and lead to collection efforts or lawsuits.

A creditor forgives $4,200 of a client's credit card balance. What tax-related risk should the agent tell the client about?

Answer: The creditor may issue Form 1099-C, and the forgiven amount may count as taxable income unless an exclusion such as insolvency applies

Canceled debt of $600 or more is generally reported on Form 1099-C and may be taxable income unless an exclusion applies.

Which practice best lowers the risk that a settlement is later disputed by the creditor?

Answer: Getting written settlement terms from the creditor before any funds are disbursed

A written settlement letter documents the agreed amount and terms, protecting the client if the creditor later claims a balance remains.

A marketer suggests saying the company's program is 'part of a government debt forgiveness initiative' to boost sign-ups. What is the main risk?

Answer: A deceptive misrepresentation violating the TSR and FTC Act that can lead to enforcement action

Falsely claiming government affiliation is a prohibited misrepresentation and a common basis for FTC and state enforcement.