The Federal Trade Commission has published a report indicating that it has issued new rules for debt settlement companies that offer their services over the phone. That’s good news for anyone who’s looking for a way out of serious debt. Here’s why:
- The current system: The way things now stand, telemarketing debt settlement companies are permitted to charge consumers large fees before performing any services.
- Bad to worse: Unfortunately, some debt settlers have been known to do little or nothing for struggling consumers except take their money. Often, the money consumers pay to such services is the final straw that pushes them into bankruptcy.
The FTC has warned Americans in the past to watch out for companies that require payment upfront, before any service has been performed. In the last 10 years, the FTC and state law enforcers have reportedly brought 259 cases against debt relief companies that have deceived consumers. Now, the new rule will prohibit telemarketing debt settlers from charging upfront fees. In addition, the rule will:
- Require specific disclosures from debt settlement telemarketers so that consumers know exactly what they can expect when they pay for a service.
- Forbid these companies from misrepresenting the services they provide (e.g. they cannot guarantee an elimination of debt).
- Widen the reach of the current Telemarketing Sales Rule so that consumers will be protected during phone calls they make in response to advertising by the companies they call.
These additions to the Telemarketing Sales Rule will take effect on September 27th of this year. The new provisions also set specific limits for when a debt relief company can begin collecting fees charged to consumers:
- The company must successfully renegotiate, settle, reduce or otherwise change the terms of a consumer’s debts.
- The consumer must have agreed to a written debt management plan, debt settlement agreement or other type of agreement issued by the creditor.
- The consumer must have made at least one payment to the creditor in accordance with the new agreement.
In other words, unless debt relief companies can provide hard evidence of their efforts to help consumers reduce their debts (as most claim to do), they will not legally be able to charge fees. The new rules will apply to all for-profit debt negotiation agencies, which includes credit counselors, debt settlement companies and debt negotiation firms.
Non-profit organizations will not be affected by the rule, but those that falsely identify themselves as non-profits will be.
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