While we doubt that any rule is the “final” one when it comes to government regulations, this Final Rule is good news for consumers who need debt relief services.
This rule, which comes to us from the Federal Trade Commission (FTC), goes into effect in two steps. The first, effective September 27, requires debt relief companies that sell their services over the telephone to make specific disclosures to consumers, and prohibits them from making misrepresentations. But perhaps the most important provision is that the Telemarketing Sales Rule will now be extended to incoming as well as outgoing calls.
The second portion of the Final Rule, which takes effect on October 27, 2010, clearly prohibits debt relief companies from charging an up-front fee for settling a consumer’s debt.
Telemarketing debt relief companies have preyed on consumers in distress with false promises of reducing credit card debt by half or more – in exchange for large up-front fees. When it was impossible to reduce the debt, the consumer was simply out the money paid to the company.
Under the new rules, debt relief companies may not collect any funds up front, and the fee they do collect must be clearly agreed upon in advance.
Before the debt relief company is paid, they must successfully change the terms of at least one of the consumer’s debts. This change must be reflected in a written settlement agreement or debt management plan between the creditor and the consumer. And finally, the consumer must have made at least one payment to the creditor as a result.
If a consumer has several debts, but the company is able to negotiate only one or two, the fee must be in proportion to the total debt relief provided. If the fee is percentage based, the percentage must be the same for each debt – and charged only when negotiations have been successful.
Under another provision of the Final Rule, debt collectors may require consumers to set aside debt repayment funds in a dedicated account. However, that account must be maintained in an insured financial institution and remain under the consumer’s control at all times. The debt relief provider may not have any affiliation with the financial institution nor may they exchange referral fees.
Legitimate debt collectors who want to be sure they are in compliance with the new rules can find the FTC compliance guide at: http://www.ftc.gov/bcp/edu/pubs/business/marketing/bus72.pdf.
There is no doubt that in spite of past regulations and this “Final Rule,” some companies will still attempt to defraud consumers – and not just with regard to debt relief. Should you become a victim of fraudulent, deceptive, or unfair business practices, you can file a complaint by calling 1-877-382-4357 or by visiting http://www.ftc.gov/ftc/complaint.shtm
CreditScoreQuick.com
