Millions of Americans are deep in credit card debt – a situation that spelled opportunity for shady debt-settlement companies.
In an effort to protect consumers from their fraudulent practices, the Federal Trade Commission (FTC) created new regulations which will go into effect on October 27.
These regulations apply to for-profit companies offering debt negotiation, debt settlement, and credit counseling. The rules don’t apply to nonprofit companies, but do apply to for-profit companies that claim to be nonprofit.
The primary provisions of the new regulations are:
* Agreements must be in the form of a written contract which outlines the work to be performed and the payment to be charged
* The company must reveal how much time it will take to see results
* The company must disclose the pitfalls of using a debt relief service
* Companies may not collect an up front fee
* Companies must successfully settle or negotiate at least one of the consumer’s debts and the consumer must make at least one payment to the creditor before any fees are paid.
* Fees must be based upon results. If a consumer has 5 debts and the company settles only one, they may not collect the full fee
* The rules covering telemarketing are expanded to cover calls made from the consumer to the company.
One detail not covered by the new FTC rules is the dollar amount of the fees to be charged for services rendered.
Since scammers continually work to find ways around regulations, consumers should be cautious. Not only will some for-profit companies pose as nonprofit companies, some will undoubtedly claim to be implementing government programs.
Thus, before you consider working with any debt relief company, do your research. Contact the Better Business Bureau, the FTC, or the Office of Consumer Affairs before signing a contract with any company. The Better Business Bureau has extensive files documenting thousands of consumer complaints about debt-settlement companies across the country.
Many consumers would be better off contacting their creditors themselves and trying to work out a repayment plan. Not only will they save money, they’ll have better assurance that their creditor won’t sue.
In general, debt relief companies will try to negotiate a smaller balance with creditors. If successful, they’ll collect funds from the consumer until they have enough to settle the debt entirely. This could mean a delay of several months, or even years before the creditor is paid. Impatient creditors may well bring suit before the balance is paid.
Mike Clover
CreditScoreQuick.com
Tags: debt relief, debt settlement companies, FTC Regulations
