On October 27, 2010, new rules will be put into place by the Federal Trade Commission (FTC) to protect credit card customers from the unscrupulous practices that some debt relief agencies have used in the past. While these practices are not uncommon, it’s important to note that there are many reputable debt settlement and credit counseling service providers that have never used these abusive sales tactics. In fact, many companies have came out in support of this bill to curtail the activities of businesses that have given their industry a tarnished reputation. Each change is considered an amendment to the Telemarketing Sales Rule enforced by the FTC.
No More Up-Front Fees
With the implementation of the new regulations, for-profit debt relief companies that use the telephone to solicit customers will not be able to charge the customer prior to settling or reducing the customer’s unsecured debt. According to FTC Chairman, Jon Leibowitz, the exorbitant up-front fees exchanged for false promises of reducing debt by half or more has left many consumers worse off than ever. In fact, it has pushed many of them into bankruptcy. While Mr. Leibowitz did not provide this advice, each consumer should always evaluate an agency’s promises and remember that a reputable company’s offer will seem reasonable and never too good to be true.
When Can a Debt Settlement Company Charge Fees?
After this rule takes effect, debt settlement companies will have specific requirements to follow that will determine when they can charge a fee. The following list details when a company can charge their fee:
• The service has changed the terms of at least one consumer debt.
• The consumer has accepted a written agreement from the creditor.
• The consumer has made one payment to the creditor based on the written agreement.
As additional protection, the company must evenly distribute their fees across all debts instead of charging more for the first debt settled.
Three Additional Rules for Telemarketing Sales Take Effect on September 27, 2010
In addition to the new restriction on up-front fees, for-profit companies that market their services over the phone will be required to follow these rules:
• When calling potential customers, debt relief agencies must tell the customer how long the debt relief process will take, how much it will cost, any negative consequences of using debt relief services, and dedicated account rules. This information must be disclosed before the consumer signs up for service.
• The agency must not misrepresent their services. This includes inflated success rates and their non-profit status.
• The FTC has also extended the Telemarketing Sales Rule to cover consumers who make calls to debt relief companies after reviewing debt relief advertising.
New Dedicated Account Rules
With the new rules, companies can require that a dedicated account is used by consumers for payments to creditors if the following conditions apply:
• The account is held by an insured financial institution.
• The consumer retains control over the funds and any interest earned.
• There is no penalty for withdrawals.
• The debt relief company is not affiliated with the financial institution.
• No referral fees are exchanged.
Who Must Abide By the Telemarketing Sales Rule?
These regulations apply to debt relief telemarketers who make a profit on their services. This could include credit counseling, debt settlement, or debt negotiation companies. It does not cover non-profit agencies. However, if a company falsely claims that it has non-profit status, it must comply with the regulations or face penalties.