The FTC has issued new rules for any company that sell for-profit debt relief services to consumers over the phone. This includes debt settlement, debt negotiation, and credit counseling companies who call consumers to get them to sign up for services. It also applies to companies who receive calls from consumers in response to radio, television, and other types of ads.
These rules don't apply to debt relief companies who operate as nonprofit organizations or those companies who don't sell services via telemarketing. In addition, the FTC says that most debt relief companies who do face-to-face presentations are exempt from the new rules. The final rules became effective October 27, 2010.
Required Disclosures
Debt relief and debt settlement companies have to disclose how much the service will cost, how long it will take for results, any negative consequences of using the service, and details about the dedicated account if the account is required.
Debt settlement companies have to disclose how much each you'd need to save up before they can settle a debt. For example, if you need to save $7,000 to settle and $11,000 debt, you must receive this information before you sign up for the service.
You must be told about any negative effect on your credit score, negative marks on your credit report, and collections that may take place after you've fallen behind on your debts.
Debt relief companies can't misrepresent their services or results. The savings they predict for your debt must be based on the savings they've achieved for previous customers.
No Advance Fee for Debt Relief Companies
Companies who provide debt relief services, like debt settlement companies, can't charge a fee before they provide the service. The fee can't be charged until the company settles, reduces, renegotiates, or changes the terms of one of the debts. Before the fee can be charged, there must be some type of written agreement that both the consumer and the creditor have agreed to. Finally, at least one payment must be made to the creditor based on the new agreement.
Once one debt has been settled, the company can charge a fee for their efforts on that debt only. The fee for one debt must be in proportion to the fee for all the other debts. Or, if the settlement company's fee is a percentage of the debt savings, the percentage must be the same for all the debts.
Rules for Dedicated Accounts
Many debt settlement companies have a dedicated account that's used to accumulate funds to be used for a settlement. Under the new rules, companies can still have these accounts but they must follow certain rules. This dedicated account must be at an FDIC or NCUA insured bank or credit union, the customer has to own the account and interest, the customer has to be able to withdraw the money at anytime without being charged, the settlement company doesn't have any type of interest or affiliation with the bank, and the settlement company doesn't receive referral fees for the account.
