rssFTC Restricts Debt Settlement Industry
Thursday, July 29, 2010 at 6:20 pm
- 45 Comments
Today, the Federal Trade Commission announced new restrictions for for-profit companies that consolidate, reduce and eliminate debt on consumers’ behalf.
Debt settlement companies generally charge consumers a percentage of their debt, often credit-card debt, in exchange for negotiating with lenders on the customers’ behalf. Some companies advertise aggressively, promising to cancel half of a customers’ debt or more. But, often, consumer advocates and the Better Business Bureau say, consumers going through debt settlement end up deeper in the red.
Starting Oct. 27, debt settlement companies that speak with clients over the phone will no longer be able to charge upfront fees. They need to better inform consumers about their fee structure, how long it might take to negotiate debts and possible bad outcomes. Additionally, any savings accounts that debt settlement companies ask customers to pay into (rather than paying their bills) need to remain in the customers’ name, in an independent bank, with the funds always accessible to the customer.
Consumer advocates applauded the change. “We commend the FTC commissioners for exercising their authority to lay down common-sense rules in the debt settlement arena, where unfair and deceptive practices are rampant,” said Michael Calhoun, the head of the Center for Responsible Lending. “Until now many debt settlement companies have required hefty fees — usually based on the size of the debt — at the beginning of a client relationship, before any of the customer’s debts are settled. Far too often these companies never perform the task they were paid to do.”
The FTC plans to fine companies that violate the rules $16,000 per infraction. It also said it will go after companies posing as nonprofits.
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45 Comments
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Comment posted July 29, 2010 @ 11:00 pm
It's a good thing this little bit of consumer help didn't have to go through the Senate; it would have died the death of 41 cuts, there…
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Comment posted July 30, 2010 @ 1:37 pm
Now we have another 300k people out of work. Great work FTC. I bet not a one of you has ever been kicked in the balls by the credit card companies like the rest of us have. How about the mortgage companies? When are you going to step up and regulate them in a way that's fair to the American People. You don't agree with debt settlement companies charging fees upfront to do the work involved, yet you don't mind that the mortgage company can take the first 10yrs of a 30 year note and callect nothing but interest. Where is the difference? I feel sorry for all the consumers whose debt settlement companies just went under because they can no longer generate revenue. Not only 300k people out of work, over a million consumers will be left in the cold while their settlement companies can no longer service them. Again, GREAT WORK FTC!!!!
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Comment posted August 2, 2010 @ 11:37 pm
Actually, if most debt settlement companies initially were not greedy they would not be in this mess. Not all consumers will be left in the cold, as there are legit settlement companies that have never charged consumers any fees upfront. Personal Credit Solution does not charge any enrollment or monthly fees, and their fees are only based on what they save their clients once a settlement has been agreed with their creditors. I strongly agree with you that mortgage companies should have been regulated years ago, and that its extremely sad that consumers who are already enrolled in debt settlement companies going out of business will be tremendously affected by this law. I believe though they can still stay in business if they get their values straight and being in the debt settlement industry shouldn't be all about making money upfront, rather helping those in need first than charging what is fair once the company fulfills its promises.
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Comment posted August 2, 2010 @ 11:50 pm
Thankfully, there are several debt relief companies that do not charge anything upfront and only charge their fees based on what the client saves. If most settlement companies started with this in mind, this law wouldn't really affect them and force them to get out of business. Its good that the government is picking out the bad guys in the industry so that companies that have been doing it the right way since the beginning can bring new light to the industry. Personal Credit Solution ( http://www.personalcreditsolution.com ) strongly believes that a client should not pay a cent till their debt has been settled with their creditors. Who likes paying for service before it's completed?
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Comment posted August 5, 2010 @ 6:48 pm
I can appreciate your trying to make a valid point, inccdebt, however, your point falls short of making sense.
When you purchase a home, you are getting something in return for your payments, A HOME. On the other hand, when you are paying a debt negotiation company a 15% (based on your total program debt) fee upfront, you are not guaranteed that any service is being proformed- there's the difference!
I am the owner of Debt Relief Managment, LLC (http://www.debtreliefmgnt.com), a debt negotiation company, so it may come as a surprise that I am in support of the new FTC regulations. I feel strongly that regulation is neccessary in order to “weed out” the fakes from the legit debt settlement firms. The industry as a whole has a bad rap and it weighs heavily on my clients when I tell them that my company charges NOTHING in up front fees and as I explain that we are a proformanced-based company. The client sometimes feels that our services are too good to be true due to the overwhelming negativity surrounding our industry.
Now that this rulling will force some firms to close it's doors, it means more people will be able to get the help that they so desperately need, without having to pay more in order to receive it!
Comment posted August 5, 2010 @ 6:57 pm
Well said, Anisa. Like Personal Credit Solution, Debt Relief Managment, LLC (http://www.debtreliefmgnt.com) does not charge up front fees or monthly service fees. Furthermore, if we cannot settle a client's debt for 50% or more, we will settle the debt for FREE! We are a proformance-based company and we do not collect a single dime until the client agrees to a settlement.
Debt Relief Management, LLC has had a great deal of success in getting their client's full refunds of the moneys paid to their original debt settlement firms.
Hopefully, clients who are getting ripped off by there current debt settlement company, will contact Debt Relief Management, LLC (http://www.debtreliefmgnt.com) so we can work to get them a full refund of their fees and really start to make a difference in their financial situation!
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Comment posted November 10, 2010 @ 5:50 am
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industry so that companies that have been doing it the right way since the beginning can bring new light to the industry. Personal Credit Solution ( http://www.personalcreditsolution.com ) strongly believes that a client should not pay a cent till their debt has been settled with their creditors. Who likes paying for service before it's completed?
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