New FTC Regulations for Debt Relief Companies
Debt settlement is often the best option a person has if they wish to become debt free, but it is always under tight scrutiny because the industry, unfortunately, is plagued by scammers. It can reduce the total amount of debt owed. That shouldn’t stop you, however, from seeking the advice of legitimate debt counselors and debt consolidation firms. Nonetheless, some people still fall prey to scam artists and end up paying too much for debt settlement or bill consolidation.
For those reasons, the Federal Trade Commission (FTC) has introduced regulations affecting how debt relief companies may operate.
New FTC Regulations
- Restrictions on upfront fees: Debt relief companies are prohibited from charging fees until they successfully negotiate a settlement with a creditor. No fees can be collected until the company successfully lowers the balance owed on at least one of the customer’s accounts, the company gets a written settlement or consolidation agreement, and the creditor has made at least one successful payment to the debtor under the terms of the new agreement.
- Disclosure of required savings: The debt relief companies must plainly tell the consumer how much money they have to save up before the company is able to make consolidation or settlement offers to creditors, on the consumer’s behalf.
- Fundamental information: Debt relief companies must provide the consumer with basic (or “fundamental”) information about how their programs work, including how much time the consumer can expect the process to take before they see actual results, and the total cost of the service. They must also discuss the likely consequences of debt settlement and consolidation with respect to the consumer’s credit. Debt relief companies are also banned from making misrepresentations about the results they can get.
- Dedicated savings account: These companies are no longer allowed to create “dedicated savings accounts” for consumers, unless these accounts meet certain criteria: the customer must have unfettered access to the account, and must be able to withdraw funds from it without incurring any penalty, and the account must be with an FDIC-insured financial institution, which has no affiliation with the debt relief company.
It’s predicted that these new protections will help consumers deal more fairly with debt relief companies. This should help them pay off their debt faster and easier than before, while avoiding unfairly high fees.
This guest blog was written by Marlon Powell from Debt Consolidation Care.