ExperienceDebtRelief.com

FTC's New Rules for Debt Settlement Companies

Thanks to the rise of credit card debt and the credit card industry's abusive practices, like rising interest rates, excessive fees, and slashing credit limits, many people have had to turn to debt relief through debt settlement companies. These companies offer to reduce your debt for a fee, many times charging you the fee before they actually perform the debt settlement service. People who find themselves in a tight credit situation need the help of a company who can negotiate new credit terms, lower your interest rate, waive late fees, consolidate all your debt, and lower your monthly payments. Debt settlement can help you avoid bankruptcy, and get rid of harassing debt collector calls; however, consumers found themselves paying these debt settlement companies upfront fees without receiving any service. After many complaints of this practice, the FTC jumped into action.

The FTC's new rules for debt settlement companies would require debt settlement companies to provide their services before they charge the consumer with the fee. This rule comes after the FTC discovered many debt settlement companies charging consumers an upfront fee and never performing the debt settlement service. This proposed rule has debt settlement companies on edge. Some worry it may affect their business or quality of service, but the FTC's job is to look out for the consumer, not the business.

Other FTC rules deal with a debt settlement company's disclosure on any associated fees. Customers were finding that they were being charged for undisclosed fees not agreed upon by both parties. One FTC rule would require debt settlement companies to also disclose specific details about their services, such as explaining how the debt settlement plan will work and how long it will take to achieve the consumer's goals, if it can be achieved at all. Consumers were being left in the dark when it came to full disclose on how debt settlement would affect their credit. Many consumers did not realize that the debt settlement process could dramatically drop their credit score. Now, debt settlement companies must warn consumers how debt relief and negotiation with creditors can have a negative impact on their credit score. Also, debt settlement companies must warn consumers that debt written off by their creditors can be considered taxable income by the IRS.

The goal of the FTC is to stop abusive debt settlement practices that encourages consumers to pay fees upfront and promising them services that may not be attainable. The FTC has propsed these changes due to a large number of consumer complaints about upfront fees, but also because many fraudulent debt settlement companies have been taking advantage of debt-ridden consumers who are victims of the down-turned economy. The FTC also expects debt settlement companies who call consumers to sell their services to follow the telemarketing sales rule, which requires telemarketers to disclose any information regarding their services. Telemarketers would call and promise unrealistic expectations and goals to people with debt, and charge a fee before they performed the service. Once the FTC's new rules for debt settlement companies are passed, telemarketers will not be allowed to collect upfront fees from consumers.

August 31, 2009

Top Debt Relief Questions

Recent Articles on Debt Relief