The FTC recently created a new set of rules to govern companies in the debt settlement industry with the goal of protecting consumers from predatory behaviors.
Among the most important of the new rules is that companies are now forbidden from charging an upfront fee for debt settlement services. In the past, many companies would charge the bulk of their fee upfront before performing any services for the customer. This had the effect of increasing interest charges and late fees as customer payments went towards the debt settlement fee and creditors went unpaid. The new requirement that fees can only be collected as the customer’s debt is paid off should lead to superior service and results from debt management firms and fewer burned consumers.
Other new rules require companies to disclose important information such as:
- How long it will take to get results
- Total cost of debt settlement
- Any negative consequences that might arise, such as a negatively impacted credit rating
Another aspect of the rule requires that any bank accounts set up for the purpose of setting aside money to repay debts must be created under the customer’s name at an independent financial institution, where the customer can withdrawal money at any time. Previously, accounts were often created under the name of the debt settlement company and the customer relinquished all control.
The FTC penalty for breaking any of these rules is a $16,000 fine.
Although some companies in the debt settlement industry are claiming that these new rules will put them out of business, most support the new regulations, believing they will be most damaging to shady competitors. Some are also saying that the new rules should be applied equally to all debt settlement companies, not only for-profit firms.
Overall, the new laws should be beneficial to both consumers and the debt settlement industry, as they ensure that customers receive a beneficial service that helps them eliminate debt at a reasonable cost.
And why can’t the FTC shut down the “shady firms”.? Instead it seems there response is based off the cheapest way to get out of the situation. The U.S. Will now go up in unemployment substantially. Also I would like to know which companies like this rule, because I think your full of shit with the fact “most companies like it”. Obviously who ever wrote this doesn’t work or never has worked in this industry…. So thanks for putting up false comments about companies embracing this new rule. Who would EVER want this as a rule!!!
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