Good news for those struggling to pay their bills: All of the new Federal Trade Commission (FTC) regulations to help protect consumers from deceptive offers for debt relief go into effect on Oct. 27, 2010. However, BBB still advises consumers to use caution when enlisting the help of a third party to get out of debt.
Since the start of the recession in December 2007, BBB has received more than 6,000 complaints from consumers about debt relief or debt settlement companies. Typically, complainants say they were charged large upfront fees in exchange for the empty promise that the company would significantly reduce or eliminate their debt.
Under the last in a set of new rules, any company that solicits debt relief services over the phone—including taking incoming calls from new customers—will not be able to charge upfront fees until the following steps have been made:
- The debt relief service successfully renegotiates, settles, reduces, or otherwise changes the terms of at least one of the consumer’s debts.
- There is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it.
- The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.
Additionally, debt relief providers cannot require that consumers set aside payments in a “dedicated account” unless the following conditions are met:
- The dedicated account is maintained at an insured financial institution.
- The consumer owns the funds, including any interest accrued.
- The consumer can withdraw the funds at any time without penalty.
- The provider does not own, control or have any affiliation with the company administering the account.
- The provider does not exchange any referral fees with the company administering the account.
Finally, before a consumer signs up for any debt relief service, providers must disclose fundamental aspects of their services, including how long it will take to see results, how much it will cost, the negative consequences that could result from using debt relief services, and key information about dedicated accounts if they choose to require them.
Visit the FTC website for more information about laws to protect consumers in credit card debt.
For more information on managing finances and getting out of debt, check out BBB’s Managing Credit-Made Simpler.