New Rules for Debt Settlement Companies
As of Monday, Sept. 27, new Federal Trade Commission rules went into effect that will prevent abusive practices by debt settlement companies. These settlement companies can no longer make promises to eliminate your debt.
As of June 2009, The Association of Settlement Companies, which is a major settlement industry group, estimated its members managed 154,000 consumer clients with more than $4.9 billion in debt. In order to attract their clients, the debt settlement companies frequently claim that they’re non-profit, that they can renegotiate your outstanding debt (in a reasonable amount of time) and can settle with creditors for a fraction of the amount owed.
This new law will stop settlement companies from:
- Claiming to be non-profit if they aren’t
- Saying in advance that they can eliminate all or part of your debt
- Not disclosing the fee amount and time period for the program upfront
- Misrepresenting settlement percentages of original amounts owed
Now settlement companies must:
- Give an upfront estimate of the client’s cost to be in the program
- Provide an accurate estimate of the time needed to complete the program
- Warn the client of potential negative consequences to enrolling
On Oct. 27 another rule will go into effect. It states that consumers will not have to pay a fee to the settlement companies until they see actual results that their debt has been reduced or settled.
Unfortunately, these new rules only apply to phone sales, not to in-person or online sales. Although most debt settlement company sales occur over the phone, be aware of your rights and wary of sales people who want to make a face-to-face appointment or continue the conversation online.
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