Wallingford, CT – August 24, 2010 – The federal government is poised to enact significant restrictions to protect consumers from some of the most reviled practices used by debt relief services.
Amendments to the Federal Trade Commission (FTC)
Telemarketing Sales Rule that take effect in September will prohibit for-profit debt relief companies from charging any fees before they reduce or eliminate consumers’ debts.
Connecticut Better Business Bureau President, Paulette Scarpetti, says the FTC is cracking down at a time when consumers need it the most.
“These amendments will effectively stop telemarketers from taking money from consumers and delivering little or in some cases, no debt relief.”
BBB has processed more than 2,600 complaints nationwide so far this year against companies that peddle debt relief services such as credit counseling, debt settlement and debt negotiation services.
Most of these complaints allege the consumers were charged fees before any work was done, and that the companies misrepresented their services or failed to reduce debts at all.
The tighter rules will be phased-in over the next two months.
Under the first provisions that will take effect on September 27, 2010, debt relief companies will be required to disclose how long it will take for clients to see results, how much the services cost and any potential negative consequences.
In addition, the changes will prohibit debt relief companies from misrepresenting their success rate or falsely claiming they are non-profit. The regulations also will impose the same restrictions on telephone calls from consumers responding to advertising.
A second set of changes coming into effect on October 27, 2010, will prohibit these companies from charging advance fees for their services. They may only bill customers after:
- There is a written agreement between the consumer and creditor.
- The company successfully renegotiates, settles, reduces or otherwise changes the terms of at least one of the consumer’s debts.
- The consumer makes at least one payment to a creditor after a successful negotiation or settlement.
These are significant changes in light of a litany of consumer complaints saying that they received no debt relief benefits after paying fees up front.
Finally, the FTC also set aside guidelines for dedicated accounts, into which many debt relief companies require their customers to pay during debt settlement negotiations. Under the new regulations, if these companies set up a dedicated account for a client, it must be maintained at an insured financial institution, the consumers own the funds, including interest and they may withdraw the funds at any time without penalty. Financial institutions that administer these accounts may neither be affiliated with the debt relief company nor receive referral fees.
Before seeking help from a debt relief company, BBB recommends consumers:
Contact lenders first – Try to work out an agreement directly with creditors before enlisting outside help. This can be done for free.
Research the company with BBB - Find out how many complaints it has received, how the firm responded to complaints and whether there are any government actions or lawsuits against the company.
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Seek help from a non-profit credit counseling center – Credit counseling centers can provide guidance for little or no cost. Visit
www.nfcc.org for the location of the nearest center.
BBB offers more debt management resources at
http://www.bbb.org/credit-management/.
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Founded in 1928, Connecticut BBB is an unbiased non-profit organization that sets and upholds high standards for fair and honest business behavior. BBB offers objective advice and a wide range of education on topics affecting marketplace trust. BBB also offers complaint and dispute resolution support for consumers and businesses. Today, 128 BBBs serve communities across the U.S. and Canada, evaluating and monitoring more than three million local and national businesses and charities. For more advice on finding companies and businesses, start your search with trust at www.bbb.org.Howard Schwartz, Communications Director, 203-269-2700, hschwartz@ct.bbb.org