Ever since FTC passed new rules barring deceptive practices by debt settlement companies, consumers may think that it’s safe now to give money to a company that claims it can radically decrease the amount of debt you owe.
It’s not. Instead of following the law, many large settlement companies are finding creative ways to avoid it, according to a coalition of nonprofit groups that perform similar services.
“We are writing to speak out against the deceptive tactics employed by a growing number of debt settlement companies intent on evading the Federal Trade Commission’s” new regulations, according to a letter that 11 nonprofit debt counseling groups sent recently to the FTC.
The industry’s trade group, The Association of Settlement Companies, did not return a call seeking comment.
The new rules bar companies from charging up-front for debt settlement. They also bar the companies from promising to get rid of debt that cannot actually be expunged by anything short of a bankruptcy. The regulations are attached to the FTC’s Telemarketing Sales Rule.
The companies’ crafty solution: Make the same false promises, but avoid making them over the phone. Some debt settlement companies are contacting consumers via text message. The texts often claim to be from a surveying company, according to the nonprofit groups’ letter.
The “survey” asks if they owe debts over $10,000, and if they would like to reduce that amount. If the consumer responds with a yes, she is asked to pay a large up-front fee to speak to a debt resolution “advocate.”
Other companies are communicating with consumers through online chat rooms, and others are still making telemarketing calls from offshore call centers, according to the letter.
Another tactic: Pose as lawyers, who are exempted from the new rules. By setting themselves up as law firms, many debt resolution companies believe they can skirt the rules. But few consumers actually get to speak to a real lawyer, according to the letter, and if they do, the lawyer is usually not licensed to practice law in their state.
The end result of all the schemes is the same: Continue charging high up-front fees, sometimes for thousands of dollars, but doing little to reduce or resolve the debt.
“We know the kinds of challenges people are facing as they try to make ends meet,” the groups said in the letter. “Being scammed out of the little money they have available to pay their debts must stop.”
Article correction 12.23.10: FTC passed new rules barring deceptive practices by debt settlement companies.
Christopher Maag Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics. Reach Chris via email at chris@credit.com.
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Costa Rica is becoming a very popular place for call center operations. The labor costs compared to the US is much less. A Costa Rican can earn $1,000 a month to work in a call center. Their is less oversight for this industry as well in Costa Rica.
Lic Giovanna Barrantes
http://www.lawyerofcostarica.com
Congress didn’t pass any law. The ftc did.
Thank you for the clarification. We’ve updated the correction.