Consumer Guide: FTC Debt Relief Rules
After investigating the practices of debt relief companies that charge consumers high upfront fees but fail to help them resolve their debts, the Federal Trade Commission has issued its “Final Rule to Protect Consumers in Credit Card Debt” in August 2010. This is not a new law. Instead, the FTC extended the Telemarketing Sales Rule to cover companies offering debt relief services. In this consumer guide we will help you understand how the new debt relief rules affect consumers. We will use the terms “debt relief,” “debt settlement,” or “debt negotiation” interchangeably, although the rule applies to all of these. Who It CoversThe Final Rule covers telemarketers of for-profit debt relief services, including credit counseling, debt settlement and debt negotiation services. It applies to companies that take inbound calls from clients, as well as those who make outbound calls. What you need to know: The new rules do not apply to legitimate non-profit debt relief firms, such as non-profit credit counseling agencies. Attorneys who do not engage in inter-state telemarketing and who meet face-to-face with clients are also exempt in most cases.
Upfront Fees are IllegalAfter October 27, 2010, debt relief agencies will not be allowed to charge a fee in advance before providing any services. A fee can only be charged when:
Even then, the settlement agency cannot charge the entire fee when the first debt is settled. Instead, each fee the consumer pays must be “proportional” to the total fee that will be charged. What you need to know: There is no cap on the amount of fees that may be charged by settlement firms. Firms may charge a flat fee per debt, for example, or a “contingency” fee based on the amount of money “saved” by the consumer. Fees may also be stated as a percentage of the total debt the consumer owes when they enter into the program. Some state laws, however, limit the amount of fees firms can charge.
Upfront DisclosuresBefore a consumer signs up for a debt negotiation or debt relief program, the firm must disclose important key information:
Truthful AdvertisingDebt relief firms must adhere to strict new guidelines when the market services. Advertising claims must be based on the firm’s actual experience with all consumers it has served, not just the “best” examples. For example, if a debt relief firm says consumers can settle their debts for half of what they owe, they must be able to back up that claim based on all of the clients they have worked with, including those who dropped out of the program and settled no debt. And they must subtract fees paid when calculating savings. Dedicated Savings AccountsIf a debt relief company requires you to save money in a “dedicated account” you can use to settle your debts, they must meet five conditions:
Is Debt Settlement Right for You?Are you a candidate for debt settlement? Before making the final decision, be sure to review Gerri's "Consumer Guide to Debt Settlement" and "Fourteen Questions to Ask a Settlement Company" located in the Credit.com Learning Center. 
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