The economic downturn has left many Americans saddled with credit card debt with little to no way of paying it back. These stressful situations have led many consumers to turn to debt relief companies which claim to negotiate and settle your debts. Unfortunately, however, many of these companies prey on distressed consumers rather than provide legitimate debt relief.
For example, many debt relief companies engage in shady practices and misrepresent the services they provide. In fact, since 2007, the Better Business Bureau has received thousands of complaints regarding debt relief organizations all around the country.
In order to curb these unscrupulous practices, the Federal Trade Commission has created new rules to protect consumers. The regulations, which take effect soon, will prohibit many practices commonly used by debt relief organizations to take advantage of debt-ridden consumers.
The new rules apply to any debt relief organization that is for-profit. These organizations include debt negotiation companies, debt settlement companies and credit counseling companies. However, the regulations do not apply to nonprofit debt relief organizations. Still, if organizations are deceitfully claiming to be nonprofit, the regulations will apply.
The most important of the new regulations is the rule that prohibits debt relief organizations from collecting an upfront fee. Many consumers have complained after they paid the entire fee upfront and received only a portion of the services, or no services at all.
Debt relief companies must now successfully settle or negotiate at least one of the consumer’s debts before the consumer has to pay any fees. Also, the consumer must make at least one payment to a creditor before any fees are due to the debt relief company.
In our next blog post, we will continue to explore the new FTC regulations and discuss why the use of debt relief services is not always advisable.
Source: FOX Business “FTC Issues Final Rules to Protect Consumers in Credit Card Debt,” Emily Driscoll, 13 October 2010