DEBT-RELIEF COMPANIES PROHIBITED FROM COLLECTING ADVANCE FEES UNDER NEW FTC RULE

http://www.ftc.gov/opa/2010/10/debtrelief.shtm


Consumers trying to settle their debts will be protected by a new rule taking effect Oct. 27 that prohibits companies that sell debt-relief services over the telephone from charging fees before settling or reducing a customer’s credit card or other unsecured debt, according to the Federal Trade Commission. The ban on advance fees reflects changes that the Federal Trade Commission made to its Telemarketing Sales Rule last July. Over the past decade, the FTC and state enforcers have brought over 250 law enforcement actions to stop deceptive and abusive practices by debt-relief providers that have targeted consumers in financial distress. The FTC will be enforcing the new rule, as will the states – which also have authority to bring actions under the Rule. The new advance-fee ban specifies that fees for debt-relief services may not be collected until:

* The debt-relief service successfully settles or changes the terms of at least one of the consumer’s debts;

* There is a settlement agreement, debt-management plan, or other agreement between the consumer and the creditor that the consumer has agreed to; and

* The consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt-relief provider.