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.

Analysis: Debt Relief Firms Putting Debtors in a Deeper Financial Hole - Why you should see a Bankruptcy Attorney Instead

The long recession has delivered an abundance of customers to the debt settlement industry as debt-saturated Americans continue suffering lost jobs and income, sliding toward bankruptcy, the New York Times reported on Saturday. The settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer?s debt is actually reduced. State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say that the industry?s proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises. Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors. As the industry has grown, so have allegations of unfair practices. Since 2004, at least 21 states have brought at least 128 enforcement actions against debt relief companies, according to the National Association of Attorneys General. Consumer complaints received by states more than doubled between 2007 and 2009, according to comments filed with the Federal Trade Commission.

http://www.nytimes.com/2010/06/19/business/economy/19debt.html