The New FTC Debt Settlement Rules -Loopholes To Be Aware Of Before You Sign Anything
Since 2010, the FTC has updated the rules that debt relief companies are expected to follow. Many of the changes have been positive. Debt relief companies are no longer allowed to charge up-front fees according to the FTC. They are forbidden from providing dishonest information about previous successes and are required to offer honest advertising.
Unfortunately, many debt relief companies have found loopholes in the laws. These loopholes make it possible for them to completely avoid following the rules. Some of these companies are now exploiting these. They want to line their pockets with profit – much to the dismay of their customers.
Here are some of the loopholes that these companies are now exploiting. Make sure that you are aware of these potential failings. Do your research before working with any company that offers debt services.
Be Wary of Legal Fees
Debt relief companies cannot charge legal fees under the new rules. However, this rule only applies if the sales pitch for the services comes over the phone. In response to this, many of the credit relief companies are now sending people out in person to attempt to sell their services door to door. In other cases, they will meet up with potential customers at coffee shops like Starbucks and Dunkin Donuts.
Because of the fact that the conversation is taking place in person, instead of over the phone, the law doesn’t prevent the companies from charging legal fees. This, of course, breaks the spirit of the rule and is evidence that legitimate companies certainly don’t need to charge upfront legal fees in order to stay in business.
Taking Advantage of Surveys
As with the previous example, many of the rules revolve specifically around telemarketing. Businesses are finding clever ways around this, and they don’t necessarily have to send somebody in person to accomplish it. One way is by claiming that the conversation is for survey purposes, rather than for telemarketing. They are doing this as they are regulated by two federal statutes. SBA shares that these are the Telephone Consumer Protection Act of 1991 (TCPA) and the Telemarketing Sales Rule (TSR).
They can get away with this because, instead of calling the target, they send them a text message asking if they would like to take part in a survey. Once the debtor agrees to the survey, the debt settlement company no longer needs to abide by the telemarketing rules. Many of these con artists will ask for as much as 10 percent of the total debt before they “help” the customer.
Once again, this gets around the telemarketing laws because the conversation is not taking place over the phone. The government borrowed this tactic from the illegal gambling industry. They exploited a similar loophole until the Department of Justice can down hard on the industry.
The new FTC rules only limit what debt settlement companies are allowed to say over the phone. This allows them to effectively charge whatever they want or make false claims without being held liable. Avoid working with any company that attempts to set up a debt settlement plan over the internet. Something this sensitive should not be done through an internet chat unless you explicitly asked to do so. Be especially wary if the company refuses to set up the plan over the phone or through the mail.
To get around the upfront fee rules, some settlement companies are instead charging fees for merchandise. They may require you to purchase books, CDs, or videos and charge a highly inflated price for these materials. The merchandise serves no genuine purpose and is really just a stand-in for the upfront fees that the businesses used to charge. Legitimate debt settlement companies do not charge for information about settling debt, and many of them provide free resources during their meetings or online.
Avoiding the Laws Entirely
Unfortunately, the FTC has not come down hard on these companies and has only filed lawsuits against two of them. For this reason, it’s not necessarily safe to assume that a debt settlement company is following the rules. This is true even if they are speaking with you over the phone. Always do your research before working with a settlement firm.