We have some good news for those seeking debt relief. The government is releasing new FTC regulations to protect consumers who are trying to get out of debt. Studies in a recent Wall Street Journal report suggested that US families have reduced their debt burden significantly over the past six years.
While this may seem like good news, it does not necessarily bode well for the country as a whole. Debt reductions have taken the form of settlements, write-offs, and defaults rather than sustained payoffs. This may end up harming consumers more than it helps them. Furthermore, many debt relief providers continue to take advantage of indebted consumers.
For consumers seeking debt relief, it can be difficult to judge whether a provider is unscrupulous or not. Over the past year, the FTC has issued numerous regulations to target unethical practices within the debt relief sector. For instance, FTC rulings prevent companies that do business by phone from charging advance fees. New regulations also prohibit debt relief providers from misrepresenting their businesses and require them to make certain disclosures to customers. Finally, the FTC regulations extend the Telemarketing Sales Rules to cover consumer response calls to debt relief advertisements.
Unscrupulous Debt Relief Providers Busted by US Investigation
The US Government Accountability Office conducted a covert investigation into the fraudulent, deceptive practices of a number of illegitimate debt relief providers. Posing as customers, the GAO made calls to 20 companies suspected of partaking in fraudulent practices such as collecting fees in advance and advising clients to end payments to creditors.
Of the 20 firms, 17 attempted to charge consumers in advance before settling any debts. The worst of these setup payment plans through which the first few months’ relief payments would go entirely toward “fees” for the debt relief company before ever beginning to pay off debts. Only one of the initial 20 suspected fraudulent companies collected fees after servicing the debt.
Companies like that one, plus other legitimate businesses, will receive a significant boost in business from this measure. The measure would make fraudulent companies to shut down or rework their business. This gives legitimate companies who are sincerely dedicated to serving their customers to come out ahead.
Advance Fees – The Mark of Unscrupulous Debt Relief Companies
If a company asks for fees in advance, either in the form of monthly payments or outright charges, you should see red flags going up. New FTC regulations prohibit charging advance fees, which will put most bad companies out of business completely. Some of the advance fee issues addressed by the rulings include:
- No charges until at least one consumer debt has been negotiate.
- No charges until at least one payment has been made to a creditor.
- A written agreement must be executed and agreed to by consumers and creditors.
- Initial charges must be charged per debt resolved in proportion to the total charge for all the debts to be resolved.
Going Forward With A Reputable Debt Relief Service
While new FTC regulations help protect consumers and go a long way toward making the debt relief services industry more reliable on the whole, debt-laden individuals still have to practice due diligence. For instance, be wary of “non-profit” debt relief services. Certain rulings may not apply to companies that claim non-profit status.
While the FTC has pursued fraudulent companies, there are still illegitimate debt relief providers out there. USA Today shared that scam debt relief companies got $11 million from consumers nationwide just from student loans. You should not always trust everything a company says. Legitimate debt relief providers are slowly becoming the norm. However, consumers still need to practice due diligence in dealing with debt relief companies. Nevertheless, FTC regulations go a long way toward creating an environment for consumers to develop stronger financial portfolios and bounce back from heavy debts.