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07/30/2010
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New FTC rule aimed

Debt: Violations to cost firms $16K

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rule apply to any debt relief will go after companies that

at debt·settlements

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• Companies can
charge only after
debt is reduced
The Associated Press
NEW YORK - Compa­
nies that promise to reduce
or eliminate credit card bal­
ances and other debt for cus­
tomers will no longer be
allowed to charge an upfront
fee.
The Federal Trade Com­
mission said Thursday that
the new restrictions are a
crack down on the debt set­
tlement mdustry. which
flourished during the eco­
nomic downturn as bor­
rowers struggled to pay
bills.
Debt settlement compa­
nies will now be able to
charge a fee only once a cus­
toruer's debt has been
reduced, settled or renegoti­
ated. The rule goes into
effect Oct. 27.
Since the start of the
recession, the. Better Busi­
ness Bureau has received
moretllan 3,500 complaints
about debt settlement com­
panies.
late tees and interest charges companies that sell services
continue piling up. over the phone. They do no
Customers are also often apply if the initial contact is
required to start setting aside in-person, or if the services
pose as nonprofits.
The Better Business
Bureatrcau~ersto
be-wal y of any organization
Customers complained.
money in a separate account are rendered entirely online. that charges steep upfront
that they ended up deeper in
debt or were sued by credi­ maintained by the debt settle­ The new rule will cover the fees and makes promises that .
tors after failing to make ment company. vast majority of the debt set­ sound too good to be true.
This money is intended to tlement industry, however, The group also suggests
payments. The bureau did
not separately track com­ eventually payoff any remain­ because most companies use that struggling borrowers
plaints against the industry ingdebt. TVand radio ads to advertise first try contacting lenders
prior to the recession. Under the new rule, how­ .toll-free phone numbers for directly to negotiate debt.
Debt settlement compa­ ever, companies will only be customers to call, said Allison Alternatively, borrowers
nies often charge an upfront able to require such an Brown, an attorney with the can seek help from nonprofit
fee, typically a percentage of account if it's maintained at . FTC. credit counseling centers,
the customer's outstanding an independent financial Debt settlement compa­ which typically charge small
balance. institution under a cus­ nies that step outside the nominal fees for help manag­
In exchange, the company tomer's name. rules will be subject to a ingdebt.
promises to negotiate with The customer also must be $16,000 fine per violation. Nonprofit credit coun­
creditors to reduce or elimi­ able to withdraw the money The Federal Trade Com­ selors can be located on the
nate the debt, sOmetimes by at any time without penalty. mission's rules only apply to National Foundation for
as much as half.
The amendments to the for-profit companies. Credit Counseling's website
The new FTC regulations FTC's telemarketing sales The agency warned that it at www.nfcc.org.
also require debt settlement
companies to disclose to
customers how long it will
take to get results, how
much it will cost, and any
negative consequences that
could arise from the
process.
For example, customers
can go deeper into debt
when they hire a debt settle­
ment company.
This is because cus­
tomers stop making pay­
ments on their loans, and
-

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