FTC Issues Final Rules for Debt Relief Services
Consumers going for debt settlement or credit counseling services can now get rid of shady debt relief companies which indulge in scams and illegal practices. That’s because the Federal Trade Commission (FTC) has come up with a proposal to modify its regulations for debt relief companies. The purpose is to target scammers claiming to offer debt settlement or credit counseling services in return of hundreds and thousands of dollars in upfront fees.
How does the FTC plan to regulate debt relief outfits?
The FTC has proposed to modify telemarketing rules that apply to debt relief companies which receive telephone calls in response to their advertisement. In addition, the proposed rules will govern the practices of those services which reach out to consumers who’re in debt problems.
Here’s what the FTC proposal intends to do:
- Eliminate upfront fees: The proposal aims to ban companies which charge fees prior to providing any debt relief service.
- Do away with misleading claims: The FTC aims to prohibit companies from making false promises on how fast they can make a consumer debt free and how much the latter can save. It’ll also go after for-profit debt settlement services which claim to be non-profit organizations in order to indulge in scams.
- Disclosure requirements for companies: Debt relief companies will have to provide a number of disclosures when speaking to consumers about their programs. The companies need to disclose the details of how their settlement programs work and how long it’ll take you to get out of debt.
- Bring about transparency: The debt settlement/counseling services need to make consumers aware of the fact that creditors or CA may continue making harassing calls even if one has enrolled in a program to pay off debt. The companies need to clarify that going for a settlement can hurt one’s credit score.
The debt relief company should also clarify that not all creditors would be willing to reduce interest rates or the outstanding balance. Similarly, not all creditors may agree to waive off late fees, over-limit charges, and other penalty costs. The company needs to make it clear that one may have to pay tax on any debt forgiven in a settlement.
- Banning of ‘robocalls’: The Federal Trade Commission has banned various types of prerecorded telemarketing calls (‘robocalls’) soliciting different services. Henceforth, telemarketers will have to seek permission from the customers so as to make any calls soliciting products or services.
The robocallers may face penalties up to $16,000 per call. However, not all solicitations are banned. For instance, calls not aimed at selling products or services will be let off. Similarly, collection calls and those from banks, insurers, phone companies, etc. are exempt from the ban.
One way of avoiding the ‘robocalls’ is by getting enlisted in the National Do Not Call Registry. Once your number is available in the registry for 31 days, you shouldn’t receive telemarketing calls anymore. If the calls continue, you may file a complaint at the National Do Not Call Registry website.
What does the industry say about the FTC proposal?
The industry seems somewhat skeptical as to whether the FTC proposal would serve its actual purpose. Experts feel that the proposal could affect companies which offer legitimate debt relief services. While the FTC proposes to do away with upfront charges and scams, industry experts feel that it could put legitimate services out of business.
Debt negotiators are of the opinion that settlement often takes 2-3 years; so if the FTC proposal is accepted, companies would have to provide lengthy service without earning any revenue. Moreover, settlement companies often need to call different creditors/CA several times prior to completing a negotiation. As such, it’ll hurt the services they offer, and the success rate would also go down.
According to the FTC, a ban on upfront charges is fair as because several consumers have complained against companies charging money for the services they never offer. The FTC seems to ensure that debtors receive sufficient benefit before they pay charges for debt relief services. However, they need to take care of the fact that the new proposal doesn’t affect services which are legitimate and aimed at helping debtors in distress.