A new Federal Trade Commission regulation that went into effect Wednesday will help protect financially-desperate families from deceptive offers for debt relief.
“The new rule will have a significant impact on reducing predatory debt relief,” said Julie Wheeler, president of BBB Serving Western Virginia. “But, we want to advise consumers they still need to exercise caution when enlisting the help of a third party to get out of debt.”
Since the start of the recession in December of 2007, the BBB has received more than 6,000 complaints from consumers about debt relief or debt settlement companies.
Typically, complainants say they were charged large up-front fees in exchange for the empty promise that the company would significantly reduce or eliminate their debt.
Under the new rule, any company that solicits debt relief services over the phone, including taking incoming calls from new customers, will not be able to charge upfront fees until the debt relief service successfully re-negotiates, settles, reduces, or otherwise changes the terms of at least one of the consumer’s debts; there is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it; and the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.
Additionally, debt relief providers cannot require consumers to set aside payments in a “dedicated account” unless the dedicated account is maintained at an insured financial institution; the consumer owns the funds (including any interest); the consumer can withdraw the funds at any time without penalty; the provider does not own or control or have any affiliation with the company administering the account; and the provider does not exchange any referral fees with the company administering the account.
Finally, before the consumer signs up for any debt relief service, providers must disclose fundamental aspects of their services, including how long it will take for consumers to see results, how much it will cost, the downside of using debt relief services, and key information about dedicated accounts if they choose to require them.
Before seeking help from a debt relief company, BBB recommends consumers research the company with BBB to find out how many complaints it has received, how the firm responded to complaints and whether there are any government actions or lawsuits against the company. Additionally, consumers should contact lenders first and are advised to try to work out an agreement directly with creditors before enlisting outside help. Consumers should also seek help from a non-profit credit counseling center that provides services for little or no cost. Visit www.nfcc.org for the location of the nearest center.
For more information, contact the BBB at (540) 342-3455 or (800) 533-5501.