Debt Advice Bureau
Debt Settlement – New FTC Telemarketing Sales Rule Debt Relief Rule
What is it?
A new ruling that is designed to protect you, the consumer from shady/fraudulent “debt settlement” companies that were taking upfront fees and not doing anything buy stealing your money and making your credit situation worse. The key factor regarding this ruling is the “Advance Fee Ban” which makes it illegal to collect upfront fees before any settlement or debt reduction has occurred.
What are the new rules?
1. Debt relief companies (credit counseling, debt negotiation and debt settlement) cannot charge any fees until they actually settle or reduce your debt on at least one of your debts
2. There must be a written agreement between you and the debt relief company
3. Debt relief companies must show you at least their last 2 years results so you can see if they actually do a good job
4. Debt relief companies are not allowed to make misrepresentations of their services
5. The debt relief companies must give 4 disclosures to you.
A. How long it will take to see results
B. How much will it cost
C. What are the negative consequences from using debt relief services (ie. credit scores, getting sued, new fees and interest from creditor, tax ramifications etc.)
D. Key information about dedicated accounts
What are dedicated accounts?
Because debt relief companies can no longer accept fees upfront some may require you to set aside their fees and the funds necessary to settle with your creditors in a separate account. This helps to make sure that the debt relief company gets paid and that you have enough money to pay for settlement offers. There are 5 conditions that must be met in order to qualify as a dedicated account.
1. Dedicated account must be held at an insured financial institution (ie. bank, credit union)
2. You, not the debt relief company owns/controls the funds (including any interest accrued)
3. You, not the debt relief company can withdraw the funds at any time without penalty
4. Debt relief company can have no affiliation with the company administering the account
5. The debt relief company does not exchange any referral fees with the company administering the account
When does it start?
Some provisions begin as early as September 27th 2010 but the main clause of no more upfront fees starts October 27th 2010.
To learn more go to: http://www.ftc.gov/opa/2010/07/tsr.shtm or http://www.ftc.gov/bcp/edu/pubs/business/marketing/bus72.pdf