So many consumers have complained about debt settlement companies that the federal government has finally taken some action.
Yesterday, the Federal Trade Commission announced a new restriction on debt settlement companies which is designed to address the growing nationwide problem of so-called debt relief companies making outlandish promises of success, but ultimately failing to do anything.
Up-Front Fees Charged by Debt Settlement Companies to be Prohibited
The new rules, which will take effect in the fall, will prevent debt settlement companies from charging any up-front fees before they settle or reduce a customer’s credit card debt.
I have reported previously that I regularly meet with clients who were promised the moon by debt settlement companies; yet these companies ripped them off after charging large up-front fees, failing to achieve settlements, and leaving the consumers in a worse position than they were to begin with. I ultimately end up filing a bankruptcy proceeding for many of these clients. See: Debt-Settlement Firms Misled Consumers According to FTC .
There Has Been Rampant Abuse by Debt Settlement Companies Across the Country
According to an article in today’s New York Times, attorneys general in more than 20 states have brought enforcement actions against debt-relief companies in the past six years. The FTC has also received one of the highest amount of complaints for debt relief companies than any other type of business. The number of consumer complaints has doubled in the past two years.
Unfortunately, the new rules will not protect everyone, and some loopholes leave many consumers open to abuse. The new rules only cover agreements with debt settlement companies made over the phone. They do not cover agreements made on line or through face-to-face meetings.