Debt Negotiation And Settlement...

Your Legal Rights Regarding Fees Etc.

As of the fall of 2010, for-profit companies who promote debt negotiation and settlement programs over the telephone must abide by a strict set of laws enacted by the Federal Trade Commission (FTC).

Called "The Final Rule", the new laws address several different aspects of how these debt relief companies can operate.

But by far the most significant "new rule" if you will, is the banning of all advance fees prior to a service taking place. (Here is an example of how a typical settlement fee payment works following the enactment of the new laws.)

Now, before we get into the specifics of these new laws, here is the important thing for you to take away from all of this (if in fact you are considering hiring a debt negotiator). Once you familiarize yourself with the laws, use them as a starting point for evaluating different debt negotiation and settlement companies. In other words, look for companies that aim to go above and beyond what is simply required by the law. Those are the ones that you should aim to work with.

Having said that however, being able to tell the "good guys" and "bad guys" apart is still difficult. Especially if your knowledge about the industry is limited. And on top of that, knowing whether debt settlement is even the right choice for you is a challenge. What I recommend is that you take advantage of a free debt consultation with an independent, senior debt counselor who can evaluate your situation, help you put together a debt reduction plan, and refer you on (if appropriate) to a top-notch debt relief company or lawyer.

As you read further you will find out that these new debt negotiation and settlement laws do not apply to all operators within the industry. And although it cannot hurt to understand who is, and who is not bound by these laws, my advice from earlier remains. Ie. regardless of whether a company or individual is legally bound by the Final Rule, you should still hold their feet to the fire so to speak by insisting on a program that meets and exceeds the guidelines under the new laws. In fact, if you receive any resistance simply move on to another provider. Period.

Remember, the 'bad actors' in this industry will always try and skirt the law, and may even try to explain to you why they don't have to follow a particular law. Ignore them and move on. There are companies out there right now who are using 'less than above board' methods to try and avoid compliance with these new debt negotiation and settlement laws. So at the risk of sounding like a broken record... your best defense against these companies is to ignore them and move on.

Who Is Not Affected By The New Debt Negotiation And Settlement Laws?

The Final Rule only applies to "for-profit" companies... that sell debt relief programs over the telephone... aimed at reducing the principal and/or interest rate on your unsecured debt... or otherwise altering the payment terms or other terms of the debt.

Therefore, it doesn't matter what the debt relief company calls itself, (a credit counseling company, a debt settlement company, a debt negotiation company, a debt settlement lawyer etc.) it is the services that they offer that determines whether they are bound by these new laws or not. Which brings us to the next question.

So Who Is Not Bound By These Laws?

Good question. Here is a list...

1. Legitimate "non-profit" companies who offer debt relief programs like the ones described above are not bound by the Final Rule regardless of whether they solicit your business using the telephone.

2. Any company or individual (regardless of whether a company is for-profit or non-profit) who meets face-to-face with you prior to you signing up for their service.

3. Companies or individuals who solicit your business on the internet, and sign you up to one of their debt negotiation and settlement programs without ever speaking to you on the phone.

Now, technically, if you were to sign up for a debt program this way (#3 above), the company (or individual) would be exempt from the Final Rule laws. However, it is more likely that if you were to find a company online with whom you were interested in working, at some point before you officially signed up for their program you would likely speak to them on the telephone.

And as soon as this happens, they would be bound by the laws of the Final Rule.

Alright, let's move on to the "highlights" of the Final Rule.

Final Rule Regrading Debt Negotiation And Settlement Programs - The "Highlights"

Alright. We've spent a little bit of time above going over exactly which type of companies and individuals are affected by these new laws. Now I want you to disregard all of it!


Well, (here comes the broken record again) my advice to you is to only deal with debt relief companies that strictly adhere to all of the new FTC laws regardless of whether they are for-profit or non-profit, regardless of how you ended up in contact with them (telephone, internet, television advertising, etc.), and regardless of whether you are meeting with them face-to-face or speaking to them over the phone. Below you will find a summary of the four main areas covered by the new laws. If you stick to dealing with companies/individuals who follow these laws to a "T", you will go a long way towards protecting yourself, and taking a big step towards debt freedom.

Advance Fee Ban

As I mentioned above, the most significant law that was enacted by the FTC under the Final Rule was the advance fee ban. Prior to the Final Rule, one of the biggest complaints about debt negotiation and settlement programs and their providers was that all too often hefty fees were collected from consumers before any results were provided. And in many instances the very same consumers who paid out these fees never even received the services that they paid for. The advance fee ban was put in place to protect consumers from this type of deceitful practice.

Necessary Disclosures For Debt Negotiation Providers

The new FTC laws will require companies and individuals selling debt relief programs to make 5 specific disclosures to perspective customers.

1. how much will it cost

2. how long until the customer will see results

3. how much the customer must save before an offer is made to a creditor

4. any potentially negative consequences that might arise as a result of enrollment

5. details about dedicated bank accounts

It is important for you to understand these requirements regarding disclosures in order to ensure that you end up dealing with an honest and reputable debt negotiator. The best way to do that is to start here with a discussion on program costs and then move through each of the other four disclosures from there.


Prior to the Final Rule, debt negotiation and settlement companies were known to make claims about their services that they either could not back up with fact, or misrepresented in order to entice consumers to sign up. This is no longer tolerated. Now, claims regarding program time lines, discount percentages and success rates (among other things) must be based on "provable" facts. Read more about what debt negotiation companies must not misrepresent.

Dedicated Bank Accounts For Debt Relief Programs

One thing that has not changed as a result of these new laws, is the ability of debt relief companies to require their customers to set up "dedicated accounts" into which all savings for future payments and fees will be deposited. What has changed however, are the restrictions on these accounts. The most important of these is that the consumer (you) continue to own the funds in the account, and may withdraw them at any time.

Whenever Laws Are Passed, Some People Will Always Try And "Get Around" Them

Although it is definitely a good thing that there are now laws in place that protect consumers who choose debt negotiation as an option, keep in mind that there will always be people and companies who will try and "skirt" the law. Case in point. After only a few months of these laws being on the books, a group of credit counseling companies complained to the FTC about several tactics that some debt negotiation and settlement companies were already employing in order to avoid having to comply with the Final Rule.

Are these legitimate complaints or self serving propaganda? (Keep in mind that debt settlement companies are direct competition for credit counseling companies so their complaints may not be completely altruistic in nature.) Well, I discuss these complaints in more detail here, and give my personal opinions on the legitimacy of them. But while it is important for you (as a potential debt negotiation customer) to understand how some companies providing debt relief programs may be trying to avoid complying with the law, it is more important for you to realize that the laws will not protect you 100%. You still have to educate yourself and be very diligent and thorough in your search for a debt negotiator who operates not only within the law, but tries to go beyond what is just legally required.

I know all of this information is a lot to take in at once. So if I can leave you with just one piece of advice that will go a long way towards protecting you and your money it is this... do not pay for any debt negotiation and settlement services until they are 100% complete. If you stick by this rule you will almost eliminate your chances of being a victim of the "bad actors" in the debt settlement industry. (Again, sorry for sounding like a broken record.)


> Debt Negotiation And Settlement Laws