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).
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.
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.
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.
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.
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.
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
debt negotiation companies must not misrepresent.
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.