According to the FTC debt settlement law (called the Final Rule) companies and individuals that market debt negotiation services through the use of telemarketing must make certain disclosures to potential customers prior to signing them up. Here's a look at what those disclosures are and more importantly what you need to know to protect yourself if you are considering hiring a debt negotiator.
Let's start with what you need to take away from all of this before you start to speak with any debt settlement companies.
1. By getting at least a big picture understanding of what information needs to be disclosed to you according to debt settlement law, you will be able to ask more informed questions to potential debt negotiators that you are considering hiring. In fact, you could use this list of required disclosures as a "checklist" while you go through the sign up process in order to make sure that you have the information you need to make an informed decision.
2. If you are aware of the necessary disclosures, you will be in a much better position to gauge the honesty and trustworthiness of the different debt settlement companies you come across. If a company fails to disclose something that you know they are required to according to debt settlement law, you have to ask yourself "what else are they hiding?".
3. It's important to understand that these disclosures only apply to debt negotiators who market their services via the telephone BUT, you should still only deal with companies and individuals (including debt settlement lawyers) that fully disclose regardless of how you were introduced to them.
Alright, on to the actual disclosures...
As I mentioned above, it's important to get a "big picture" understanding of the necessary disclosures that debt negotiators must make to you prior to signing you up. But it will also be valuable to understand some of the nuances of each of the disclosure requirements as well. Now I know that this information may seem "dry", I can assure you that it is worth the few minutes it will take to read through it if it saves you a few thousand dollars in the long run.Alright, let's start with a list of the five main disclosure categories and then we'll jump in and take a little closer look at each one...
Debt settlement companies must disclose upfront exactly
how much their program will cost you. Or if that is not possible they
must give you at least an estimate of what it will cost. You see, most
debt settlement companies charge their fees in one of two ways. The
first way is as a percentage of the total debt that you enter into
their program. For example, if you have $10,000 in total debt, and they
charge a fee equal to 15% of your total debt, your cost will be $1,500.
The second way is as a percentage of the amount that they save you. Now, because they don't know exactly what those savings will be upfront, they can't give you an exact dollar figure before you enter their debt relief program. However, they are still required to give you an estimate based on their experiences in settling other consumer debt.
You will find that most companies calculate their fees based on the first method (percentage of total debt) which is both good and bad. Good in the sense that you know exactly what the fees will be going in. Bad in the sense that the fee structure does not provide any incentive for the debt settlement company to negotiate the biggest discount for you.
Another thing that you should be aware of (and should be disclosed to you) is that regardless of which method that a debt relief provider uses to calculate their fees, they can only collect a portion of their total fee for each debt that they settle. In other words, they cannot collect all (or a disproportionate amount) of their fee after the first debt is settled.
Finally, according to debt settlement law, if the debt negotiator has a refund policy they have to tell you this upfront and lay out the specifics of how it works. Conversely, if they don't have a refund policy they have to tell you this as well.Disclosure #2: How Long Will It Take?