In the fall of 2010, the FTC enacted new debt settlement laws (called the Final Rule) that are intended to protect consumers who choose to hire debt negotiators to alter the terms and/or amounts of their unsecured debt. And although many of the companies and individuals who provide debt negotiation services to consumers are abiding by these new laws, there is a segment of the industry that chooses to try and "skirt" or evade the laws through the use of several tactics that I will outline below.
Shortly after the the enactment of the Final Rule, a group of non-profit credit counseling agencies wrote to the FTC in order to bring to light many of these tactics and ask for enforcement of the law. Below we'll take a look at how some of these companies operate, whether the credit counseling companies' complaints are valid, and more importantly, how you can protect yourself and your money from these 'bad actors'.
The first "tactic" that the credit counseling companies complained about was the so-called "Attorney Model" that was/is being employed by a number of debt settlement companies. They accused debt settlement companies of portraying themselves as law firms, claiming they are not governed by the FTC, and that the fees charged were not "debt settlement fees" but rather a "retainer". This allows the company to collect up front fees and ongoing monthly fees in clear violation of the new debt settlement laws.
Here is my problem with this line of thinking.
The FTC makes it quite clear that "There's no general exemption from the TSR (Telemarketing Sales Rule of which the Final Rule is an amendment) for attorney's who engage in telemarketing." In other words, regardless of whether someone is an attorney or not, if they engage in interstate telemarketing they are still bound by the TSR. Whether these companies claim that they are not bound by the FTC laws is irrelevant. They are. Therefore, this complaint seems unfounded.
Let's consider an example whereby a debt settlement company did "front itself" as a law firm in order to collect up front fees for debt relief. Let's say this company advertised on the internet, among other places, in order to attract customers. You, who resides in California, sees their ad, and fills out a form on their website promising a free debt review. As a follow up to the debt review, an attorney based in New York calls you and signs you up for their program. As part of the program you are required to pay an up-front fee and on-going monthly payments. To me, this scenario appears to be in direct violation of the FTC debt settlement laws regarding interstate telemarketing. And this is true regardless of the fact it was an attorney that signed you up. But what if the attorney who called you was based in California? Would this change things? Unless you meet face-to-face with them prior to signing on to the debt relief program, then in my opinion, no.
So why all the concern about the use of attorneys to skirt these new laws? While it's true that most attorneys are exempt from the laws, it is not because they are attorneys, but rather because of the way that most attorneys conduct their businesses. 1) Most attorneys do not engage in interstate telemarketing to attract business, and 2) Most attorneys meet with their clients face-to-face prior to signing them up for services which usually exempts them from the TSR laws.
The bottom line for you when it comes to protecting yourself? Regardless of whether someone tells you that their company or firm is exempt from the new debt settlement laws, simply never pay upfront fees for a debt relief service. I know that sounds obvious but for every company that tries to convince you to pay up-front fees, there are likely five others that are obeying the laws and will not charge you until the debt relief services are completed. Solution... find one of those companies.