Debt Settlement Lawyers...

Are They Bound By The New Final Rule On Debt Relief?

The quick answer is (and this is straight from FTC documents)... there is no general exemption for debt settlement lawyers when it comes to abiding by the new Final Rule regarding debt negotiation. In other words, attorneys are treated the same as any other provider of these services.

Aside: The "Final Rule" is a set of laws enacted by the FTC in 2010 aimed at protecting consumers who hire debt negotiators to try and reduce their unsecured debt or otherwise alter the payment agreements (ie. reduce interest rates, eliminate penalties and late fees, adjust monthly payments etc.)

So why is there confusion when it comes to this issue? Well, likely because most debt negotiating done by attorneys does fall outside of the Final Rule. But this is not because they are attorneys but rather because of the way in which most attorneys solicit and sign up clients.

Two Examples Of Why Debt Settlement Lawyers Would Not Be Bound By The FTC Final Rule On Debt Relief

Interstate Telemarketing

Because the Final Rule is actually an amendment to the FTC's Telemarketing Sales Rule (TSR), much of the new laws pertain to the use of the telephone by debt negotiators for marketing purposes. Specifically, if a customer signs up for a debt relief program as the result of an interstate telephone call (and does not meet face to face with the debt relief provider prior to entering their program), then the company/individual providing the service is bound by the new debt relief laws. This would apply to debt settlement lawyers as well. However, because most lawyers only deal with clients who reside within the state that they practice, they would not be involved in "interstate" telemarketing.

Face-To-Face Meetings

As I alluded to above, if a debt relief provider meets face-to-face with a client prior to signing them up for their program, then this likely "exempts" them from many of the new laws. And because most debt settlement lawyers do meet face-to-face with new clients prior to taking them on, they would likely be exempt from the laws of the Final Rule. Again, not because they are lawyers, but because they meet face-to-face with their clients.

Attorney Model

As we all know, even when governments enact laws (both civil and criminal), some people will break them or try and find ways around them. So don't be shocked if in your search for a debt relief provider, you come across a company that is not "playing by the (new) rules" so to speak. An example of this is the use of the so called "Attorney-Model" by debt settlement companies to try and collect up front fees from clients that would appear to be in direct violation of the new laws. Recently, a group of non-profit credit counseling agencies has petitioned the FTC to put a stop to this practice.

They (the credit counseling agencies) claim that theses debt settlement companies "front" as law firms so that they can collect large up-front retainers and ongoing monthly fees for debt relief work that they would not be able to collect if they were not posing as law firms. Here's my problem with this argument.

As we discussed above, debt settlement lawyers who engage in interstate telemarketing are not exempt from the TSR simply because they are "attorneys". Therefore, the fact that these debt settlement companies are "posing" as law firms does not exempt them from obeying the FTC laws, the most prevalent of which is the banning of up-front fee collection by debt negotiators. So if these "debt settlement lawyers" are soliciting business using interstate telemarketing and not meeting face to face with their clients prior to signing them up for their programs, they are in direct violation of the law.

What Should You Do About All Of This?

Get your FREE debt reduction plan.

My recommendation to you is simple, straightforward, and will go a long way towards protecting you from the "bad actors" in this industry. Learn the basics of the new laws regarding debt relief programs and then only deal with debt negotiation companies and debt settlement lawyers who run their operations based on these new laws. Having said that, the most important thing to remember is to never pay up front for debt negotiation services regardless of whether someone tells you they are allowed to collect fees up front. If a debt relief provider (an attorney, company, other individual, it doesn't matter who) insists on any up-front fees, simply move on to another provider. Period.


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