One of the requirements of the USA debt settlement laws that were enacted by the FTC in September/October of 2010 is that debt negotiation providers must disclose certain information to potential clients prior to them entering their program. In Parts 1 through 4 of this discussion I looked at the first four major disclosures...
1. How much the program will cost
Aside: Although this information might seem on the "dry" side, I cannot stress enough just how important it is for you to understand at least the basics of it before you consider entering a debt settlement program. By educating yourself when it comes to the laws surrounding this industry (even if it is just a big picture understanding) you will go a long way towards protecting yourself from being scammed, and making sure that if you do decide on this method of debt relief that you choose a company or individual that has your best interests at heart. Having said that, if you have not read Parts 1 through 4 of this discussion, I strongly urge you to go to the beginning (you can start here where I begin my discussion on debt settlement law and disclosures) and then work your way back here.
The final area of disclosures that debt negotiation companies must make to you prior to entering their program has to do with dedicated accounts and how your money is handled. The new USA debt settlement laws do allow companies to require that their customers set up dedicated accounts into which savings for future settlements and fees are deposited along the way. However, the laws do require that these companies disclose to you certain things regarding these accounts.
The first issues with these accounts aren't so much disclosures but a requirements.
1. In order to protect the funds from a bank failure, the account must be set up at an insured financial institute.
2. The settlement company can have no affiliation whatsoever with the company that is administering the account, and cannot receive or exchange referral fees with the administrator.
The other issues are what must be disclosed...
1. The funds remain yours, and yours alone. The debt negotiator does not control these funds, nor do they become the property of the debt negotiator once they are in the account.
2. Part of your rights under the new USA debt settlement laws is that you can choose to withdraw from a debt negotiation program at any time without penalty. If you do withdraw, you are entitled to receive all of the funds that you have deposited into the dedicated account other than any fees that were legally earned by the debt relief company. (If you would like to learn more about how fees are calculated and paid in a USA debt settlement program, here is a comprehensive discussion on that topic.)
There is good reason why USA debt settlement law does not restrict the requirement of dedicated accounts when it comes to debt relief providers. In order for you (the consumer) to see success from such a program, you must be able to save money over time that will eventually be used to pay any future settlement agreements (and the fees due to the debt negotiator as a result). By having you set up a dedicated account into which these savings are deposited, it protects both you and the company that is working for you.
For example, if after 8 months in the program you have deposited little or no savings into your dedicated account, your chances of succeeding in the program are slim to none. At this point it is only fair that the debt relief provider has the option to discontinue working on your behalf because you are simply not keeping up your part of the deal. The dedicated account lets the company see your progress or lack of it as the program evolves. Without it, they could be fooled into working towards a settlement on your behalf that you will simply never be able to afford to pay.
So how does it protect you? Well, it protects you from yourself really. If you don't have a dedicated savings account set up you may very well fool yourself into thinking that the money you need to save will come from "somewhere else". But if it is in a dedicated account, there is no mistake as to where you stand.