People with overwhelming debt are increasingly filing complaints against the unscrupulous debt settlement companies with the Federal Trade Commission (FTC). The huge number of complaints has compelled the FTC to take some preventive as well as remedial steps to fulfill its motto of protecting the US consumers.
The existent debt relief laws also include debt settlement companies. FTC amended the law on 27th October 2010. As per the new laws, the debt settlement companies cannot charge an upfront fee before they help a debtor to settle his/her debts. Read along to know your rights and defend your interest.
Telemarketing Sales Rule
The FTC’s amendment now includes the following clauses:
Debt settlement companies can’t make any sort of false claims.
They should give clear and complete information to the prospective debtor.
The law also covers the calls from debtors on the basis of the debt settlement company’s advertisement.
For-profit debt settlement companies operating under the cover of non-profit will be penalized.
These pro-consumer initiatives have helped the state financial regulatory bodies to successfully close 259 lawsuits and curb illicit debt settlement practices.
Regulation of Trust Accounts
In the final rule, few more provisions were added to the existing law. The new law permits debt settlement companies to keep aside a client’s service charges and saved money in a different account called the “dedicated account”. The money from this account should be used to repay the creditors.
The law also requires the debt settlement companies to follow the following rules with regards to operating a dedicated account:
1. Ownership of the account – The settlement company cannot be the owner of the dedicated account (that includes both saved amount and the interest accumulated on it). Instead, the client of the settlement company should be the account’s owner who can withdraw any amount of money from it without any sort of obligatory charges levied by the company.
2. Administration of the dedicated account – Only insured financial institutions are permitted to keep dedicated accounts. These financial institutions should not be an affiliate of any debt settlement company or get influenced by any.
3. Prohibition of rewards – Debt settlement companies are prohibited to get any incentives or rewards from the financial institutions that operate dedicated accounts because of clients referred to them.
Deletion of Upfront fees
As per the new law, debt settlement companies cannot charge any fees if they fail to meet the following demands:
1. Client’s consent – The client should agree to the debt repayment plan, budget (which is prepared by the debt settlement company to streamline its client’s expenses and savings) and other agreements signed between the client and the creditors. Moreover, these agreements should be properly documented and kept in a secure place.
2. Minimum payment – The client should have made atleast one payment to the creditors as per the settlement agreement brokered by the debt settlement company.
3. Successful negotiation – The debt settlement company should be successful in settling or renegotiating the loan agreement terms of a client with his/her creditors.
FTC has published a guide-book to assist the debt settlement companies in complying with the federal laws. For further information you can visit the official website of FTC which is: http://ftc.gov/bcp/consumer.shtm.
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