As you may know, the federal government recently amended existing laws to essentially prevent debt relief companies from taking advantage of consumers. These laws apply to for-profit debt settlement companies who take inbound or make outbound interstate calls to enroll consumers in a debt settlement program.
Basic Rules of the Amended Debt Settlement Laws
The amended rules state that these companies cannot charge fees upfront for their services. In other words, fees cannot be charged until a debt has been settled, memorialized in writing and a payment has been made to the creditor. Not only that, if there are multiple debts to be settled, then the fees must be structured in a way that the consumer only pays for the debt that’s been settled, not all the debts at one time.
The rules also state that consumers must have access to their dedicated account when the debt settlement service uses one. The dedicated account is the account that’s typically used to accumulate funds for a debt settlement payment. The account must be at an insured financial institution and the debt settlement firm can’t be affiliated with the financial institution or receive a benefit for accounts open there.
Some debt settlement companies are exempt from these laws and continue to charge consumers upfront for services. For example, the debt relief law dismissed above is an amendment to the Telemarketing Sales Rule and only applies to those for-profit settlement firms who sign customers up via interstate telephone calls. Some debt settlement firms have been making face-to-face presentations and charging a fee upfront but these firms are exempt from the Telemarketing Sales Rule as long as they have a face-to-face meeting with the consumer before the consumer agrees to use the firm and before any payment by the consumer to the firm.
Even if a debt settlement company abides by the federal laws, there’s still no cap on the fees they can charge under these federal laws. It would then be up to the settlement company to decide how much their services cost and up to the consumer to decide whether they can pay that much or not.
While the law applies to for-profit companies, it also applies to companies who lie about their non-profit status or who don’t follow the laws for non-profit businesses. However, while the FTC possibly reviews for-profit debt relief companies, they might not necessarily review non-profit businesses.
Debt settlement companies may pose as attorneys and ask you to pay upfront legal fees. It’s illegal for companies to claim to be attorneys, however, some debt settlement companies may alter the wording, i.e. “We’re sending someone from our legal team…” so they’re not exactly pretending to be an attorney, but the consumer is led to believe that they are. Nevertheless, in-person presentations still have to be made to collect upfront legal fees if these companies are subject to the Telemarketing Sales Rule. Just because a debt settlement company gives you a sales pitch in person doesn’t necessarily make them any more legitimate.
Text message surveys are a way certain debt settlement companies market themselves. They claim that conducting a survey via text message does not subject them to the federal telemarketing rules.
The Telemarketing Sales Rule does not apply to activity done on the internet. But, if the consumer calls the debt relief company in response to an internet ad, then the rules do apply.