Action Line: Federal debt-relief rules stop false promises
BY PHIL MULKINS World Action Line Editor
Thursday, January 03, 2013
1/03/13 at 3:33 AM
Dear Action Line: What is the federal law on "debt relief" named in the Dec. 26 Consumer Page? The FTC is after them but there are still TV ads on getting out of $20,000 in back taxes, etc., etc. - T.T., Jenks
Since Oct. 27, 2010, amendments to the Federal Trade Commission's "Telemarketing Sales Rule" (tulsaworld.com/FTCdebtreliefrules) have prohibited debt relief companies collecting advance fees for services they claim to be offering: "For-profit companies selling debt relief services over the phone may no longer charge fees before settling or reducing customers' credit card or other unsecured debts.
"The FTC's final rule on debt settlement stops companies offering consumers false promises of reducing credit card debt exchange for large, up-front fees," said FTC chairman Jon Leibowitz. Too many of these companies pickpocket last dollars from consumers' pockets leaving them deeper in debt or even bankrupt."
Advance fee ban: It contains specific requirements for debt relief providers regarding advance fee charges before providing services. It states, "debt relief service fees may not be collected until debt relief service provider has successfully renegotiated, settled, reduced or changed the terms of at least one consumer debt; a written settlement agreement, a debt management plan or some other agreement between consumer and creditor exist; and the consumer has agreed to it and made at least one payment to the creditor as a result of the agreement negotiated by the 'debt relief provider.' "
To ensure debt relief providers don't front-load fees to consumers enrolling multiple debts in one debt relief program, the rule specifies how debt relief providers collect debt settlement fees: Fees for single debts must be proportionate to the total fee to be charged once all debts are settled. When providers base fees on percentages consumers save through services, percentages must be the same as for individual debts.
Dedicated "fees and savings" account: The rule allows debt relief companies to require consumers to set aside their fees and savings for payment to creditors in a "dedicated account." Providers may require dedicated accounts only as long as five conditions are met: the dedicated account is maintained at an insured financial institution; the consumer owns the funds (including any interest accrued); the consumer can withdraw the funds at any time without penalty; the provider does not own or control or have any affiliation with the company administering the account and the provider does not exchange any referral fees with the company administering the account.
Disclosures and prohibited misrepresentations: Providers must make several disclosures when telemarketing their services. Before consumers sign up for debt relief services, providers must disclose fundamental aspects of services, including how long it take consumers to see results, how much it will cost, negative consequences that might result from using such services and key information about dedicated accounts when they choose to require them. It prohibits misrepresentations of debt relief services, including success rates and whether providers are nonprofit entities. The FTC's "statement of basis and purpose" accompanying the final rule, gives guidance on evidence providers must make in advertising claims commonly used in selling debt relief services.
Original Print Headline: Federal debt-relief rules stop false promises
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