New Federal Rules for Debt Relief Services: What You Should Know

By Barbara Marquand
Mortgage Credit Problems Columnist

If you're hip deep in credit card debt, then offers for debt relief services naturally get your attention. The companies charge upfront fees and offer to help you negotiate lower interest rates, arrange new payment schedules, or set up lump-sum debt settlements with creditors.

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Unfortunately not all companies that say they want to help you reduce your debt have your best interests at heart.

The Federal Trade Commission recently announced new rules to go into effect Oct. 27, 2010, to curb abusive practices by for-profit companies that solicit your business by phone. Here's a rundown:

  • Debt Relief Disclosure
  • Companies must tell you how their services work, how long the process will take, how much you have to pay, and the downside of using their services. Settling your credit card debt for less than you owe, for instance, can put a big dent in your credit score.

  • No Misrepresentation
  • Beware of offers that say they can cut your debt in half without you suffering any negative consequences. The new rules prohibit debt relief services from misrepresenting projected savings or other aspects of what they offer.

  • Limits on Debt Relief Fees
  • Companies can't charge you a fee before they have actually settled or reduced your debt. In the last few years, some outfits charged consumers big upfront fees, and promised to lower their debts but never delivered. The customers, who couldn't afford to lose any more money in the first place, were left in even worse financial shape. Besides losing the money they paid in fees, deeper debt trouble resulted when borrowers followed the companies' instructions to stop paying and communicating with their creditors.

The new rules have their limitations, notes the Consumer Federation of America. Because the rules are amendments to the Federal Trade Commission's Telemarketing Sales Rule, they only apply when companies solicit you for their debt relief services by telephone. They don't apply for transactions done in person or entirely online. The federation supports pending legislation that would place further limits on debt settlement companies, including a cap on fees, no matter what method they used to solicit your business.

Thinking of consolidating your credit card debt? You can enter your information on this page to get quotes for the best home equity loan or mortgage refinance rates.


http://www.ftc.gov/ / http://www.consumerfed.org/

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