New regulations handed down by the Federal Trade Commission may help consumers from shady debt relief companies. The FTC says consumers are often forced to pay upfront fees with hopes of reducing their overall debt, but that never happens. Under the new rules, companies won’t be able to charge upfront fees as of October 27. Consumers would only be forced to pay once they see improvement in their debt. “Too many of these companies pick the last dollar out of consumers’ pockets,” FTC Chairman Jon Leibowitz said in a statement at the White House announcing the changes, according to Bloomberg. “Far from leaving them better off,” the companies “push them deeper into debt, even bankruptcy.”
The new regulations also require the debt settlement companies to be more open about the process, disclosing total costs involved and the length of time it could take for consumers to see a difference in their total debt. Vice President Joe Biden commented on the new rules according to the Washington Post, saying “We can significantly help the bottom line of the middle class by protecting them as consumers.”
Debt settlement companies typically provide a service of negotiating with credit card companies on behalf of consumers in order to secure lower the amount owed. Consumer advocacy groups say the success rate is low and customers often get very few results even though they pay lots of money in fees.
However, advocates of the industry say the new rules may force many companies out of business because they are so strict. According to the Washington Post, The Association of Settlement Companies currently has about 170 members, but industry leaders say there are more than 1,000 companies doing business in the US. Their average customer has about $30,000 in credit card debt, according to officials.
Consumer groups say the new rules are much needed. “This will change the business model of the debt-relief industry . . . to one in which companies will earn money based on actually achieving successful results for consumers,” Susan Grant, director of consumer protection for the Consumer Federation of America, told the Washington Post.
Tags: debt settlement, credit card debt, bankruptcy, Federal Trade Commission
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