FTC Bans Up-Front Fees For Debt Settlement Companies
The Federal Trade Commission announced a ban on up-front fees for debt settlement companies on 7/20/2010.
Companies that promise to reduce your credit card or other debts, will not be able to collect their fees until the do their job.
The new regulation aims to prevent companies from taking money from consumers and never fulfilling their promise to reduce said debt.
This enforces and encourages a performance based fee structure for debt settlement companies.
FTC Chairman Jon Leibowitz stated, "Too many of these companies pick the last dollar out of consumers' pockets - and far from leaving them better off, push them deeper into debt, even bankruptcy," Leibowitz said in a prepared statement.
This comes as good news for all consumers, and bad news for 'bad actors'.
We stress the importance of choosing a company that shows results, and now the FTC follows suit.
A summation of the rule is as follows:
With the companies ability to charge fees upfront as they have in the past eliminated, many will be forced to shut their doors.
Leaving many of their current clients out of luck and starting from scratch.
For people that are currently stuck in an upfront fee debt settlement program, I would suggest that they either ask to be switched to a performance based fee structure or begin the process of requesting a refund immediately, before the company goes under, and they may still have cash on hand.
Companies that promise to reduce your credit card or other debts, will not be able to collect their fees until the do their job.
The new regulation aims to prevent companies from taking money from consumers and never fulfilling their promise to reduce said debt.
This enforces and encourages a performance based fee structure for debt settlement companies.
FTC Chairman Jon Leibowitz stated, "Too many of these companies pick the last dollar out of consumers' pockets - and far from leaving them better off, push them deeper into debt, even bankruptcy," Leibowitz said in a prepared statement.
This comes as good news for all consumers, and bad news for 'bad actors'.
We stress the importance of choosing a company that shows results, and now the FTC follows suit.
A summation of the rule is as follows:
- A company cannot collect fees until the debt is settled
- A company may set aside escrow reserves for the debts and their fees, but may not collect fees until the debt is settled
- A company must be transparent, showing true and documented date to substantiate claims of success
With the companies ability to charge fees upfront as they have in the past eliminated, many will be forced to shut their doors.
Leaving many of their current clients out of luck and starting from scratch.
For people that are currently stuck in an upfront fee debt settlement program, I would suggest that they either ask to be switched to a performance based fee structure or begin the process of requesting a refund immediately, before the company goes under, and they may still have cash on hand.
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