The Telemarketing Sales Rule for Debt Relief Companies
It was a Friday when Vice President Joe Biden stepped up to a White House podium for a big announcement on for-profit debt consolidation and debt settlement companies.
The day turned into Black Friday for a lot of them. Ripping off customers would be much harder, thanks to new Federal Trade Commission regulations collectively known as the Final Rule.
“Too many of these companies pick the last dollar out of consumers’ pockets,” FTC chairman Jon Leibowitz said. “And far from leaving them better off, push them deeper into debt, even bankruptcy.”
It’s fashionable to bash the federal government as a do-nothing monolith wallowing in your tax dollars, but on that afternoon in 2010, fat old Uncle Sam actually came through for you.
You, in this case, would be anyone trembling in front of a mountain of debt. With the average U.S. household debt (including mortgages) about $130,000, that group consists of tens of millions of you.
Unscrupulous debt relief companies say they feel your pain, and many of them do. There are also plenty of companies eager to help themselves at your expense. No law will ever change that, but the Final Rule has made it tougher for mercenaries to operate.
What Is The Final Rule for Debt Relief Companies?
The Final Rule requires debt relief companies to actually do a little work before getting paid. That shouldn’t be too much to ask, but it was for hundreds of companies. They’d charge advance fees before rendering services and that’s assuming they rendered any services at all.
That had become a multi-billion question by 2010. Debt relief companies had been around for 50 years, but the Great Recession had turned the industry into a Wild West money grab.
If you need one, go to the National Foundation of Credit Counseling website at https://www.nfcc.org/locator/ and it will direct you to a certified debt relief company.
The uncertified ones were running amok in 2010. There was so much flim-flammery the government had to get involved.
“Ohio Residents Can Reduce Debt by 70%!”
“Reduce Debt By 70% Want Proof?”
Those were internet ads cited in one of the many lawsuits the FTC filed against debt relief companies. Similar commercials blanketed radio and late-night TV. You know what they say about something sounding too good to be true. The money-saving claims usually came with an array of hidden asterisks.
When companies claimed their customers reduced credit card debt by some whopping percentage, they often neglected to mention that figure did not include customers who dropped out of the program.
They also would ignore the toll that interest charges and late fees take on customers. For instance, they’d claim to cut a $10,000 debt in half but wouldn’t note that penalties could turn that debt into $12,000. So you’d end up paying 60% of your original debt, not 50%.
There were deceptions such as those, and then there was out-and-out scams. Debt consolidation companies would promise to improve your credit score in 30 days for a “service charge.” They would require customers to pay retainer fees for legal services that didn’t exist. One company collected $2.6 million in legal fees from 3,000 North Carolina customers before being stopped.
No Advance Fees Can Be Charged
The Final Rule dealt a near-death blow to advance fees. Now if you’re in the market for debt relief, you don’t have to pay anything until:
- The debt relief company successfully settles or changes the terms of at least one of your debts.
- There is an agreement to resolve the debt between you, the customer, and the creditor.
- You have made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.
Debt relief industry lobbyists squealed when the regulations were being adopted. They said it wasn’t fair that their clients had to provide services before getting paid. By that logic, you’d pay for your meal the minute you stepped into a restaurant. And there’d be no way to ensure the cook would not head out the back door with your money.
Uncle Sam wasn’t buying it. The Final Rule went into effect Oct. 27, 2010 though that didn’t mean all flim-flammery would cease.
Debt relief companies tried to skirt the new regulations, which originally applied to companies selling services by phone. They’d contact potential customers via text or Skype or email.
Another thing to watch out for is robo-calls. It’s illegal for a company to call you with a recorded sales message unless you have given it written permission.
The FTC sued 180 companies in the first four years after the Final Rule was enacted and secured $220 million in settlements. It established an FTC Hall of Shame on its website, listing the banned companies and how they broke the law.
One is DebtPro 123, which had the usual pie-in-the-sky promises, like 80% debt relief and no more calls from debt collectors. But first, it required customers to put money into a “Creditor Fund/Settlement Account.”
Call it a Creditor Fund, call it a Settlement Account, call it an Advance Fee. By any name, the scam was dealt a serious blow. Now it’s the scammers who are feeling the pain.
(Tressler, C.)(2014, June 3). How do you spell debt relief? Certainly not DebtPro 123, LLC. Retrieved from https://www.consumer.ftc.gov/blog/how-do-you-spell-debt-relief-certainly-not-debtpro-123-llc
(Streitfeld, D.)(2009, April 19). Debt Settlers Offer Promises but Little Help. Retrieved from http://www.nytimes.com/2009/04/20/business/20settle.html?_r=0
(NA)(2010, Oct. 20). Debt Relief Companies Prohibited From Collecting Advance Fees Under FTC Rule That Takes Effect Oct. 17, 2010. Retrieved from https://www.ftc.gov/news-events/press-releases/2010/10/debt-relief-companies-prohibited-collecting-advance-fees-under
(Ellis, B.)(2010, Dec. 21). Debt settlement companies skirt new rules. Retrieved from http://money.cnn.com/2010/12/21/pf/debt_settlement_evading_rules/