The FTC recently issued a press release announcing tougher regulations on debt relief companies (click here to read the press release). Under this new rule, debt relief companies can no longer charge an upfront fee “before they settle or reduce a customer’s credit card or other unsecured debt.”
FTC Chairman Jon Leibowitz states, “This rule will stop companies who offer consumers false promises of reducing credit car debts by half or more in exchange for large, up-front fees. 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.”
I am happy to see the FTC getting tough with these companies. I’ve had so many clients who paid money to some debt relief company for six months straight before they were served with a lawsuit from one of their creditors. Its the same story every time.
“The debt management company told me everything was taken care of.”
The story usually goes something like this. Client calls the debt management company and they are promised that everything will be taken care of for one low monthly payment. Client decides to give it a try. The bills stop coming. The collection calls stop. Client thinks everything is perfect. After about six months, the credit card company serves them with a collection lawsuit.
Its almost impossible to watch an hour of television without seeing a commercial from some debt management scammer. I personally believe that this new rule is going to put most of these companies out of business because the vast majority can’t deliver. If they can’t collect a fee from anyone until they have already negotiated a settlement amount, they are not going to make it in the long run.
If a debt management company tells you that you must pay them upfront before they can negotiate your debt down, you need to know that you are talking with a company that is in violation of the Federal Trade Commission rules.
If you are drowning in credit card debt, you should meet with a bankruptcy attorney and learn about real debt relief.