Debt Relief Services And Type Of Associates Covered By The New Law


The new law regarding debt relief and telecommunications regarding debt collections is applicable to all for-profit debt relief companies and their associates as well as those that claim to be a nonprofit company.

According to the new rule, a “debt relief service” is defined as follows:

  • A program that is directly related to negotiating with the creditors regarding a debt of a consumer
  • The actions that implies that a company can renegotiate or settle such a debt
  • The actions that will in some way change the terms of the debt of a person to an unsecured creditor or debt collector
  • Any actions that include reducing the overall outstanding balance of the debt, rate of interest or the fees the person owes.

On the other hand, the rule defines “telemarketing” as a “campaign, plan, or a program that is made with an intention to induce a person to make a purchase of goods or services and any inquiries involving such purchases. This includes a multiple of interstate telephone calls as well.

Typically, almost all of the provisions of the TSR apply to all debt relief sellers and telemarketers and therefore the terms “company” and “provider” in this refer to both.

In addition to that, there are a few specific parts of the rule that apply to all those services that provide significant assistance and support to these debt relief sellers or telemarketers whether it is or any other. However, all bona fide non-profit organizations are not covered by the TSR.

Types of debt relief services

A few examples of debt relief services that are included in the TSR are as follows:

  • Debt settlement: These are specialized service provided by debt relief companies that claim that they can settle the debt of a customer for an amount that is much less than the actual amount owed. It can be a credit card debt or any personal loans in which the customer is required to set aside a monthly payment as savings. The debt settlement company will wait till the time enough money in the account is deposited to make a lump sum offer to the creditor or the debt collector. The company then negotiates with the creditor to accept the reduced offer on behalf of the customer. If the creditor or debt collector accepts the offer then the debt is settled and the company may charge their fees from the customer when the first payment of the installment as agreed or the entire amount is paid by the customer. The creditor or the debt collector have the right to deny such offer however as they are not legally bound to settle any debt. However, no debt can be settled by the company without the approval of the customer.
  • Debt negotiation: These are services that are provided by debt relief companies that claim that they can negotiate with the creditors to reduce the monthly payments of the customers by getting them lower the interest rates or agree to any other concessions. After you sign up for the program you will be given a new payment schedule. However, the company that promises to reduce your payment is covered by the rule as well as those credit card companies that may present you with an accelerated payment schedule claiming that it only promised to “show” you how money could be saved.
  • Credit counseling: All such companies that work in liaison between the customer and the creditors with intent to negotiate or administer the monthly payment plan that is more commonly called as the “debt management plan” will be covered by the law. The primary objective of these companies is to make things more manageable for a customer so that they can repay their debt conveniently and in turn save their credit score from being damaged. Through credit counseling the counselor may negotiate with the creditors for lowering the interest rates or for waiving off the late fees.
  • Debt consolidation: If a company claims that it can help the customers consolidate their multiple credit card payments into a single loan that has a lower rate of interest and a single monthly payment will also be covered under the law. When you signs up for such a debt consolidation program the company will actually work with your multiple creditors and will try to secure an agreement with them for a debt management plan on behalf of you. As a part of such plan you will need to make monthly payments to each the creditor and as for the creditors they will agree to reduce the interest rates of your debts or make other concessions so that ultimately the monthly payments become more manageable for you. In this regard the company will administer the monthly payments made by the customer. The debt settlement company is covered by the new rule as you will send the payments to the company which in turn will sends these payments to each of your creditors.

All companies that do not directly sell or provide debt relief services are also obligated towards their customers and must follow the new rule. Especially, it is illegal to provide any assistance of any sort to a company after knowing that it is violating the rule or remain deliberately ignorant of such actions.

Services that amount to substantial assistance include:

  • Obtaining and selling leads such as the contact information of the potential customers to other companies
  • Helping a debt relief company in back-room operations such as reviewing customer files, contacting the creditors of the customers after they sign up and processing payments of the customers or
  • Offering dedicated accounts to the customers to set aside the fees of the debt relief providers and the funds required to make payments to the creditors or debt collectors.

Therefore, if you want to work with any debt relief company, make sure that you do enough research on the company, review their business policies, know about their working procedures and operations and always take a second opinion.  This will ensure that they are complying with the new rule.