The FTC has always tried to provide the maximum protection to the consumers as well as the creditors with it debt laws and the reforms made in it from time to time. However, these reforms are not made at random or without considering the effects it would have on the creditors, the consumers as well as the debt industry on the whole.
The FTC also obtains the relevant court orders to ban specific companies and individuals from participating in the debt relief businesses. This ensures a more transparent and effective debt process, whether it is for making a loan or collecting the amount due from a delinquent or defaulted customer.
Generally speaking, debt relief is a program or service that is specially designed to offer some respite to the debtors who are struggling with their debt payments. Typically, these programs make some changes in the loan terms as well as reduce the amount of debt in a few specific cases and situations.
Usually, the primary participants of such programs are the person owing the money and the creditor or the creditors or the debt collectors in case there are multiple loans in the name of that person.
Through these programs specific changes in the terms and conditions of the loan are made that includes:
- A reduction of the loan balance
- Reducing the interest rate or
- Eliminating or reducing the fees owed.
Different debt relief companies are out there that can provide such relief services for different types of debts but all may not be of the same caliber and efficacy. It is therefore recommended that you research on the specific debt settlement company you want to hire as well as read the debt settlement reviews before you finalize on any one.
These companies will offer their services for different kinds of debt including:
- Secured loans such as home mortgages often called Mortgage Assistance Relief Services or “MARS”
- Student loans
- Unsecured personal loans
- Credit card debts
- Payday loans
- Medical debts
- Auto loans and even
- Tax debts.
These companies also offer different types of debt relief services such as:
- Debt settlement
- Debt consolidation
- Debt negotiation
- Debt management plan
- Foreclosure prevention and
- Loan modification.
However, not all companies can participate in these types of services and there may be a ban in offering specific types of debt relief services as well. Therefore, a company that may offer debt settlement or debt negotiation service may not be entitled to provide any other types of debt relief service. Failure to comply with the law may result in a lawsuit including a ban on press releases or on the links for the legal complaints.
Therefore, it is important that you know whether you are eligible to provide or obtain any specific or all types of debt relief services. You can go through different websites for such information. In addition to that you must also know about the federal court order that perpetually prohibits a company or the person from participating in any type of debt relief business.
Prohibition for upfront fees
The FTC has also designed and enforced a specific rule on October 27, 2010 that prohibits debt relief companies from collecting any advance fees from the consumers who are trying to settle their debts. According to the new rule, the debt relief companies that sell their services over phone cannot as for any fees from the consumers before settling a debt or reducing it.
The ban on such advance fees is applicable for credit card debt or any other type of unsecured debts especially. This ban reflects the changes that the Federal Trade Commission has made to its Telemarketing Sales Rule last July. These amendments are considered as a major victory for those consumers especially who are struggling to manage and control their debts without involuntarily having to dig them deeper in it.
Over the past decade, there were more than 250 law enforcement actions taken up by the FTC and the state enforcers to stop the abusive and deceptive practices by debt relief service providers that especially target the consumers who are in financial distress.
According to the new rule, no debt relief company is entitled to ask for their service fees from their customers until the following conditions, one or all, are achieved:
- The relief service has successfully settled or changed the terms of at least one of the debt of the consumer
- There is a settlement agreement
- There is a debt management plan or any other new agreement between the consumer and the creditor
- The consumer has agreed to such an agreement and
- The consumer has made at least one payment to the creditor after the new agreement is negotiated by the debt relief provider.
The new FTC rule also has made specific provisions in it that will ensure that no debt relief company can front-load their fees in case a particular consumer has enrolled with them for a debt relief program for multiple debts.
In such a situation the company has to be very specific about the fees charged for each debt or the total amount of debt outstanding. They can however ask for their service fees pro rata each debt settled and as per the predetermined percentage of fees.
However, this ban on fees does not apply retroactively meaning that it is applicable for only those consumers who have enroll in any debt relief service after October 27, 2010.
Prohibition for dedicated account for fees and savings
In the new rule there is another provision regarding the “dedicated account.” It says that such an account is only required under these conditions:
- It is maintained at an insured financial institution
- The consumer owns the funds and interest accrued
- The consumer can withdraw any time without penalty
- The consumer receives all unearned provider fees and savings within seven working days
- The provider has no control, ownership or affiliation with the company administering the account and
- There is no referral fees paid to the provider.
The new rule also has other changes that require specific disclosures by the company to the consumers to prohibit them from making any misrepresentations.