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Under new FTC debt settlement rules which went into effect this week, debt settlement companies will be restricted from making promises which they cannot keep. According to the Federal Trade Commission, debt collection companies have been promising customers that they can cut their debts in half. However, the companies are not warning customers that they will incur fees, that the time it takes to satisfy the debt is often years and how the settlement will impact their credit.
Under the new rules, debt settlement companies will have to be straightforward and honest regarding their services. They are specifically prohibited against lying, which is curious considering that one would assume that lying is already prohibited. The rules come amid complaints of deceptive practices by debt settlement companies, which rose 18% between 2008 and 2009, CNN reports.
Evan Zullow, an attorney in the FTC's financial practices division, warned that consumers need to research and understand debt settlement before signing on to anything. With consumers becoming increasingly desperate, they are not always doing their homework. "Consumers have been led to expect that results are going to come much quicker and more easily than they do, and that draws them in and gets them to enroll," said Zullow. "We want to give consumers the key information to make a decision, which might end up being to use a settlement service or not use it ... We just want the information to be accurate."
Next month, an additional FTC debt settlement rule will take effect banning debt settlement companies from charging upfront fees for their services. The Association of Settlement Companies initially fought the new measure, but now says that it accepts the changes: "...we think it is time to accept these rules and get back to the business of helping consumers get out of debt," said TASC Board member Andrew Housser.
But CNN notes, there is always a catch. The new rules apply only to debt settlement business conducted over the phone. Debt relief companies can still conduct business over the Internet, and in person transactions are also exempt from the new rules.
So in the end, it's a similar lesson. Make sure you know what you are agreeing to before you sign anything. If it sounds too good to be true, there is a strong chance that it is.