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New FTC Rules for Debt Settlement Companies

By Laura Strachan, Esq. | Last updated on

The scales have tipped in favor of debtors as new rules for debt settlement are putting a tighter rein on debt settlement companies. Many businesses that are involved in the debt settlement process are upset over the recent changes enacted by the Federal Trade Commission, set to go into effect September 27, 2010. Here's why: the new regulations essentially eliminate the ability of debt settlement companies to charge up-front fees for their services until some actual results are realized for their client.

This blow to many debt settlement companys' business model means that most companies in the industry will need a complete overhaul of their payment structure, which will cause an initial cash flow strain, reports PRWeb. Most companies will likely be forced to switch from a fee-based model to a performance-based model. Other noteworthy aspects of the new FTC rules include informing debtors of how long it will take to get results and how much the settlement process will cost, allowing the debtor to withdraw his or her funds at any time, and alerting the consumer to any negative consequences that could arise from the debt settlement process.

Although the new regulations only apply to for-profit companies that sell debt settlement services over the phone, the FTC warned that it will also pursue those companies that pose as non-profits in an effort to escape regulations. Companies that are caught breaking the new debt settlement laws will be punished with a $16,000 fine, per violation. The hefty fine is intended to help facilitate more honest practices and hopefully better educate the often uninformed consumer that there are some disadvantages to seemingly attractive debt settlement options.

From the debt settlement company aspect, the best way to approach these new regulations (and avoid fines) is to stay informed. Following updates posted on the Federal Trade Commission's website will serve to ensure that your company understands the new limits placed on debt settlement. In reality, the new regulations are not a total loss for a debt settlement company, as they will hopefully serve to weed out those companies that are engaging in deceptive business practices and giving the debt settlement industry a bad name.

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