October 27, 2010 â€“ St. Paul, MN â€“ Good news for those struggling to pay their bills: new Federal Trade Commission regulations designed to help protect financially strapped families from deceptive offers for debt relief go into effect today. While the new rule will have a significant impact on reducing predatory debt relief, the Better Business Bureau of Minnesota and North Dakota (BBB) advises consumers they still need to use caution when enlisting the help of a third party to get out of debt.
Since the start of the recession in December of 2007, the Better Business Bureau has received more than 6,000 complaints from consumers about debt relief or debt settlement companies. Typically, complainants say they were charged large up-front fees in exchange for what turned out to be an empty promise that the company could significantly reduce or eliminate their debt.
â€œThe debt relief industry has flourished in the current economy and you can bet that many unscrupulous companies are feverishly trying to figure out ways to get around the new laws, such as relying less on phone calls to solicit new customers,â€ said Dana Badgerow, president and CEO of the BBB of Minnesota and North Dakota. â€œWhile these new rules provide effective new protections, consumers will still need to be on the lookout for deceptive debt relief services.â€
Under the new rules, any company that offers debt relief services over the phone â€“including taking incoming calls from new customers â€“ will not be able to charge upfront fees until:
- the debt relief service successfully renegotiates, settles, reduces, or otherwise changes the terms of at least one of the consumerâ€™s debts;
- there is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it; and
- the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.
Additionally, debt relief providers cannot require that consumers set aside payments in a â€œdedicated accountâ€ unless:
- the dedicated account is maintained at an insured financial institution;
- the consumer owns the funds (including any interest accrued);
- the consumer can withdraw the funds at any time without penalty;
- the provider does not own or control or have any affiliation with the company administering the account; and
- the provider does not exchange any referral fees with the company administering the account.
Finally, before the consumer signs up for any debt relief service, providers must disclose fundamental aspects of their services, including how long it will take for consumers to see results, how much it will cost, the negative consequences that could result from using debt relief services, and key information about dedicated accounts if they choose to require them.
Businesses can learn more about how to follow this new rule on the FTCâ€™s web site: Debt Relief Services & The Telemarketing Sales Rule:Â A Guide for Business
For more information on managing credit and getting out of debt, check out the BBBâ€™s free advice at Managing Credit-Made Simpler.
The mission of the Better Business Bureau is to promote, through self-regulation, the highest standards of business ethics and conduct, and to instill public confidence in responsible businesses through programs of education and action that inform, protect and assist the general public. Our hours of operation are 8 a.m. to 5 p.m. Monday through Friday. Contact the BBB 24 hours a day at www.bbb.org or 651-699-1111, toll free at 1-800-646-6222.