Debt Relief Companies Under Scrutiny, New Regulations Could Rock The Industry

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The recent rise in complaints about companies that promise debt relief and simply add to the misery of desperate families has caused the Federal Trade Commission to propose a change in the regulations that control Debt Relief finance providers. The modifications proposed by the FTC are huge and many are claiming it could spell disaster for the whole Debt Relief sector making it impossible for legitimate debt relief business from offering the help that is so desperately required.

What are the proposed regulation modifications?

1)   The debt relief companies would be banned from charging fees for services before they are provided.
2)   It would prohibit Debt Relief businesses from making misleading claims on the speed of the Relief and the savings the borrowers will make.
3)   The new regulations would also prohibit for-profit organizations from pretending to be non-profit organizations and further duping borrowers.
4)   The new rules would require Debt Relief companies to disclose more details to their customers. It would for instance require Debt Relief companies to explain clearly how long the process will take and clarify that not all creditors will be happy to accept balance reductions and interest rate deductions.
5)   Further on this matter Debt Relief companies will be obliged to inform customers that creditors might not be stopped by the Debt Relief company from seeking payments and that seeking Debt Relief might affect the credit rating of the borrower and that the IRS might tax any deductions the creditors decide to write off.

What will be the effect if this proposal is approved?

The FTC’s own estimate is that around 2,000 companies will be affected and will need to reassess their business practices. Alice Hardy an FTC attorney explains: “What the rule is designed to do is prohibit unlawful marketing activity”.

Anybody against the modifications has until the 9th of October to present their objections. One objections that is very likely to be posed is that of upfront fees. According to the proposed modifications Debt Relief companies will not be able to charge fees until the services “paid” for have been carried out.

Everyone can see the reasoning behind the new rules proposed but it is also true that many legitimate operators are going to be suffer. The jury is out on this one and we will have to wait to see if the rules are passed and what actual effect they have if they are.