— The Federal Trade Commission recently announced amendments to the Telemarketing Sales Rule which will prohibit for-profit companies that sell debt relief services over the phone from collecting any advance fees prior to settling or reducing debt. These new regulations offer consumers additional protections when trying to reduce credit card or other unsecured debt.

This year, the Better Business Bureau has processed more than 2,600 complaints nationwide against debt relief companies, which include for-profit credit counseling, debt settlement and debt negotiation services.

Generally, consumers allege companies in these industries may charge large advance fees, fail to reduce debts or misrepresent their services.

On Oct. 27, for-profit debt relief companies which make telemarketing calls, or are called by a consumer in response to debt relief advertising, are prohibited from collecting advance fees for their services.

 

Companies can only

charge their customers after:

1. There is a written agreement between the consumer and their creditor;

2. The company successfully renegotiates, settles, reduces or otherwise changes the terms of at least one of the consumer’s debts;

3. The consumer makes at least one payment to their creditor after the successful negotiation or settlement.

In addition, on Sept. 27, three other Telemarketing Sales Rule provisions will take effect. These provisions will:

• Require companies to disclose to consumers how long it will take to see results, how much their service costs and any negative consequences that could occur;

• Prohibit companies from misrepresenting their success rate or claiming they are non-profit;

• Extend the Telemarketing Sales Rule to cover calls consumers make to these companies in response to advertising.

The FTC also set aside guidelines for dedicated accounts, which many debt relief companies previously required their customers to pay into while they negotiated or settled their debt.



Under the new regulations,

these companies can only

require dedicated accounts if:

1. The account is maintained at an insured financial institution;

2. The consumer owns the funds, including interest;

3. The consumer can withdraw the funds at any time without penalty;

4. The financial institution has no affiliation with the debt relief company;

5. The financial institution does not exchange referral fees to the debt relief company.