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Be Knowledgeable To Prevent Settlement Companies Skirt New Rules To Collect Fees Upfront

It is universally true that while laws are made to provide protection to people, loopholes are created simultaneously by the ‘smarter’ people. As per the rules and regulations imposed by the Federal Trade Commission or FTC on debt collection or settlement, several debt settlement companies are on a constant lookout to find out ways to skirt these new rules.

Even after enforcing the new rules, debt settlement companies may still charge high upfront fees from unsuspecting consumers. To avoid this and also prevent you from drowning in debt know about the laws that prevents debt settlement malpractices and abusive debt collection processes.

According to the consumer advocates and the government officials the rules formulated by the Federal Trade Commission took effect to prevent the debt-fixers from engaging into telemarketing and from misrepresenting their services. Such misrepresentations include:

  • Swearing to cut your debt in half
  • Making false claims and tall promises that they cannot keep or entitled to make
  • Posing as a law enforcement official and
  • Charging their fees before their service is delivered.

On the contrary, debt settlement companies must negotiate with your creditors to lower the amounts owed, extend the term of payment, waive certain fees and reduce rate of interest, and arrive at an agreement that both you as well as your creditor is comfortable with. According to the FTC rule, debt settlement companies cannot charge you even a single dime without making any dent in your account balance. This rule is even applicable to the telemarketers.

Even after such strictness shown by the FTC, debt settlement companies have still not refrained from collecting upfront fees from the debtors. These companies do not comply with the new rules and evade them very cunningly.

It is therefore suggested that always work with a credit counselor ort a nonprofit consumer advocacy group while dealing with the debt settlement companies. This will prevent them from misleading you in the process leaving your still struggling with your debt that you so badly want to get rid of.

Collection of fees

Therefore, it is necessary that you know when and how the debt settlement companies are entitled to collect the fees for their services. According to the FTC rule, any fees charged by these companies for their debt relief services must be in accordance with the following:

  • All fees must be collected only when the debts are paid and the service is completed
  • Service fees withdrawn for one single debt settled must be in proportion to the entire service fee for all debts when settled
  • This total service fee must be a tolerable and reasonable percentage of what you will be saving from the settlement of the debt that the company may have helped you to negotiate.

As far as the responsibilities of the debt settlement companies are concerned, they must:

  • Provide full disclosure about the process, your savings, the consequences, the amount required and everything in detail and upfront
  • You must also be well informed about the time you will have to wait before realizing the results of the negotiations conducted by them with your creditors
  • Tell you about their working process as well as track record along with their debt settlement ratings and
  • Make you understand the effects of debt settlement on your credit standing and report.

Apart from that, you must also have a clear idea about the price you have to pay to avail such service along with any other dedicated account that is associated with it. To set up the dedicate account there are five specific conditions that must be met first such as:

  • The account must be created in an adequately insured financial institution
  • The debtor must have full ownership including the interest of the account
  • The debtor must have the right to withdraw money from this account anytime and must not be penalized for it
  • The debt settlement company must not be the owner in any way associated with the financial institution in which the account in created and
  • There must not be any referral fee agreement between the financial institution housing the account and the said debt settlement company.

In addition to that the law has also banned taking up any upfront or advance fees from the debtors along with a few riders in the Final Rule. You must also know these riders that are contained in the rule as specific requirements for debt settlement companies to provide their services. It specifies that there will be no fees charged from the debtors until one payment is made by the debtor to the creditor after the debt amount is settled, reduced, changed or renegotiated.

Apart from that it is also mentioned in the law that the debt settlement companies will not front-load their fees if there are multiple debts enrolled by the debtor for a single debt relief program. The Final Rule is very specific about it. It says that:

  • First the service provider must apportion the total fee to all debts according to the amount outstanding
  • It must be a reasonable percentage and
  • Savings made by the debtor must be significant enough.

In addition to that, the law is also very strict and particular regarding the dedicated account for fees and savings.

To sum up

In a nutshell it can be said that the FTC rule and regulation prevents any debt settlement company from taking any service fee from your in advance or at an exorbitant rate. The primary objective is to ensure that you get the desired service from the debt settlement company and not pay them anything for a futile effort. Since your primary goal is to attain financial freedom, the law ascertains that you do exactly that and are not conned by any unscrupulous company.

Choose a debt settlement company after thorough research and after knowing their credentials, market reviews, success rates, number of years in business and their reputation in this field. Always look for certified and government sources or work with a debt settlement advocate for your own safety and assurance.    

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