A new telemarketing sales rule prohibits for-profit companies that sell debt relief services over the telephone from charging an upfront free, according to the Federal Trade Commission.
Starting Oct. 27, these companies must settle or reduce a customers’ credit card or other unsecured debit before collecting a fee.
The new rule does not cover non-profit firms, “but does cover companies that falsely claim non-profit status,” the FTC said.
Over the past decade, the FTC and state law enforcement agencies have brought a combined 259 cases against debt relief providers for using deceptive and abusive practices,
The advance fee ban carries specific requirements for debt relief providers or counselors. They cannot collect payment until:
- the debt relief service successfully renegotiates, settles, reduces, or otherwise changes the terms of at least one of the consumer’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.
“At the FTC we strive every day to make sure America’s middle class families get straight deals for their dollars,” said FTC Chairman Jon Leibowitz. “This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees. Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy.”
Three other telemarketing sales rule provisions take effect on September 27, 2010. Those provisions will:
- require debt relief companies to make specific disclosures to consumers;
- prohibit them from making misrepresentations; and
- extend the Telemarketing Sales Rule to cover calls consumers make to these firms in response to debt relief advertising.
Here’s the FTC fact sheet on the new advance-fee rule.