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Debt relief and the FTC

[Mar 6, 2011.]


The debt consolidation and debt settlement industries have been plagued for years by scammers taking advantage of people when they are financially weakest. In order to stop unethical practices in these industries, the Federal Trade Commision (FTC) enacted new regulations in October 2010.

A summary of FTC regulations

If you have credit card debt, here is what those regulations are meant to accomplish:

  • A debt settlement program is supposed to reduce credit card debt balances. The payments should be affordable, allowing the customer to get out of debt. In the past, debt settlement programs charged upfront fees and made no guarantee that any benefit could be accomplished. No more!

  • A debt settlement program cannot charge upfront fees. Only when an actual reduction in balance has been negotiated in writing, and the first payment has been accepted, does the company earn the right to a fee.

  • In order to get the credit card debt relief that comes from reduced balance agreements, a lump-sum payment is often required. If the customer does not have enough money to make a lump-sum payment, no representations of a reduced balance agreement can be made by the debt settlement program.

  • Realistic time and cost expectations must be explained to customers seeking to reduce credit card debt. In the past, debt settlement programs were known for making outlandish claims with zero consequence. The FTC has prevented that by requiring only realistic expectations to be given to the customer.

The main purpose of the FTC's involvement in regulating debt relief companies is to assist the customer in getting out of debt quicker. The government wants to see fair play. These new rules have already begun to have a significant impact and should continue to do so. Hopefully, the government and reputable debt relief programs can work together to make financial health a realistic possibility for more consumers.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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