September 30, 2010
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News: New Rules Kick In For Debt Settlement Firms
The credit card industry is not alone in facing new regulations and rules. This week new rules for the debt settlement industry became affective. Lawmakers produced the new law in response to the growing number of scam artist looking to make a quick buck off the unfortunate circumstances of consumers who are already suffering with large debt. Americans sought out the services of debt settlement companies because of job loss and difficulties dealing with high credit card debt and mortgage payments. While consumers struggled to pay bills and make ends meet during the recession, many debt settlement companies used the situation to make money. Like many of the credit card agreements, debt settlement contracts were often long and difficult to understand. They were misleading to consumers and causing them even greater losses while the debt settlement companies grew richer.
Under the terms of the new Federal Trade Commission's telemarketing sales rules, companies that enroll customers over the telephone in a debt settlement program will endure stricter guidelines. These firms will now be required to provide credit cardholders with clearly defined terms and conditions of contracts and a full explanation of fees. Included in this provision, the debt settlement company must be explicit in its explanation as to the possible amount that the cardholder might need to save up in order to settle with their credit card company. Many cardholders are not aware of the fact that if they are able to settle with their lender for a lesser amount, they will be required to pay the amount in full at that time. Debt settlement companies will also be required to disclose any possible consequences of interruption of payment.
All consumers including credit cardholders will be happy to know that new rules also include that debt settlement companies will no longer be allowed by law to charge an upfront fee. Furthermore, debt settlement companies are now prohibited from collecting any fee if there is no resolution and if they only settle a portion of the customer's debt, they must prorate the fee. Additionally, at least one payment must have been made under the terms of the new agreement. It is now mandated that any monies that are held in escrow to cover fees and debt payments must be deposited with an insured financial institution. Customers must receive interest earned on the money and it must be refunded without penalty.