Debt Relief Companies Under Fire
The Federal Trade Commission is proposing stricter rules for debt relief agencies by requiring them to disclose, in greater detail, how their programs work as well as limiting up-front fees.
Debt settlement, a predatory debt relief option, entails deliberately failing to pay creditors until an agreement is reached to pay only a portion of the balance due. Consumers who enter this process will endure months of harassing creditor phone calls and higher debt due to accruing interest rates, fees and penalties. Some creditors, after exhausting normal avenues, can sue the debtor for all fees. Leaving the consumer with little recourse, making the entire process a logistical nightmare.
In a letter to the Federal Trade Commission from 40 separate Attorney’s General in support of the new rules it says, “The number of complaints the states have received against debt relief companies, particularly debt settlement companies, have consistently been rising and have more than doubled since 2007″.
According to the National Association of Attorney’s General, in the past five years, 21 states have sued 128 debt relief programs.
Currently debt settlement companies are not governed consistently from state-to-state, leaving room for them to mislead and mistreat consumers who are seeking financial help. Debt settlement programs have varying fee structures, most commonly the consumer will pay as much as 40% of this fee in the first few months and the remainder within the first year. Some companies will take their fee directly from the customers account, on a monthly basis, for their service. This can reduce the incentive for creditors to settle quickly.
Experts are advising consumers to arrange their own settlements or look for companies that charge a fee only after the settlement is made which is most commonly 20% of the amount by which the total balance is reduced.
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