Probing In To The Debt Settlement Rules Of The FTC And Its Effects
There has been a significant drop in the aggregate household debt due to the economic recession. This is most significantly noticed all over the world in 2009, 2010 and 2011. However, according to market research conducted by IBIS World, the total debt continues to grow at an average rate of 0.2% annually over the past five years even after the recession halted consumer spending significantly and has encouraged them to save more.
The economy started to improve slowly after the recession when the confidence of the consumers returned. Even after all these, it is forecasted by the experts and critics that research continually with the changes in the money market that the debt level will continue to expand at a much faster rate for the next couple of years. This will push the aggregate household debt even further to a record high.
Moreover, the human psychology of building debt to pay for larger assets and other business and individual projects is hard to ignore. Especially during the recession when these things were put on hold are now being completed thereby increasing the average debt of the consumers. This means it is highly likely that the consumers will soon require hiring the services debt advisors and professional debt settlement companies attorneys to deal with their mounting debts.
Consumers may also need to take on further debts such as a debt consolidation loan for that matter. Fortunately for all these consumers, there are several useful and productive options out there. These are all safe and effective coming with the assurance of The Federal Trade Commission that continues to act on behalf of the consumers primarily.
Amendments made to the previous regulation
There have been a lot of changes made in fact in the former debt relief regulations within the past couple of years. All these changes and additions are made with specific intentions of the FTC such as:
- It helps to protect the consumers and help them to gain control of their financial conditions and health and
- It helps to reduce their debts through debt consolidation companies.
The Final Rule issued by the FTC that includes provisions of the Telemarketing Sales Rule also covers the for-profit debt settlement companies and their relief services such as credit counseling, credit repair, debt settlement process and debt negotiation services. This provides further protection to the consumers from the scam debt settlement companies and prevents them from overcharging or providing insufficient services.
The regulations included
Affecting the debt settlement ratings in a positive note, these amended rules and regulations are in effect from September 2010. The Final Rule includes several regulations to protect the customers regarding payment of fees, creating the necessary fund and their right to information.
The customers are now not required to pay any advance fee to the debt settlement company or an attorney according to the FTC. Payments can only be collected after one or several of the following conditions are fulfilled:
- At least one obligations of the customer are renegotiated, reduced, settled or new terms issued
- A written agreement for settlement is signed, or a debt management plan is created between the creditor and the customer and
- The customer has made at least one payment after the agreement is reached to the creditor according to the terms negotiated by the debt settlement service provider.
It is only after these conditions are fulfilled that the debt relief provider will charge the fee and that too for a single debt. The fee must be in proportion and accordance to the total fee that the provider may have charged if all your debts were settled. The FTC further says that is this fee is charged on the basis of the percentage of the amount that is saved by the provider for the customer then this percentage must be uniform for every debt of the consumer settled by the company.
Requirement of a dedicated account
According to the rules of The FTC, the customers are also required to put the fees as well as their savings in a dedicated account to create the fund necessary to make the settlement. Previously, these fees and deposits were made in any savings or an escrow account, but none of these were established in an authentic and true bank account.
With the changed rules of the FTC it is stipulated that the debt settlement service providers will essentially require such a dedicated account as long as:
- The customer owns the funds along with any interest accrued in it
- The account is created in an insured financial institution
- The consumer can withdraw these funds without penalty at any time
- There is no affiliation of the service provider with the financial institution and
- The provider does not have any arrangement with the financial institution to gain any referral fees from them.
Any other situations other than these may not need a dedicated account, but failure to comply may result in severe consequences.
Right to information
Lastly and perhaps most importantly, the FTC asserts that the debt settlement companies should not keep the consumers in the dark right from the outset to the completion of the process. It is their responsibility and duty to make the customers well aware of the various program and monetary details no matter how complex or long drawn it may be.
According to the FTC, the customers must be fully confident when they go for a debt settlement knowing all about its pros and cons.
Therefore, the service providers must mandatorily make all probable disclosures while marketing their services to the customers and before signing them up for their debt relief services.
The disclosure must include:
- The cost of the service and refund policies
- The amount required to save by the customers to settle the debt
- The effect on personal credit
- Potentiality of lawsuits
- Possible tax consequences of debt settlement
- All key information regarding dedicated accounts
- Status of the provider as a nonprofit or a for-profit entity and
- Time taken to see the results.
They must also tell about their success rates and experience in this regard.