FTC issues rule prohibiting upfront fees

Posted on 29. Jul, 2010 by Collections Recon in Collection News

The Federal Trade Commission issued a final rule Thursday that prohibits for-profit debt servicing companies to collect up-front fees, costing consumers millions every year.

The rule, which will take effect Oct. 27, affects companies that selldebt relief services over the telephone may no longer charge a fee before they settle or reduce a customer’s debt.

“I applaud the FTC for adopting this new rule to protect consumers from the scourge of unscrupulous debt settlement companies,” said Senate Commerce. Science and Transportation Chairman Jay Rockefeller (D-W.Va.) said in a statement. “From now on, debt settlement companies that take huge upfront fees or misrepresent the amount of money they can save consumers will be subject to substantial civil penalties.”

Three other telemarketing sales rules will take effect Sept. 27 that 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.

The final rules covers telemarketers of for-profit debt relief services, including credit counseling, debt settlement and debt negotiation services. The rule doesn’t cover nonprofit firms, but does cover companies that falsely claim nonprofit status.

Since 2001, the FTC and state enforcers have brought a combined 259 cases to stop deceptive and abusive practices by debt-relief providers targeting consumers struggling to pay their debt.

“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,” said FTC Chairman Jon Leibowitz in a statement. “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.”

By Vicki Needham © 2010 Capitol Hill Publishing Corp

Tags: debt servicing, Federal Trade Commi, FTC