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The FTC takes on a ‘wild west’: Consumers need reliable debt relief options

“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”
-John Maynard Keynes, economist

The myth of the old American Wild West conjures images of crooked cowboys and outright lawlessness. This ‘lawless’ mentality captures a stigma surrounding the debt settlement industry, a mess the Federal Trade Commission (FTC) aims to clean up with recent rules. Though new rules will alter the face of debt settlement, as well as leave room for new consumer threats, there are a few companies who were compliant long before the FTC demanded and are reliable sources of help.

Consumers have screamed loud enough for the FTC to hear and act. In response to mounting complaints that unscrupulous debt settlement companies take upfront fees without delivering tangible results, the FTC has issued a new rule which bans companies from charging advance fees before settling client accounts. Parts of this rule go into effect on September 27th, 2010, while the no advance fee component begins on October 27th, 2010. Here are key points of the new rule:

  • Companies may not charge upfront fees - Companies can’t collect any client fees until at least one account has been negotiated or settled. Payments made by the client to the debt settlement company may not be front-loaded. Taking upfront payments significantly alters a consumer’s ability to set aside enough funds to offer an adequate settlement. Prior to this ruling, many companies would take fees without actually providing services, further burning a consumer who is already in debt.
  • Companies must disclose important information before enrolling consumers in their program - Consumers must have sufficient understanding of how long it might take to settle their debts, the initial negative impact on their credit scores, and the cost of participation in the program. Further, clients need to know exactly how their savings accounts work- whether or not these accounts are housed in an insured institution and how the client can access their funds.
  • Advertised services must be legitimate - Companies cannot present false information to the public that cannot be backed by real consumer results.
These rules also apply to sales made via telemarketing calls. This includes outbound calls as well as inbound calls in response to any marketing and advertising. Calls in response to TV or radio commercials; magazine, newspaper, phone book, internet; or ads in other media forms. Further, any inbound calls in response to direct mail materials are also under the umbrella of the new Rule. These rules are primarily to prevent any deceptive practices that may occur when a consumer has no direct contact with the person calling.

Ultimately, the intent of the new FTC rule is to protect consumers who are in debt from incurring more financial harm. Many consumers who qualify for debt settlement programs are facing serious hardships such as divorce, job loss, illness, injury and others. These consumers deal with credit card companies who hear hardship stories all day long yet still try to collect as much of the debt as possible. The last thing such clients need are predatory debt settlement companies who offer false hope. They FTC expects that consumers can breathe a little easier as they look for solutions to the debt that clogs their lives.

Consumers need to be aware of loopholes

As with any rule, those it negatively impacts will try to find a loophole. Many debt settlement companies will be forced to close their doors as their business models are unsustainable in light of the new FTC Rule. Consumers need to be aware of possible loopholes some companies might seek to evade the new Rule.

New threats loom in the form of alternative business models that purport to offer a lifesaver to debt settlement companies scrambling to stay afloat. Consumers should thoroughly research any company they are considering. A hasty switch to any of the following business models should raise a red-flag of caution:

  • Companies that change from a for-profit model to a non-profit model in order to avoid FTC regulation - If a company suddenly changes its business model to non-profit status in the wake of the new FTC regulations, beware. Many of these companies continue to provide ‘services’ and receive payment charged to consumers. They do not operate like a bona fide non-profit, and often do not have a board of directors. These companies are simply trying to evade the FTC Rule while continuing to collect upfront fees from clients.
  • Companies who take advantage of the ‘face-to-face’ exemption - The new Rule states that goods or services can’t be completed until after a face-to-face meeting occurs. The original intent of this Rule is to prevent any deceptive trade practices that might occur when the person selling the product is just an anonymous voice over the phone. In theory, the face-to-face meeting is supposed to provide the consumer with more information about the product so they know what they are getting themselves into. Consumers should be aware that a face-to-face meeting doesn’t always guarantee a product is in their best interest.
  • Companies who use internet only transactions - Internet sales that are conducted exclusively over the internet. This is because the FTC has acknowledged that its authority under the Telemarketing Act does extend to the internet. However, the FTC does excise power to prevent ‘unfair or deceptive acts or practices,’ including those that happen over the internet. One deceptive practice is to continue charging fees in advance of settling an account by signing clients up solely over the internet.
  • Companies who use the attorney fee model - This is perhaps one of the most outrageous fee models to pop up. Attorneys who practice debt settlement are often protected by their state bars and are exempt from regulation by the FTC. Further, they are likely to be exempt because of the face-to-face meeting rule. As long as an attorney conducts a consultation with a client, he can continue to charge advance fees. Clients are likely to pursue debt relief via the attorney model because of the aura of protection that working with an attorney provides. Consumers should be aware that debt settlement attorneys who continue to charge upfront fees for settlement are working against the spirit of the FTC Rule.

Where does this leave the consumer?

Though regulation may begin to clean up the ‘lawlessness’ of the debt settlement industry, Americans continue to struggle with credit card debt. As bankruptcy remains a last resort, the average family needs a reliable alternative.

Many debt settlement companies are, in fact, like wolves in sheep’ clothing; they take do not live up to their claims. However, there are a few companies who operate on a settlement-based fee model and actually work for the client. One such company is Superior Debt Services, a Fort Collins, CO based debt settlement firm. Superior has been successfully operating with a settlement-based fee model since 2006, and sincerely fights for the consumer. They do not pay themselves until at least one account is settled for the client.

In the midst of chaos and change enveloping the debt settlement industry, Superior Debt Services is a tried and true business that steers clear of deceptive practices. While other debt settlement companies are collecting as many fees as possible before they will be forced to close their doors on October 27th, 2010, clients are safe with Superior.

Here are some pillars to look for when searching for reputable help in eliminating debt:

  • Do not work with anyone who charges fees in advance of settling an account for you.
  • The company should have at least 5 years of business experience. If not, please be concerned that they do not have enough experience. Superior debt has over 12 years of experience.
  • The company should not pressure you to enter their program too quickly. Most company's sales reps are paid on commission and care only about the fees, not getting you out of debt. Superior Debt Services staff are paid a salary which incentivizes them to let you know what your best options are. Superior is one of few companies that actually tells you if you are not a good candidate for the program.
  • Make sure that your monthly payments are going into an FDIC account for settlement, and that you have full access to these funds at any time.
Critical changes are sweeping the debt settlement industry, and if you are in need of debt relief it is important to be educated about your rights. The new FTC rule does ban companies from charging upfront fees, so do not give your business to anyone who demands money before offering you concrete results. Even if a company claims to be non-profit or is attorney-based, do your research; they will often leave your in a worse mess than when you started. Excessive unsecured debt is like a cancer that must be removed.

Famous economist John Maynard Keynes once stated, “If I owe you a million, the problem is yours;” your creditors do view this ‘million’ as a severe problem for their pocket books, and will not forget about your debt. Know your options and rights and set to work on eliminating that unsecured debt.


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