Getting help with credit card debt has long been a treacherous path for consumers to venture onto. Instead of offering real help, credit card debt relief companies have earned a reputation for preying on the fears and hopes of consumers mired in credit card debt with lofty promises of instant debt relief for pennies on the dollar.
Well, with new rules recently introduced by the Federal Trade Commission, the days of deceptive promises and fudged figures for easy debt settlement may well be over. New provisions amending the Telemarketing Sales Rules set guidelines requiring greater honesty and transparency from companies who promise to help consumers? pare down their debt burden.
The new rules are prompted by the widespread deceptive advertising and telemarketing practices in the debt settlement industry. Ads, TV commercials, and telemarketing messages from debt relief companies typically push debt settlement services aggressively, promising to cut consumer debt dues in half. Typically, advertising materials include showy statistics with examples of past customers seeing debt settlements resulting in 30 to 65 percent reductions in debt owed. Of course, the ads carefully omit some salient facts: the statistics apply to less than half of the company?s customers, i.e. the ones who stayed on with the service over the many years it took to see results, forking over hefty fees during that time.
Furthermore, that 30 to 65 percent reduction often applies to the balance owed towards the end of the settlement process. Because interest continues to accumulate on the debt during the settlement negotiations, this amount is generally significantly higher than the amount owed at the beginning. For example, a cardholder owing $9,000 might eventually see a 50% decrease in debt, but that decrease would apply to the $11,000 they owed after the settlement had been finalized.
Taking all this and more into account, the Federal Trade Commission has formulated a new set of rules to force telemarketers of for-profit debt relief services, including credit counseling, debt settlement, and debt negotiation services, into walking a straighter line. Under the new guidelines, these companies can only promise to cut cardholder debt in half if they can actually follow through with their word. Furthermore, after October 27, debt relief and debt settlement companies are banned from charging consumers for services until they?ve delivered results, either in the form of a settlement or a reduction in debt. Companies are also now required to state up front how much they charge for their services and provide customers with an accurate estimate of how long the process might take. For-profit debt relief providers are also forbidden from market themselves as non-profit.
Some of these new rules may seem like no-brainers to consumers, but anyone who has worked with a predatory debt relief company can attest to the fact that a ?no more lying? decree was long overdue.
As the economic downturn has increased the number of consumers struggling with credit card debt, the use of debt settlement services has been on the rise. From June 2008 to 2009 the numbers of consumers served by companies enrolled in debt settlement services increased from 123,000 to 154,000, according to the Association of Settlement Companies, one of the major industry organizations; the combined total of debt managed increased from $4 billion to more than $4.9 billion. During the same time, the FTC saw an 18 percent increase in complaints of deceptive debt settlement promises and practices.
?At the FTC we strive every day to make sure America?s middle class families get straight deals for their dollars,? FTC Chairman Jon Leibowitz said in a press release accompanying the FTC rules. ?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. 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.?
While some companies may still come up with creative ways around the new rules (for example, face-to-face interactions aren?t covered by the new honestly policy), hopefully consumers in need will be able to look forward to more honest relationships with those who promise to help them reduce high-interest credit card debt and rebuild their financial future.
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