Debt Settlement Companies Are Still Skirting New FTC Rules

Back in September, we told you about new Federal Trade Commission (FTC) rules aimed at debt consolidation companies. The rules were designed to clamp down on scam artists who dominate the debt consolidation industry. Well, it seems some of those so-called debt relief scoundrels have figured out a way around the rules.

The FTC imposed new rules on September 27, 2010 that banned debt-fixers from engaging in telemarketing that misrepresented their services, such as promising to cut your debt in half or charging fees before services are delivered.

Apparently, some of the debt consolidation companies are still charging those upfront fees. According to the FTC, which is responsible for regulating telemarketers, the debt settlement companies are supposed to first negotiate with a customer's creditors to whittle down the amounts owed, and then get paid for their services. Instead, many of those firms continue to collect fees amounting to thousands of dollars without making even a dent in the customer's credit card balance.

Chris Viale, CEO of Cambridge Credit Counseling, a nonprofit consumer advocacy group, says that intead of complying with the new rules, the majority of debt settlement companies are evading them and doing everything they can to continue charging advance fees and misleading consumers.

Cambridge Credit Counseling is one of a dozen nonprofit debt counselors that sent a letter to the FTC warning them about this situation.

The advocate groups say debt settlement firms are targeting prospective customers via text message, Skype, Internet chats, or setting up in-person meetings claiming that these marketing techniques don't fall under U.S. telemarketing regulations. The advocates also warn that debt-fixers may pose as law firms or may hire attorneys, since lawyers are exempted from the rules.

Evan Zullow, an attorney in the FTC's division of financial practices, says he's aware that companies are looking for loopholes and that the FTC is monitoring the industry to make sure that what they're doing actually meets the exception. He added that this alleged practice of baiting prospects with text messages and getting the consumer to make the initial call, will not exempt them from the FTC rules.

Zullow explains that whether a debt settler's ad is on TV, radio or text, if the ad prompts a consumer to call, the companies are not allowed to charge advance fees.

Chris Viale of Cambridge Credit Counseling told CNN that one of his organization's staffers received recently a text that asked the staffer to call to speak with a credit analyst. When the staffer called back, the rep asked if his debt totaled more than $10,000 and then transferred him to a company it claimed was a law firm that would charge a "retainer" for legal services. That retainer is basically an upfront fee.

Just weeks after the FTC rules banning deceptive practices went into effect, the North Carolina Attorney General sued the Consumer Law Group of Boca Raton, Florida accusing it of being a debt relief company posing as a law firm. It reportedly collected $2.6 million in fees from more than 3,000 consumers in North Carolina.

Another way to evade regulation is for debt settlement companies to move their operations offshore, similar to online gambling sites in that operate out of the Dominican Republic, Costa Rica or Panama. There are reports many debt fixing companies are now based in Bermuda.



Go back | Date: 27 Dec 2010
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