You’ve likely heard the stories of fly-by-night companies that offer to get people out of debt, only to make matters worse by setting up an agreement that only causes the customer to fall further into debt. The Better Business Bureau confirms the stories you might have heard: 2,600 complaints were logged against debt relief companies in 2010 alone.
In response to these types of reports, the Federal Trade Commission issued new guidelines for debt relief companies that took effect in September 2010. In order to protect consumers from predatory practices, the new FTC rules on debt relief offer the following protections:
* A debt relief company cannot collect up-front fees from a customer until a written agreement is in place. It is also the debt relief service’s responsibility to have repayment agreements in place with a client’s lenders before it collects any money from that client.
* Debt relief companies must provide detailed information to customers about the total cost of their services, as well as a timeline for when they can expect to see results. Debt companies must also provide information on any negative consequences, such as a blemished credit score, that could result from enrollment in these types of programs.
* If the company requires deposits into a debt settlement account that will be used to pay off creditors, the account must be operated by a financial institution that is not affiliated with the debt relief company. Any money deposited into this fund must either be used to pay down the debt or returned to the customer with any interest earned by the fund.
Keeping these new regulations in mind, consumers should take these precautions before entering into an agreement with a debt relief company:
* Research information for consumers about debt settlements using government websites or other online sources. Websites like www.debtconsolidation.com aggregate information on the topic and can help consumers learn the difference among different debt relief options like debt consolidation, debt settlement and bankruptcy.
* Beware of agencies that are hesitant to provide information or require an up-front fee. Don’t deal with agencies that pressure you aggressively to enroll in their program.
* Use the Better Business Bureau website to make sure any agency you are considering hasn’t had any serious complaints filed against it. Having a clean record with the Better Business Bureau does not guarantee legitimacy, but the presence of serious complaints will allow you to rule out specific businesses.
While being in debt can cause anxiety that can lead to unwise or hasty decisions, it’s important to stay calm and learn about your options so you can avoid enrolling in a plan that will make your situation worse than it already is.