The Washington Post reported that The Federal Trade Commission has issued a set of new regulations, called the Final Rule, to debt-relief industries. With FTC Chairman Jon Leibowitz accusing them of using "a business model based on deceit", these companies are forbidden to collect advanced fees from their clients as of October 27. They would not be allowed to collect fees until at least one debt turned in favor to the consumer, "both consumer and the creditor agree to the fees, and the creditor has received at least one payment." They are also required to disclose how long it would take to see results and how much the process would cost to their consumers as of September 27.

FTC reported that this would not cover non-profit companies, but still would cover those that falsely claim they are. The Final Rule would mainly cover "telemarketers of for-profit debt relief services, including credit counseling, debt settlement, and debt negotiation services."

Action has been taken against the debt settlement industry due to the disapproval of many customers. The FTC stated that "it too often charges consumers hefty upfront fees but fails to reduce the amount of money they owe creditors", according to The Washington Post. Consumer groups disapproved debt-settlement companies "having low success rates, high fees and rampant fraud. Vice President Biden also joined FTC's effort to aggressively enforce the new rules and protect consumer.

However David Leuthold, executive director of the Association of Settlement Companies, mentioned that the strict enforcements will take many debt-settlement companies out of business since they rely on advanced fees to compensate other costs. He estimates there are about 1,000 debt-settlement companies and that "that average customer has about $30,000 in credit card debt."

Nevertheless, Susan Grant of the Consumer Federation of America optimistically states that the new rules "will change the business model of the debt-relief industry…to one in which companies will earn money based on actually achieving successful results for consumers."

The FTC aims "to prevent fraudulent, deceptive and unfair business practices and to provide information to help spot, stop, and avoid them" for the consumer. Its official press release of the Final Rule can be found here.

*Any information on all blog entries should not be construed as legal advice. If you have any legal issues, please consult an attorney.