Advance Fee Ban Will Reshape the Debt Relief Industry

CRN Supports Changes to the Telemarketing Rule Just Announced by the FTC

Yesterday, the FTC announced important changes to the Telemarketing Sales Rule, The changes are intended to protect consumers with too much credit card debt from abusive debt settlement practices. One of the most important changes is that settlement firms will no longer be able to charge consumers up-front fees to settle their debts as of 10/27/10.

Overall, I am thrilled that the FTC is reigning in abusive debt settlement firms. For too long, these firms have been allowed to prey on consumers with too much credit card debt. Sadly, in far too many instances, consumers who worked with such firms saw their financial situations grow worse, not better, because of the large up-front fees they had to pay, and many of those consumers eventually ended up in bankruptcy.

The rules will shape the industry and promote the best practices moving forward.

I am concerned that some settlement firms may charge a large fee at the back end of their work for consumers. I have always contended that the fee amount charged by a debt settlement service provider directly correlates to how long it will take an individual to be successful in settling all of their debts. Program duration is directly attributable to increased risk of aggressive collection efforts such as filing lawsuits against a consumer in order to collect.

When consumers are looking into debt settlement as one of the few legitimate options available to deal with crushing debt, it is IMPERATIVE that they still weigh the COST for the service.

I will be posting more detailed comments about the amendments soon. Stay tuned!

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  1. Steve Rhode says

    I was surprised to read how unhappy the debt settlement industry is with the new rules. It actually was not as bad as it could have been and does not limit the fees they can charge, just when they can charge them.

    • Michael says

      Due to the predominant upfront fee model used for the last many years, the industry did not have to actually work for their money. They got paid no matter what.
      Now they actually have to do something productive before they get paid. If I am Lazy Bones Jones, I’d be upset if my company used to have an address at 777 easy Street and suddenly I had to relocate to 911 “how the hell can I pitch this” Street.

      Now that may be a humorous reply, but it fits.

      The biggest deal to come from no upfront fees will be the loss of what I have referred to as the “ponzi” model used by some settlement firms and their marketing partners. Also lost will be the ability of under capitalized Debt Settlement marketing partners to use a churn method to fund their media and advertising.

      Having no fee limit will still mean consumers have to be careful in who they choose to work with. I will be covering the new fee aspects in coming blog posts.

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