With the rise in unemployment and the accompanying rise in debt defaults, the debt settlement industry has been booming. Unfortunately for consumers, many of the debt settlement companies fail to deliver on their promise of settling debts for pennies on the dollar. This failure has resulted in thousands of complaints against debt settlement companies, crackdowns by the Federal Trade Commission (FTC) and the creation of new rules governing the industry. Here’s what you need to know:
- Debt settlement firms are now forbidden from padding the number of success stories to reel in customers. They are also prohibited from using abnormal cases as examples of what type of results they can produce for debtors. For example, debt settlement companies can no longer claim that they can reduce debts by 60 percent while most of their customers only see results of a 10 percent reduction in their debt upon settlement.
- Debt settlement companies are now prohibited from collecting upfront fees before they settle your debts. Also, if the debt settlement company charges a fee based on a percentage of the settlement amount, they must give the customer an estimate of the costs ahead of time.
- Debtors working with a debt settlement firm are typically required to save a certain amount of money which will be used to pay creditors. Debt settlement companies are now required to give customers an estimate of the amount of money they will need to save before they make a settlement offer with a creditor.
- Debt settlement companies must hold the debtor’s savings with a financial institution not affiliated with their firm. The bank account must belong to the debtor and the debtor must be given the right to withdraw money from that account at any time.