Not surprisingly, the often-shady debt settlement companies promising 50-cents-on-the-dollar relief plans on late-night television are not succumbing to tough new federal regulations without a fight, as MSNBC's Red Tape Chronicles blog explained. In fact, consumers should expect a barrage of ads right up until the rules take hold late next month.
Simply stated, new rules intended to protect debtors taking effect on Sept. 27 will not guarantee that those using debt settlement firms won't also need the services of Atlanta bankruptcy lawyers.
Former credit counselor Steve Rhode, who now runs a consumer information site called GetOutOfDebt.org, said a "flurry" of TV and radio ads should be expected. But beyond that, some critics fear that a few of the less-scrupulous firms will exploit at least one potential loophole left by the Federal Trade Commission's new rules.
But first, let's recap what the FTC's pending new rules mean for the debt settlement industry. As we discussed in this blog earlier in the month, the rules ban the collection of upfront fees; require dedicated accounts for debt repayment will have to be under the control of the consumer, not the company; and firms will have to be transparent about the potential downside of their services, such as lowered credit scores.
However, the rules are limited to how the services are delivered, applying only to debt settlement services sold over the telephone. This means firms may sidestep the regulations by shifting to Internet sales or even in-person sales. Still, as Steve Rhode insists, they may not fare so well against those firms that are in compliance:
"We tell people all the time not to give money to someone when you can't at least talk to them. Is someone going to sign up with a service that says, 'pay us $8,000' through a chat room? And the firms that comply will just advertise that they charge no up-front fees and kill those guys."
It's too soon to know how this will all play out, but consumers can stay on the safe side by insisting on speaking (not "chatting") with a salesperson.
Related Resources:
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Debt Settlement Companies: Saviors or Scoundrels? (FindLaw's KnowledgeBase)
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Consult a Bankruptcy Attorney in Atlanta (FindLaw)
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New Debt Settlement Protections Unveiled by FTC (FindLaw's Law & Daily Life Blog)
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