FTC cracks down on debt-relief companies
By Ylan Q. Mui
The Federal Trade Commission Thursday outlined strict new regulations on debt-relief companies that promise to slash the amount of money consumers owe on their credit cards.
Under the new regulations, the companies cannot charge any fees before at least one debt is settled and one payment is made to the creditor. Consumers had frequently complained that they signed up for the service -- and paid hefty fees -- even though attempts to settle were unsuccessful.
The rules also place restrictions on the accounts consumers use to save up the money to pay their debts and require more in-depth disclosures of the terms of the agreements. They will take effect Oct. 27.
The FTC's move comes after several states passed legislation restricting the companies in the wake of consumer complaints. The Government Accountability Office also found several cases of alleged fraud during an investigation this year. The FTC says it has handled 475,000 complaints relating to debt relief companies.
"These new reforms will go a long way toward cracking down on debt settlement scams, but we must go even further. We plan to keep pushing our legislation to cap the fees these companies can charge," said Sen. Chuck Schumer (D-N.Y.). "We must put a stop once-and-for-all to the deceptive and abusive practices rampant in the debt settlement industry. These are some of the worst actors in the market right now and they are preying on those who are most vulnerable in these tough economic times."
Ylan Q. Mui
July 29, 2010; 2:24 PM ET
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