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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."

Schumer and Sen. Clare McCaskill (D-MO) have sponsored a bill that would cap fees that can be charged by debt-relief companies.

By Ylan Q. Mui  |  July 29, 2010; 2:24 PM ET
Categories:  Regulation  
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Comments

f*king washington - stay the f* out of our business

Posted by: Anonymous | July 29, 2010 3:18 PM | Report abuse

That's right, Anonymous. We should just allow the free market to dictate whether companies can scam consumers. After all, consumers should have a choice in which scammers to do business with.

Posted by: exerda | July 29, 2010 4:30 PM | Report abuse

When will Schumer cap the credit card companies at 5% interest?
Guess what! The people that scam will always!

Posted by: Anonymous | July 29, 2010 10:52 PM | Report abuse

Gotta love washington... Lets not stop banks from collecting front loaded interest on 30 yr fixed loans. Thats right the big banks can rake in the fee's/ interest for 5 to 10 years and your balance never goes down but instead lets waste efforts on debt settlement when debt settlement didnt colapse the economy....

Posted by: Anonymous | August 1, 2010 8:07 PM | Report abuse

Banks always win. Even when they lose they win. Front load a mortgage, well thats okay... Front load a debt settlement contract, oh no get a lobbyist to get that changed ASAP..... Washington is never on the side of free market, nor is it ever on the side of the middle or lower class. Just keep believing the propaganda that everything single president, congressman, and senator spit our...

Posted by: Anonymous | August 4, 2010 5:12 PM | Report abuse

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