News, Culture & Society

Follow The Debt Settlement Rules From The FTC To Stay Out Of Legal Obligations

After the recession there was a notable annual drop in the US household debt in aggregate. This was not possible in the past fifty years. According to the market research of the firm IBIS World it is seen that in the years 2009, 2010 and 2011, the total debt amount grew consistently at an annualized rate of 0.2%. This is noticed over the past five years. The primary reason is that the effect of the recession that actually froze consumer spending and instead encouraged them to save more.

It has been seen across several nations and governments that as the economy grow slowly the confidence in the consumers grow steadily as well. However, in these years it is seen that the debt levels forecast was to expand at a much faster rate that will in turn push the aggregate household debt. In fact, studies of IBIS World showed that it rose from $13.62 trillion in 2012 to a record high of $16.28 trillion in 2017.

As a result there have been some specific changes noticed in the behavior of the Americans. These are:

  • They are now more willing to create debt to pay for the large assets and other projects that were put on hold especially during the recession.
  • They also now require debt consolidation and settlement services to pay off their mounting debts of different forms.

To help them and fortunately for them, the Federal Trade Commission seems to continue acting on their behalf providing several options out there.

In fact, there have been a lot of amendments made to the former debt relief regulations that have been in force for the past two years. The FTC on behalf of the Americans who are looking to regain control of their finance and reduce their debt through different debt consolidation and settlement companies has issued the Final Rule.

This Final Rule is actually the provisions made in the Telemarketing Sales Rule that covers most of the for-profit debt relief services that includes credit counseling, debt settlement as well as debt negotiation services.

The regulations included

Coming into effect in September and October 2010, the Final Rule designed by the FTC includes the following regulations and the most significant one is that the customers are no more required to pay any fees in advance to the debt settlement companies. Going by the debt settlement reviews and the Final Rule of the FTC fees from the consumers can be only collected by the debt settlement companies after and under the following situations:

  • When at least one of the debt obligations of the consumer has been renegotiated or settled, reduced or issued as per the new terms
  • When there is a written settlement agreement between the consumer and the creditors or there has been a debt management plan or any other agreement made and
  • When the customer has made at least one payment to the creditor after an agreement is made that the creditor has negotiated and accepted the terms as laid down by the debtor.

It is only when any or all of these terms are achieved the debt relief provider is allowed to receive a fee for a single debt. Moreover the FTC Final Rule also states that:

  • This fee must be in proportion to the total fee that the debt settlement company will charge if all the debts were settled
  • Alternatively, if the debt settlement company wants that the fee should be based on the percentage of the amount the consumer saves by settling the debt or multiple debts the percentage of the fees charged must be equal for each of the debts that the consumer wants to get settled by taking help of the company

It also states that these fees will not be taken away by the debt settlement company right away but the customers are required to put these fees as well as their savings in a dedicated savings account.

In previous times the fees and payments made for debt settlement went to an escrow account or a dedicated savings account but neither of these could be established as and at a true bank account. As per the new rules of FTC it is stipulated that the debt settlement providers will only require such a dedicated savings account under the following situations such as:

  • If the account is established at any insured and established financial institution
  • If the customer owns the funds including any interests that may be accrued
  • If the consumer has the ability to withdraw the funds as and when required any time without penalty
  • If the debt settlement service provider does have any affiliation or interest with the financial institution
  • If the settlement service provider does not charge any referral fees from the consumers for allowing then to open such a dedicated savings account with a financial institution and
  • At all times the debt settlement provider must keep the customers well aware of the various monetary details as well as the program requirements.

According to the FTC, it is required by the debt settlement provider that they make specific disclosures in large numbers at it while they advertise for their services to customers. These disclosures must be essentially made before they sign up with their clients for any type of debt relief services.

As far as the elements of disclosures are concerned it must include the following according to the FTC Final Law:

  • The cost as well as there are any refund policies or not
  • The amount of money how the customers need to save up in order to settle the account
  • Whether or not there will be any effect on credit score of the customer due to settling the account
  • Whether or not there is potential of any lawsuit
  • Whether or not there are any possible tax consequences of debt settlement
  • All of the key and relevant information about the dedicated accounts
  • Whether or not the service provider is for a for-profit or nonprofit entity
  • The approximate time it will take the consumers to see positive results and

It must also provide an accurate estimate of the amount of money a consumer may save due to such approach.