The Telemarketing Sales Rule, 16 CFR Part 310 has now been amended by the Federal Trade Commission to prohibit for-profit debt settlement companies from charging advance consumer fees before eliminating or reducing debts.
All companies offering debt relief services over the telephone, whether solicited by debt relief company telemarketers or from calls made to firms by consumers responding to advertisements, will need to follow the amendments.
The reason that the FTC was forced to come up with this set of rules due to the increased number of consumer protection complaints to the FTC and state consumer protection agencies regarding advance fee payments being paid to debt relief companies without receiving any debt relief benefits.
The new regulations stipulate that fees can only be charged after the firm has successfully reduced, settled, or otherwise renegotiated the terms of at least one of its client's debts.
Another condition that needs to be necessarily fulfilled is that consumer must have made at least one creditor payment after the successful settlement negotiations in order for the debt settlement company to charge a fee.
The amount of the fees must be clearly mentioned through a formal written agreement between the creditors and the customer.
The debt settlement company could claim only that proportion of the fees for which they have rendered services to the client.
According to the new federal rules, debt settlement companies can ask the consumers to set aside service fees and savings for creditor payments into a dedicated account provided that the account has been established at an insured financial institution.
The account needs to be set up in the consumer's name and full control of the account should vest with the consumer.
The debt settlement firm would not have any ownership or control over the dedicated account or have affiliations with the financial institution administering the account.
The consumer would also have the right to withdraw the funds at any time without penalty, including any accrued interest and could not exchange any referral fees with the financial institution.