Debt Settlement Companies Face Crackdown

Debt settlement companies are notorious for charging upfront fees for promising to reduce or eliminate credit card balances and other debt. The problem is, they don’t often deliver.

The Better Business Bureau reports that since the start of the recession it has received more than 3,500 complaints about debt settlement companies, and for every complaint there are far more people who did not file a report. These individuals hired debt settlement companies and then reported that they ended up even deeper in debt or being sued by creditors. Many think the company is handling everything, stop making payments on their loans, and late fees and interest charges continue to accrue.

In addition to no more upfront fee, the Federal Trade Commission announced that customers will no longer be required to set aside money in a separate account maintained by the debt settlement company for eventually paying off any remaining debt. The companies will only be able to require an account if it’s maintained at an independent financial institution under the customer’s name and the customer must also be able to withdraw the money at any time without penalty. Furthermore, customers can only be charged a fee once their debt has been reduced, settled or renegotiated.

Debt Settlement Companies vs. Credit Counseling

While nonprofit credit counseling agencies often charge a small nominal fee for helping consumers manage their debt, debt settlement companies charge large fees. Now they will have to deliver on their promises. They will also have to disclose to customers how long it will usually take to get results, the costs of the procedure, and inform customers of any negative consequences that could result.

These changes should help make the debt settlement industry a lot more responsive for consumers.