Written by attorney Mark Allen Reed

Beware of Loopholes in The New FTC Rules for Debt Negotiation Companies

Beware of Loopholes in New FTC Rules for Debt Negotiation Companies If you’re trying to clean up your credit in the New Year, the last thing your bank account needs are expensive upfront fees to debt negotiation companies, especially since new FTC regulations make said upfront fees illegal. But where there’s a will, there’s a way. Firms bound by new FTC rules are taking advantage of loopholes in the system. As the new rules state, debt settlement firms can no longer charge upfront fees for services yet to be rendered. This rule includes legal fees. However, it is limited to telemarketing practices. In response to these new restrictions, some firms are sending legal representatives to meet with potential clients in person. Done face-to-face, these firms are well within their legal rights to collect upfront fees. That’s not to say it’s an acceptable practice you should trust, but it’s not against the law. Another shady practice debt negotiation companies are using to get around the new FTC rules: Some firms are sending text messages asking recipients to participate in surveys about how to get out of debt. Because it’s just a survey, it’s not technically considered telemarketing and the FTC rules do not apply. Bottom line, though new FTC regulations are welcome restrictions on the debt settlement industry, loopholes leave you vulnerable. The best means of protecting yourself is to stay away from debt negotiation companies entirely. Everything they say they can do for you are things you can do to clean up your credit yourself. In fact, "industry figures indicate, these settlement companies rarely are successful in winning concessions from the big banks, despite claims to the contrary from these companies." Of course, if you insist on exploring your options with a debt negotiation company, avoid the following at all cost – upfront fees of any kind and outrageous claims, such as cutting your debt in half or eliminating it completely within 12 to 24 months. You should also be aware of the following: Although the process of debt settlement and negotiation is technically legal throughout the United States, there are a few debt negotiation laws that are frequently misunderstood by consumers. First and foremost, credit card companies and other lenders are typically under no legal obligation to accept a settlement agreement that you propose. Furthermore, even if a third-party debt settlement company has put forth a proposed settlement on your behalf, your lender is under no obligation to cease collection activities or halt further legal actions against you, despite the claims made by many debt settlement companies to the contrary. If you have reached a settlement agreement with a lender, be sure to get the terms of the agreement in writing before submitting your payment and keep multiple copies of all items of correspondence for your records. Lastly, be sure to research the debt negotiation laws in your state before undertaking the settlement negotiation process. Lastly, which would you rather have—the credit card companies control how much you pay back or you control how much you pay back under the protection of the bankruptcy court in a chapter 13? And maybe even better, don’t pay anything back under a chapter 7. For further information, please feel free to contact the Law Office of Mark A. Reed, 858-277-0232

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