The New York Times has posted an article about an announcement made by the Fair Trade Commission that will help consumers rid themselves of “crippling” amounts of debt. The new restrictions are in response to complaints from consumers that lenders charge huge fees but fail to reduce the consumer’s debt obligations.
Taking effect in the fall of this year, the new restrictions will prohibit debt collection companies from charging a fee before they reduce a customer’s unsecured debt or credit card debt. Companies will also be required to set up accounts that will be dedicated for debt relief payments and fully disclose tell how long debt-reduction negotiations will take, how much it will cost and if there will be any negative consequences.
“Too many of these companies pick the last dollar out of consumers’ pocket and, far from leaving them better off, push them deeper into debt, even bankruptcy,” Jon Leibowitz, chairman of the F.T.C., said in a statement announcing the regulations.
“This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, upfront fees,” he said.
Debt collection programs became very popular because of the recession, high unemployment and the collapse of the housing market. Unfortunately, with the growth comes more unfair debt reduction practices that take advantage of consumers.
Attorneys general in more than 20 states have brought enforcement actions against debt-relief companies since 2004. According to comments filed with the F.T.C., the number of consumer complaints against companies in the industry more than doubled from 2007 to 2009.
The leader of a trade group representing the debt-settlement industry said he believed the rules were unfair and would put a lot of companies out of business.
“I think this is a victory for the big banks and a loss for consumers,” said David Leuthold, the executive director of the Association of Settlement Companies.
Credit card companies often will not settle a debt for less than is owed until a consumer has deposited the entire negotiated repayment in an independent account, Mr. Leuthold said. If the companies are not allowed to collect any fees before settlement, that leaves them providing services for months without compensation.
“Most companies will go out of business because of this,” he said.
If you have had issues with debt collection companies and have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447.
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