New debt relief laws leave debt stressed consumers on a safer side

By Ashley Jones on September 15, 2010, 5:12 pm Posted in Economy News

With the US national debt reaching an alarming level of $13 trillion, the popularity of the debt relief industry is increasing manifold. The Federal Trade Commission has enforced a new set of rules governing the debt relief industry, as a move to reduce the number of bankruptcy filings every year. The companies that provide debt relief services will no longer be able to impose huge fees on the already stressed consumers. The most prominent feature among all the rules passed by the FTC is the one that calls off all kinds of outrageous fees. Due to the sluggish US economy most debt struck consumers are feeling that they are in serious need of debt help and most of them are running to companies who provides debt settlement. Many entrepreneurs capitalized this economic state and set up a debt relief company to earn huge profits.

Unfortunately most of these companies have taken undue advantage of most financially weak consumers who were already under a mountain of debt. The debt settlement companies claimed that they could reduce the principal balance to its half and charged huge upfront fees in lieu of these services. Fortunately, as the complaints with the BBB against the debt relief companies began to rise, the FTC stepped in to form new rules to protect the interests of the consumers.

The new FTC laws forbid for profit debt settlement companies from collecting upfront fees until the debts of the consumers are successfully settled. The companies are also required to provide the consumers with a list of all costs associated with settling their debts through that company and also a list of the promised services. The laws are coming into effect on September 27th, and most debt settlement companies have accepted this move of the FTC. An eminent spokesperson of the BBB has reportedly said that there are more than 2600 complaints from consumers nationwide regarding the malpractices of such debt settlement companies.

A spokesperson working in a credit counseling agency has said that this step taken by the FTC has benefited the credit counseling agencies too. This is because people were not informed whether or not a debt settlement would be the best possible choice for them. As a responsible consumer you should know that the debt consultant will negotiate that the creditors take less money than you actually owe. Once the creditors agree to this, it will be reported on your credit score and you can seriously hurt your credit score, often by 125 points. The new rules demands debt settlement companies to make a consumer aware of all the consequences of settling their unpaid debts through such a debt relief company.

 

Debt settlement companies are gradually proving to be effective in the war on personal debt. Such programs offers hope during a time of economic depression. While debt settlement can be a better option for some people than bankruptcy, it comes with a lot of risk factors. But the FTC has prevented them from distorting their services and checking that the disclosures of costs and services are also truly represented to persons who call them in reply to advertising. With the new laws, the debt settlement companies are expected to deliver better results that can be profitable for consumers. The bad companies, on the other hand, may run out of business after the new laws come into effect.

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