Legal Guide

There Is An Influx In Debt Settlement Industry As New Laws Are Introduced

As the new FTC rules start there is a noticeable influx in the debt settlement industry. According to the new rule there are few restrictions imposed on the for-profit debt settlement companies and even on individuals who can now no longer charge their clients upfront fees for debt negotiations and settlements with their creditors.

It is felt that the new federal rules that are strategically designed to curb abusive practices of shady debt settlement companies, it has had serious effect on the settlement industry but at the same time the advocates are in a complaining mood that the consumers are still being duped and conned by several debt settlement companies. They are making them sign up for their services and even charging advance fees from them even after knowing that the new rules are in effect.

The debt settlement industry which is commonly believed to best known for the late-night television commercials promises the debtors to help settle their outstanding secured as well as unsecured loans for pennies on the dollar. However, the new rules coming into effect has changed the scenario dramatically helping the debtors as well as the reputable debt settlement companies that find it hard to compete with the unscrupulous debt settlement companies that have come up like mushrooms of late in this ever targeted and criticized industry.

However, as the new rules took effect, consumer advocates are in a belief and say that the change that has come is not necessarily been for the best and has not come quickly enough either.

Observations of the critics

The experts and critics in the debt settlement industry observe that the new federal rules designed by the FTC have led debt settlers in different arguable situations such as:

  • Some have either gone out of business or
  • Some have to change their business models to comply with the new set of rules or
  • Some have to stop collecting upfront fees for their debt negotiation service or
  • Some have to change their marketing tactics or
  • Some have to attempt circumventing aspects of the rule that apply to telemarketing activities as well.

It is for the new set of rules that you will see that the debt settlement industry and the companies have to morph into other avenues and areas. Eminent advisers and counsel of the National Foundation for Credit Counseling are divided about the absolute effectiveness of the federal laws.

  • Some are of the opinion that the nonprofit credit counseling agencies that help out debtors to create plans to manage their finances and pay off their debts they owe over time focus more on the debt management plans rather than in making effective deals to reduce their principal amount of debt.
  • Over the past few years after the FTC rules came into effect the nemesis of these experts and critics has been specifically the debt settlement industry especially those that has been reported to collect upfront fees and payments from their clients.
  • These unscrupulous debt settlement companies are also reported to have made false promises and have misrepresented facts to their clients. Promises such as negotiating debts and providing settlements with their creditors to reduce their principal amount of debt by as much as 50% to 70% percent are made commonly.

Unfortunately, in the end many consumers found that the debt settlers often failed to fulfill their promises but did not bother to refund the fees and advance money paid to them by the same victimized clients apart from the hard truth that they still owed their original debts.

It is for this reason you are suggested to choose a debt settlement company that you want to work with after thorough research. You can click here to know more about debt settlement companies who are reliable and recognized to be reputable in the debts settlement industry.

Telemarketing service

The FTC rule does not even spare the telemarketing services that are offered by the debt settlement companies.

  • Known and included as the TSR the federal rule specifically mentioned in October 2010 that the for-profit companies that also provide telemarketing service to contact and attract new clients cannot charge any advance fees or even make any false promises to the consumers.
  • It is also specifically mentioned that they can only charge their fees after they have negotiated settlements with creditors.
  • According to the new Telemarketing Sales Rules that is drafted by the Federal Trade Commission, restrictions are also imposed on the amount of fees that can be charged from their clients.
  • In addition to that the rule has also banned ads and TV commercials that tout impressive and probably false settlement success rates unless they can prove their claims with strong evidence.

These inclusions in the new rule has made those debt settlement companies that existed by definition only and not by true services go into the oblivion, though somewhat as these practices are still followed and reported by the debtors.

Growth in the industry

Accepting the fact that there will be loopholes in a judicial system and people will make the best use of such gaps and crevices, there has been a steep rise in the debt settlement industry noticed over the years.

However, several of those controversial ads seen on TV were from the lead generation companies and not from the actual debt settlers. This meant that a majority of these debt settlement companies that have come up recently in the industry are not even able to provide a proper and successful debt settlement. They simply functioned more as a marketer and salesperson or are simply a brokerage shop.

Going by the statistics, the debt settlement industry saw the biggest influx in 2007 when the mortgage industry faltered resulting in the mortgage workers shifting into debt settlement vocations raising the number of companies to hundred from a dozen. By the end of 2009 it was seen that there were about a thousand such debt settlement companies found in the market offering debt settlement services.

All these seem to be a very good sign for the debt settlement industry.

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