Federal Trade Commission

FTC lays down new regulations for debt relief companies

Families, individuals, and business owners who find themselves overwhelmed by debt can quickly become desperate for a solution to their financial woes. As credit card bills and late payments begin to pile up, tantalizing promises from debt relief companies to easily and rapidly remove a large portion of a person’s debt may sound too good to be true. According to the Better Business Bureau and the Federal Trade Commission, many of these promises probably are.

A report from Better Business Bureau recently asserted that more than 6,000 complaints were lodged against companies specializing in debt relief during 2010. Many unsatisfied customers believed that the debt relief agencies which promised to help them get their finances under control actually lured them into agreements which ended up increasing their total debt. There are many ways to seek relief from overwhelming debt, including bankruptcy protection. However when consumers decide that they would like to purse an alternative to bankruptcy, they need to be careful about which debt relief companies they trust with their finances.

In light of the numerous complaints about corrupt, misleading and inefficient debt relief agencies, the Federal Trade Commission recently released new industry rules meant to better protect American consumers seeking financial help. One of the new rules requires debt relief companies to be more transparent with their customers by providing information regarding the total cost of the process, any potential negative consequences which could arise from the program, and when the consumer should begin to see improvement.

Other regulations prevent a debt relief company from charging a customer before creating a contract and creating debt settlement accounts with affiliated establishments.

The Federal Trade Commission hopes that these regulations will prevent certain debt relief agencies from taking advantage of American consumers. If consumers have any doubts regarding a debt relief company’s legitimacy, The Better Business Bureau provides a space on its website where people can investigate an agency’s past complaint record.

Source: Business West, “Red Flags: Separating Hype from Reality on Debt Relief.” Joseph Bednar, 15 March 2011.

Which credit card is right for me? FTC tips help consumers choose

Building off our last post highlighting the credit card difficulties experienced by Colorado residents in the Colorado Springs and Pueblo areas, we’d like to discuss an article from Money Matters, a website published by the Federal Trade Commission.

The article focuses on helping consumers choose the right credit card and emphasizes certain fees and terms of conditions which-if ignored-may cause serious financial troubles such as bankruptcy.

In order to figure out which credit card company offers the best deal for your current fiscal situation, the Federal Trade Commission recommends that consumers pay close attention to the following things:

• A credit card’s Annual Percentage Rate (APR), or the yearly cost of securing the line of credit. The higher this percentage, the more annual interest a card holder will have to pay on their credit charges. Companies are required to reveal a card’s APR before activating a consumer’s account.
• Grace periods, offered by some credit card companies, allows a user to evade certain charges by paying their full balance by its due date. Companies which don’t offer grace periods may require consumers to pay finance charges. If a company does impose a finance charge it is also important to discover how that charge will be calculated as this can make a large difference in your total bill
• Extra fees such as those charged to secure a cash advance or make a late payment can vary greatly from card to card. In addition, some companies will charge a membership fee, which they may refer to as a participation or activation fee. It is important to be aware how much these fees will cost, how often they will be charged to your account, and how they will affect the amount of credit available at any given time.

Credit policies can be very different depending on the company providing the card. All these fees and conditions often make it very confusing for consumers, especially first-time credit users, to choose a credit plan. However, knowing the terms of use which apply to your specific program is vital in helping consumers avoid becoming trapped by credit card debt.

Source: Money Matters, “Choosing Credit Cards.” Federal Trade Commission.

FTC Announces New Regulations that Protect Debtors

If you have watched even an hour of television or spent time surfing the internet in the past few months, you have surely seen the credit card debt consolidation adds promising to seriously reduce your debt. Some even claim that they can get rid of it completely. Some, but not all of these companies are scam artists who prey on debtors in need of assistance. It is near impossible to tell the difference between a legitimate debt relief program and a con artist.

New Federal Trade Commission regulations are in the works to help protect consumers. The new regulations will come in two phases; the initial changes are set to take effect on September 27, 2010. “The timing of these changes is important because the still struggling economy means that many Americans and families remain in financial peril,” said Brad Stroh the CEO of one reputable online financial resource. “Consumers will now have substantial and important protections in place to ensure that they are not taken advantage of by predatory debt relief providers.”

Phase one of the new regulations addresses how debt relief products are marketed to consumers. Debt service providers will be required by law to disclose the possible negative ramifications debt settlement may have and give accurate assessments of how long it may take before the consumer will realize possible results. Stricter regulations concerning factual misrepresentation will also be implemented. Debt consolidation companies will have to truthfully disclose the program’s success rate, procedures and material features.

Phase two will address the problem many debtors have faced when they pay an upfront initial fee and little to nothing is done afterwards to decrease their debt. On October 28, 2010, the debt relief companies will not be able to charge any fees until some progress has been made on their account in the form of either interest rate or principal reductions from creditors. 

Debt settlement can be a frustrating and complicated process when undertaken on your own. If you find yourself facing a large amount of debt, consult a bankruptcy attorney who can protect your interests and rights throughout the debt consolidation process.

Source: ConsumerAffairs.com “New Debt Consolidation Rules Take Effect Soon” Mark Huffman 9/22/10