The New Debt Settlement Rule - No More Upfront Fees
Effective October 27, 2010 debt settlement companies may no longer charge upfront fees. Although the debt settlement industry protested the verdict and fought the FTC about it, the final verdict is out, and looks irreversible.
The Better Business Bureau claims that they have received 3,500 complaints regarding debt settlement companies at the start of the recession. There have been crackdowns on some dubious debt settlement companies by a couple of state attorney general's offices.
It looks like a case of one rotten apple spoiling the whole bunch, as there exist legitimate and honest debt settlement companies, that have actually helped a lot of clients.
If found guilty of violating the new rules, for-profit debt settlement companies would be fined $16,000/per violation. And this does not extend to non-profit debt relief groups such as credit counseling agencies.
Debt settlement companies usually charge 15% of the total debt amount. The enrollment qualification is $10,000 and the aim is to slash that balance to more or less half. While negotiating their client's debt with the creditors, the companies spend money on operating costs, and because of the new rule, they are going to have to shoulder these costs, until they're able to settle the debt.
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