First Phase of New FTC Rules to Curb Debt Settlement Abuses

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Will consumers in financial distress finally be protected?

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The conduct of the offending debt settlement companies has to be monitored and the rules must be enforced. Consumers in financial trouble still need guidance to help identify and understand all of the various debt relief options appropriate to their circumstances.

On Monday, September 27, the first phase of the Federal Trade Commission’s (FTC) revised Telemarketing Sales Rule will go into effect, requiring hundreds of debt settlement companies to make new disclosures to consumers and prohibiting them from misrepresenting their services.

“The debt settlement industry has been preying on consumers in financial distress for years. While the new FTC rules are an important first step, it remains to be seen if they’ll protect consumers,” notes Chris Viale, CEO of non-profit Cambridge Credit Counseling. “The conduct of the offending debt settlement companies has to be monitored and the rules must be enforced. Consumers in financial trouble still need guidance to help identify and understand all of the various debt relief options appropriate to their circumstances.”

For the vast majority of consumers facing financial difficulty, the debt management services and plans offered by non-profit credit counseling agencies are more beneficial than debt settlement. Credit counseling agencies typically earn their non-profit status by offering free educational services and support that can help consumers regain control of their financial well-being, whether or not they become clients. A reputable credit counseling agency will perform a comprehensive analysis - generally at no cost - to help diagnose the root cause of the financial difficulty. Then, a certified counselor will work with the consumer to create effective, realistic solutions, such as a debt management plan, that address the specific situation.

The FTC’s actions are the latest attempt to halt abusive practices in the debt settlement industry. In 2009, the Better Business Bureau received more complaints about false or misleading debt settlement company advertisements than any other, which makes it easy to see why debt settlement is already an illegal practice in twelve states, including Arizona, Georgia, Hawaii, Louisiana, Maine, Mississippi, New Jersey, New Mexico, New York, North Dakota, West Virginia and Wyoming. New York State’s Attorney General, Andrew Cuomo, has already filed lawsuits against two debt settlement companies, and other attorneys general have done the same.

The second and final phase of the FTC’s new rules go into effect on October 27, and include an advance fee ban that will prohibit settlement companies from charging a fee before they settle or reduce a customer’s debt. “Debt settlement companies will be scrambling to get as many consumers to commit to up-front fee payments as they can before October 27th,” warns Viale. “Until then, consumer beware.”

About Cambridge Credit Counseling
Cambridge Credit Counseling Corp. is a professional housing and credit counseling agency dedicated to improving the financial literacy of young adults, and to providing financially distressed Americans with education and debt management services appropriate to their needs. Visit Cambridge Credit Counseling Corp. online at http://www.cambridgecredit.org. To learn more about Cambridge Credit Counseling’s community initiatives, please visit http://www.youtube.com/CambridgeCredit.

Media Contact:
Emily Mayrath
Montieth & Company
212.284.7626
emayrath(at)montiethco(dot)com

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