Debt settlement laws has gotten more serious in protecting your finances, as FTC bans upfront fees altogether. Find out how the new laws affected consumers and debt settlement companies.
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Andy Masaki On 31st Jul,16
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debt settlement laws prevent scams

You could be wrong with regards to your debt relief provider’s probity and eagerness to bail you out of your financial crisis. This is because all the hard work put in by the consumer advocates to reign in the unscrupulous debt settlement companies and render their business inert has gone in vain. Why? Find out below.

A fresh challenge erupts

In 2010, a law came into effect to dispel the upfront fees charged by law firms and debt settlement companies for helping their clients navigate out of their debt woes - bankruptcy alternative and certainly a way out of the debt mess. However, these shady debt relief service providers have found a new loophole in the legislation and so, are getting around through the imposed restrictions to keep charging their customers a hefty upfront fees.

As a result, a fresh challenge has erupted for both the state and federal law enforcement agencies to contain the disease of malicious debt relief practice. According to the industry insiders, some shady debt settlement providers are offering a “new” service for which they are charging a fee. Basically, it is nothing but a novel way to fool the government and continue with their malpractices as usual. However, in this melee they have roped in some white collar professionals, particularly attorneys and lawyers to aide them in robbing the undiscerning poor folks.

States prepare for the offensive

Whenever a law firm is sued by the state attorneys for violating the fresh directive, they claim to enjoy exemption from such a piece of legislation as they are practicing law and offer legal counsel to their clients on matters related to bankruptcy and other allied subjects. In this case, even debt settlement consultations come into their legal ambit and so, claiming it to be their usual attorney-client service pact, they say the law doesn't ban them from charging an upfront fees for their services.

A case in point is, North Carolina’s attorney general, Roy Cooper who won a judgement in January 2012, in a lawsuit filed against a certain law firm, known by the name, The Consumer Law Group. Upon judgement, this law firm agreed to refund or stop collecting $1.2 million in service fees from the North Carolina’s residents and even abandon all its debt relief operations in that particular state.

Upfront fee made to rest in peace by the FTC

The Federal Trade Commission’s (FTC) response to hundreds and thousands of complaints against the debt relief service providers for charging them hefty upfront fees and that too without no fruitful results at the end, was to amend the Telemarketing Sales Rules. Since October 2010, the FTC has banned all for-profit debt settlement companies, using telephone to sell their business, from asking for an upfront fee, unless they have negotiated a proper settlement.

In addition to this law, a number of states like North Carolina, Illinois and West Virginia have formulated laws to ban the practice of asking for upfront fees for any debt relief service provided, whatsoever.

As expected by many, FTC’s new law threw many debt settlement companies out of business but the more stubborn ones went into hiding, only to manipulate any loophole in the law for their selfish benefits.

Ever since the new law banning upfront fees came into effect in October 2010, the debt settlement industry has gone into a continuous process of reformation. Some of the remarkable developments of the trend are as follows:

  1. Quick response: Debt settlement companies were prompt in their response to the new law by revamping their business operations or relocating themselves in order to avoid inviting the ire of the state law enforcers.
  2. Spot scams: An increasing number of State Attorney Generals have started to go after the debt relief as well as debt settlement companies and file suit where it was witnessed that the law has been violated.
  3. Lawyers penalized: State bar associations and other professional licensing agencies have cracked down upon lawyers who robo-signed debt settlement contracts and collected fees for services they never provided.

New debt settlement laws - How did it affect the credit card debt industry?

The Debt Relief Services and the Telemarketing Sales Rule came into effect from October 27,2010. Let’s look at how FTC’s attempt to bring transparency in the debt industry affected consumers and debt settlement companies in the last 5 years.

Effect of credit card debt settlement laws on consumers

  • Greater powers for consumers since they don’t have to pay hefty advance fees
  • Now, they have full control over the funds kept in the dedicated account
  • Now, they can withdraw funds from the account or discontinue the program anytime
  • Now, they know how much to save before debt negotiators make an offer for settling debts
  • Now, they are aware of the harmful consequences of not making timely payments

Effect of the new laws on the credit card debt settlement companies

  1. Thousands of fraudulent debt settlement companies selling services over the phone have vanished
  2. Companies are prohibited from misleading people about their services
  3. Their profits have declined since they can’t charge thousands of dollars without reducing debts
  4. They can’t charge upfront fees
  5. They can charge fees only after negotiating or settling one account
  6. They need to disclose how long it would take to pay off debts
  7. They have to create a dedicated account where consumers would save fees and savings for settling debts

The good and the bad

The amended Telemarketing rule and heightened public awareness of the woes associated with debt settlement companies were instrumental in driving down the number of federal actions initiated against operators. In 2011, the number of cases handled by the FTC dropped from 35 to just six cases against debt relief companies.

Sadly, people already in contract with such shady debt settlement providers are struck with their predatory business practices.

The FTC bans debt settlement companies for breaking rules

Time and again, the FTC has warned debt relief companies against charging upfront fees, misleading debtors about the results of their debt settlement programs. Any company (this includes law firms offering debt relief services) that breaks the rule will get into trouble with the FTC.

In spite of the repeated warnings, some companies have gone ahead and violated rules to maximize profits. The FTC has taken strict action against these companies either by heavily penalizing them or by limiting their business activities.

But, some companies have broken all the limits. They are so atrocious that FTC has banned approximately 300 companies from the debt industry and filed a lawsuit against 500 companies. Check out the names of some companies that have been expelled from the debt industry:

  1. Advanced Management Services NW LLC
  2. Advocates for Consumer Affairs Expert, LLC
  3. Debt Resolution Specialists Inc.
  4. Fidelity Legal Services LLC
  5. First Financial Asset Services, Inc.
  6. Direct Results Solutions, LLC
  7. National Financial Assistance LLC
  8. Rapid Reduction Systems, LLC
  9. Paramount Asset Management Corp.
  10. My Success Track, LLC

You can get details about the other banned credit card debt settlement companies from here.

What’s the bottomline?

Follow the rules or be ready to close your business.

FTC compliant companies such as Oak View Law Group always made it a point to follow all the debt relief laws. It follows a transparent methodology and offers a No result Refund Policy to its clients. Perhaps these are the reasons why OVLG is one of the credible law firms in the country, and it is determined to offer the best services in the future too.

Don’t miss out - Debt settlement solves your debt reduction needs fast: True?

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