Ethics aren't just important to debt management companies -- they're a requirement. The Federal Trade Commission sets ethical guidelines for the operation of debt management companies to provide protection for consumers who are desperately seeking a means of settling financial troubles and getting out from a large amount of debt. Ethical guidelines can help improve the image of debt management companies and create transparency about the debt management process.
Up-front Charges
The government has decided it's unethical for a debt management company to charge the bulk of its fees as up-front costs before any services are performed for the consumer. The Federal Trade Commission's Telemarketing Sales Rule prohibits a debt management company from charging a consumer any up-front fees before the company settles or takes steps to reduce a consumer's debt. This keeps a debt management company honest because the firm can't simply rake in a large account set-up fee and then lag behind on helping a consumer with his debt.
Disclosure Requirements
A debt management company must disclose the price and terms of service in writing prior to your agreement to become a client. The company must also inform you how long your debt management plan will take before you see measurable results in your level of debt. This information is required so you can make an informed decision on the company's services and determine what is best for your financial situation. You could end up in a potentially worse financial situation if you accept a debt management offer without knowing all the relevant facts.
Cost and Credit Damage
A debt management company may suggest you stop making payments to your creditors while your account is created. The company is required to inform you of the negative consequences of stopping payments including damage to your credit and increased collection practices. A debt management company must also inform you of the total cost of your debt management plan. This information is extended so you can determine if a debt management plan is truly saving you money or if paying off your creditors individually is more cost effective.
Penalties for Violations
A debt management company that violates any of the requirements laid out by the Federal Trade Commission faces a stiff penalty. According to Debt Management.net, a debt management company may incur a fine of up to $16,000 for each separate offense. Additional penalties include loss of license to operate as a debt management company at the state level, as well as civil lawsuits from consumers who's finances and credit were affected by the company's negligent business practices.
0 comments:
Post a Comment