Federal Regulations for Credit Card Debt Relief

With the current economic downturn, many American families have found themselves burdened with credit card debt they are unable to repay. To ease this burden the Federal Trade Commission (FTC) set out a new series of rules that are designed to regulate the activities of debt relief companies.

Advance Fees

Debt relief companies are prohibited from charging fees before providing any debt settlement services. Specifically, a company can only charge a fee after an individual's debt has been negotiated or settled. Alternatively, a fee may be collected only if the customer agrees to one in a written agreement or if the customer has made at least one payment to the creditor as a result of the debt settlement agreement. Furthermore, a debt relief provider's fees must be of the same percentage on all of the customer's debts.

Dedicated Accounts

All dept settlement agencies are allowed to require their clients to set aside a dedicated account geared specifically for debt repayment. However, such a dedicated account must be at a federally insured institution. Furthermore, the client may still have the right to withdraw funds from the dedicated account. The debt relief agency may not have any affiliation with the financial institution the account is held, and such financial institutions may not collect any fees on behalf of the debt relief agency.

Telemarketing Disclosures

Any debt relief agency must disclose a series of disclosures to the client before any debt relief settlement is made. Disclosures must include the cost of the service provided, how long the customer must use their services to clear their debt, and any adverse financial effects that may arise from using a debt relief agency. The debt relief agency must also represent themselves in a true manner. For example, they cannot pose as a nonprofit organization, governmental body or charitable institution.

Coverage

The new rules covered for-profit debt relief services, specifically telemarketers engaged in debt settlement, debt negotiation and credit counseling services. The new rules came into effect on two dates. Rules regarding telemarketing disclosures and misrepresentations came into effect Sept. 27, 2010, where rules covering advance fees and dedicated accounts came into effect Oct. 27, 2010.