Guest Post by Robert Zangrilli
Robert Zangrilli is the CEO of Franklin Debt Relief, a debt settlement company based in Chicago, Illinois but servicing clients nationwide.
Before October 27, 2010, the common practice in the debt reduction industry was to charge to up front fees to consumers who used their services. Prior to this date, my company for example, charged its fee over the first 18 months of our client’s programs, which usually lasted 24 to 36 months. Earlier this year, however, the FTC ruled that charging fees in advance to settling a consumers’ credit card debt as a practice was harmful to consumers. Certainly this was true of many companies, especially those who collected the majority of the fees before providing any services and in fact, probably had no real intention of settling their clients’ debts.
This all changed effective October 27, 2010 when the FTC made effective an up front fee ban for debt relief services. More specifically, the FTC ruled that debt relief companies must now negotiate the term of at least one of a consumer's debts in order to receive compensation for its services. Not only must there be a written agreement of this settlement, but the consumer must agree to it and have made at least one payment to a creditor in order for a debt relief company to receive compensation for its services.
On top of these new rules regarding fees, there are also specific provisions in the new rule regarding the advertising and sales of debt relief services. First off, debt relief companies are now required to make specific disclosures to clients before enrolling them into their programs. Second, debt relief companies are prohibited from making deceptive claims about the success of their programs, including how long it will take to settle a consumer’s debts and how much a client will save. While these two new provisions may seem unimportant, these are perhaps the most significant parts of the new rule because it makes it clear what is a deceptive practice in the debt relief industry, which in turn will be used to justify FTC actions against unscrupulous actors.
I hope this article sheds some light on the protections afforded to consumers seeking debt relief services. As is true in most industries, there are still bad actors out there trying to skirt the law by setting up face-to-face meetings with consumers (the rule only sold over the telephone), so it is important that consumers continue to do their due diligence before enrolling with a company. BBB complaint record, how long a company has been in business, and TASC accreditation (the debt settlement industry’s trade organization) are both good indicators of how reputable a company is.
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