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Sorting Out Debt-Relief Promises

The Wall Street Journal just published a new article that talks about the debt relief world. Here is an excerpt and a link to the full article.

The regulations, which extend the TSR rules to cover calls consumers make to firms in response to debt-relief ads, also will ban companies from misrepresenting what they can do.

The most significant change outlaws for-profit companies that sell debt-relief services over the telephone from charging fees before they settle or reduce credit-card or other unsecured debt. That rule takes effect Oct. 27.

Typically, a consumer pays into an account for multiple months before the debt-relief provider begins negotiating with creditors. The account is accumulating money that will be used to pay off the negotiated claims as well as cover the debt-relief company’s charges.

Most companies charge consumers a fee of about 15% of their total debt and start to withdraw chunks of that fee before work actually begins. For a person with $20,000 in debt, fees would total about $3,000, generally over a three-year period or the time it takes to settle all the claims.

“Too many of these companies pick the last dollar out of consumers’ pockets, and far from leaving them better off, push them deeper into debt, even bankruptcy,” says Jon Leibowitz, chairman of the Federal Trade Commission, in a statement describing the new rules. – Source

Read the full article here.

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Steve Rhode
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