A new regulation goes into effect today, potentially limiting the profitability of debt settlement companies. These companies can no longer ask for up-front fee payments from customers wishing to settle debt; clients need to pay only after the companies provide results.
In other words, for-profit debt settlement companies, including those masquerading as non-profit entities, must speak with your creditors and present your debt repayment plan before you make your first payment. In the current situation, these companies collect the payment in advance to make sure you can cover your debt before reaching out to the creditors to negotiate terms and formulate a plan.
While this sounds like a good rule designed to protect consumers from ineffective debt settlement companies, there are holes in the regulation that allow most companies to operate as before, often taking payment in advance and never delivering results.
The new regulation only applies to debt settlement companies selling their services over the phone. If you visit a debt settlement company in person, or if a representative comes to your door to explain the process, they can still collect the up-front fee. Additionally, attorneys are exempt from the new rule, and many debt settlement companies qualify as attorneys.
Not every debt settlement company is nefarious, but for those struggling with debt these highly-advertised companies seem like the only option. Sometimes speaking with creditors directly can produce results, and many Americans never bother to try to negotiate before giving up. Failing that, the National Federation of Credit Counselors is a non-profit organization that can help pair consumers with a legitimate, helpful debt counselor.
Federal Trade Commission press release, July 29, 2010
Published or updated October 27, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke, also known as Flexo, has contributed to PC World Magazine, US News, Forbes, and other publications. 
![739027758_ac83c599f4_o[1]](http://www.consumerismcommentary.com/uploadedfiles/wp-content/uploads/2010/10/739027758_ac83c599f4_o1-250x250.jpg "Your Opinion: Is Debt Slavery?"){kind=small}
{ 5 comments… read them below or add one }
US Government rule-making based on Congressional edicts; you said… “While this sounds like a good rule designed to protect consumers from ineffective debt settlement companies, there are holes in the regulation that allow most companies to operate as before, often taking payment in advance and never delivering results.” … and you were expecting ….what?
Sorry, I’m just a tad cynical about our government’s abilities and motives right now.
It was at least a start but you’re right….they’ll always be ways around regulation if a company really tries.
I think every debt settlement company IS nefarious.
What is amusing is that you hear so many ads from debt settlement
companies on right wing talk radio shows.
We went to the National Credit nonprofit place – their advice was “make more money.” Offered no help or sensible advice whatsoever. Their payment plan would have made us in the negative income category too.
It seems there’s a way around every government edict. They think they cover all of the bases, but greedy people find ways to go around everything.