debt

FTC bans upfront debt settlement fees

A Web-based chat function that used some telephone technology would be essentially equivalent to a telephone call, Brown says. But if a consumer responded and signed up entirely through a website, the protections of the new rule likely wouldn't apply.

In-person solicitations also are exempt.

"There is an explicit exemption for face-to-face transactions in the TSR, so if they get together with the consumer face-to-face and give a sales presentation, that takes it out of the rule," Brown says.

The face-to-face exemption is useful for attorneys who may get clients through referrals and negotiate with credit card companies on the client's behalf, but don't use telemarketing to solicit business. There is no exemption for companies that arrange a partnership with an attorney and then use telemarketing to obtain customers.

"To the extent that attorneys are doing telemarketing covered by the rule, there is no attorney exemption," Brown says.

Consumers should be cautious

The rule took effect Sept. 27, except for the ban on upfront fees, which will be delayed until Oct. 27.

State laws that are stricter than the federal rule will still apply, according to Brown. For instance, some 20 states have a cap on the fees that debt settlement companies can charge. Those fee caps and other restrictions aren't affected by the new FTC rule.

Despite the new protections, Grant nonetheless offers a "bottom-line warning" that consumers should avoid any debt settlement company that charges upfront fees.

"Regardless of whether the company's business methods come under the telemarketing sales rule or not, I would suggest that consumers don't do business with any debt relief service that asks them to pay a fee in advance before the debt relief is actually achieved," she says. "Until and unless your debt problems are actually resolved, what are you paying for?"

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