Starting today, for-profit firms that sell debt relief services to consumers over the phone, such as credit counseling, debt settlement or debt negotiation, must comply with new provisions in the Telemarketing Sales Rule, or TSR. Three amendments to the TSR taking effect Sept. 27, 2010, will:
- Require debt relief companies to make specific disclosures to consumers.
- Bar debt relief firms from making misrepresentations about their services, including success rates or nonprofit status.
- Extend the Telemarketing Sales Rule to cover calls made to the firms in response to debt relief ads.
The rules do not apply to nonprofit firms.
New required disclosures
Before a consumer signs up for the service, the debt relief provider must disclose "fundamental aspects" about the service, according to a fact sheet from the Federal Trade Commission. These disclosures include the projected length of time to see results, the cost of the service, the potential negative consequences of using the service, and if applicable, key information about "dedicated accounts" in which the consumer would stash money for fees and payments to creditors. Firms are barred from requiring dedicated accounts unless five conditions are met:
- An insured financial institution maintains the account.
- The consumer owns the funds.
- The consumer can withdraw these funds without penalty at any time.
- The debt relief company doesn't control or have an affiliation with the financial institution.
- The debt relief firm doesn't exchange referral fees with the financial institution.
What does it all mean? Debt relief providers that solicit over the telephone will have to be transparent about their services. Failing to make the required disclosures or misrepresenting the services to be performed would constitute a violation of the TSR.
The meatiest amendment to the TSR doesn't take effect until Oct. 27. At that point, debt relief firms will be prohibited from charging a fee before services are rendered. Basically, consumers will have to see some success with the plan before they have to pay fees for it.
Talk back: Would you ever use a debt relief firm?
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