Initiatives underway are calling for debt settlement to fall under the umbrella of debt collection style telemarketing rules. In addition, it will target many of the up-front fees that sustain debt-relief companies. According to the New York Times the proposal looks like this:

“The proposal calls for a regulatory switch that would apply telemarketing rules to debt relief companies that receive telephone calls in response to advertising, as well as to those that reach out to consumers. It would ban debt relief companies from charging fees before providing services; prohibit them from making misleading claims about how fast they can help or how much money they can save for someone, and from masking for-profit companies as nonprofit agencies.”

Many debt settlement businesses think that the FTC lacks an understanding of their business model and may end up hurting people that need their services.

One representative of the debt industry explained it like this:

”Our goal is to try to get people out of debt, but in a sense this would make us a creditor as well,” said Wesley Young, the legislative director for The Association of Settlement Companies, a trade group for the industry. He noted debt settlement can take two or three years, leaving companies providing lengthy services without taking in any revenue, and possibly then being left holding a bill if the consumer doesn’t pay.

A case involving numerous creditors and substantial debt could require numerous phone calls for settlements to be arranged, Young said. ”We think this will hurt the service we provide to the consumer and they’ll be less successful in the programs.”

What do you think? Is the FTC protecting the consumer or potentially wiping out the viability of the businesses that can help them?

Many debt negotiation companies are extremely nervous about the new proposed regulations, fearing that it will hurt their businesses and limit their negotiation services.

”Our goal is to try to get people out of debt, but in a sense this would make us a creditor as well,” said Wesley Young, the legislative director for The Association of Settlement Companies, a trade group for the industry. He noted debt settlement can take two or three years, leaving companies providing lengthy services without taking in any revenue, and possibly then being left holding a bill if the consumer doesn’t pay.

A case involving numerous creditors and substantial debt could require numerous phone calls for settlements to be arranged, Young said. ”We think this will hurt the service we provide to the consumer and they’ll be less successful in the programs.”

The proposed regulations would require debt negotiation companies to be completely transparent, sharing with clients the estimated time it would take to reach a settlement, the affects on their credit score, and the fact that a settlement might never be reached. (Check, check, and check). The debt negotiation company would also have to make clients aware of the fact that creditors will still call and will still harass the consumer. (Check).

The proposed regulations would also prohibit debt negotiation companies from charging any fees before services have been performed (check), and would not allow them to make unreasonable debt settlement estimates just to obtain clients (check).

These seem like realistic guidelines for any respectable and reliable debt negotiation company to follow, and a few of them currently are already adhering to similar guidelines, but many in the industry foresee serious challenges.

The intent of the rule may be well meaning, said Gerri Detweiler, a credit adviser for Credit.com and an expert on debt collection. But she is concerned that the rules might be ”so overreaching that nobody who provides a legitimate service would get into that business,” according to the New York Times.

The new debt negotiation regulations were initially spurred by the amount of complaints filed against companies charging upfront fees for services not yet complete. According to the Consumer Federation, who did the most recent study on consumer complaints, upfront fees were the greatest debt settlement complaint.

Many companies, like The Debt Settlement Program and Your Debt Negotiator, already offer programs that charge no upfront fees. Unlike most debt negotiation services, these companies are prepared for the changing industry and have stepped up their efforts to be ahead of the game.

For more information on debt negotiation regulations and how to get out of debt, visit.

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