FTC announces new rules for debt settlement companies and other firms

By Peggy Stillwell on Aug 3rd, 2010

For-profit debt settlement companies, along with others that try to provide consumers relief from their bills, are going to have to follow new rules starting October 27.

The Federal Trade Commission's rule will prohibit debt settlement companies from collecting a fee until they have helped a consumer deal with at least one of their debts. That would include renegotiating terms, reducing the amount owed or finding a settlement solution.

"At the FTC we strive every day to make sure America’s middle class families get straight deals for their dollars," FTC Chairman Jon Leibowitz said.

A number of states have looked at establishing their own rules for debt settlement companies. For example, the Illinois Legislature recently passed a law that would limit the ability of these firms from charging up-front fees for their services.

While debt settlement can affect a credit score, it does so at a reduced level when compared to an option like bankruptcy. While both options could make it difficult to secure a loan in the future, they will allow a consumer to finally deal with the amount they owe to lenders.

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