Call to regulate debt-relief companies

A lot of people are in over their heads financially these days. That's why when you hear about a company that can reduce your debt and keep your creditors off your back, it sounds good. But major consumer groups say that's just the problem. It "sounds" good. They say debt relief companies often mislead people about the results that can be expected and about the impact that such services can truly have on their credit.

That's why Consumer Federation of America (CFA) and 18 other consumer organizations are supporting an effort from the Federal Trade Commission (FTC) that would provide new restrictions on these types of companies. On Wednesday, the FTC is holding a public hearing in Washington to change the Telemarketing Sales Rule.

Supporters say the changes would protect debt-strapped consumers from unscrupulous practices by companies that offer to arrange payment plans with their creditors, get their interest rates or fees reduced, or settle their debts for pennies on the dollar.“These changes are crucial to prevent deception and ensure that consumers don’t pay for false promises rather than real results,” says Susan Grant, CFA’s Director of Consumer Protection.

According to the CFA, the rules would apply to solicitations by "for-profit" debt counseling, debt negotiation, and debt settlement services and would include:

1) A ban on requesting or taking fees in advance of achieving documented results for consumers. Currently, consumers are often asked to pay most or all of the fees upfront, leaving them in even worse financial shape if their debt problems are not resolved. Some companies have been accused by the FTC and state agencies of failing to produce any results for the most of the consumers who enrolled in their programs.

2) A requirement to disclose important information to consumers such as how much the service will cost, the amount of time necessary to achieve results, that not all creditors will necessarily cooperate, that consumers may be pursued by debt collectors or sued for the debt pending a resolution, and that their credit worthiness might be negatively affected.

The proposed rules would apply to both sales calls from debt relief services and calls that consumers make to debt relief services in response to advertisements on television and radio, in newspapers, on Web sites, and in other forms of general media. Consumer groups are also calling for a 90-day “money-back” cancellation period so that consumers can assess whether the program meets their needs saying " these rules will not only protect consumers but creditors who are owed money and legitimate debt relief services that actually provide real benefits to consumers."

A press release from CFA says these other organizations join in support : Consumers Union, Consumer Action, the National Consumer Law Center on behalf of its low income clients, the Center for Responsible Lending, the National Association of Consumer Advocates, the National Consumers League, U.S. PIRG, the Privacy Rights Clearinghouse, the Arizona Consumers Council, the Chicago Consumer Coalition, the Consumer Assistance Council, the Community Reinvestment Association of North Carolina, the Consumer Federation of the Southeast, Grassroots Organizing, Jacksonville Area Legal Aid, Inc., the Maryland Consumer Rights Coalition, Mid-Minnesota Legal Assistance, and the Virginia Citizens Consumer Counc