The Federal Trade Commission has come down on debt settlement companies in a ruling which will prevent firms from charging customers an up-front fee for their services. The ruling also requires debt settlement companies to tell how long the debt settlement will take, what the total cost will be and what potential negative effects come from the settlement.
Many consumer advocates are cheering the move by the SEC including Scott Crawford, CEO of DebtGoal. Crwaford said in an emailed statement that he believes debt settlement can be a viable alternative to bankruptcy for a “narrow segment of borrowers”, but that debt settlement firms have dramatically misrepresented what the services can do for consumers.
“Settlement does have a legitimate place in the spectrum of debt solutions,” Crwaford said, “but it should be viewed as a close kin to Chapter 13 bankruptcy—an option to be taken only by those who truly can’t pay.”
Crawford said that he believes that the new FTC regulations along with the Schumer Debt Settlement Consumer Protection Act which is currently working its way through congress will likely end debt settlement firms in their current firm. He noted that debt settlement firms are heavily reliant on up-front fees and that consumers will be far less likely to choose the option when they are made aware of the time, costs and credit damage involved.
Crawford added, “The new changes to pricing and marketing will help. Debt settlement isn’t a magic panacea for any borrower feeling stressed about debt, and too often escalating finance charges, fees and suits by lenders left borrowers owing more than initial balances even after paying thousands and destroying their credit ratings.”
“The success of these questionable marketing practices points to the reality that heavily indebted Americans are desperate for solutions to help them deal with their debts. What will rise out of the ashes of debt settlement? Credit counseling will come forward as a strong solution, as will the emerging category of DIY debt management.”
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