No Up-Front Fees For Debt Settlement Companies

With credit card debt mounting in troubled economic times, an increasing number of consumers are looking for help that does not come in the form of bankruptcy. Many of them are turning to credit card debt negotiation services, firms that help consumers settle with credit card companies to pay off part of their debts in exchange for a release from the rest.

It’s a simple idea. A consumer’s credit card debt reaches the point where he can not pay it back, and he is left making monthly minimum payments. He has less income in this way, and less possibility of ever paying off the outstanding balance. He can do one of just a few things: seek bankruptcy relief, settle a payment plan with the credit card company, or try to settle the debt. Bankruptcy would destroy her credit and a payment plan would only reduce her monthly payments, not the balance.

The consumer may instead turn to credit card debt negotiation services. These companies will sit down with the credit card provider and negotiate a one-time payment (usually 40 to 60 percent of the balance). Customers, in return, are let go from the rest of their debts.

Regrettably, credit card debt negotiation services, a comparatively young industry, do not have a fantastic reputation. In the past, predatory firms charged excessive up-front fees while promising unrealistic settlements. They didn’t always tell consumers what they were getting into, often leaving them worse off than when they began.

But the FTC intervened in 2010 and passed the first full regulation of the debt negotiation industry. These regulations have really begun to separate the honest credit card debt negotiation services from the disreputable. At first they just applied to settlement companies that known as consumers directly via phone; now all negotiation companies are covered.

First, the Federal trade commission no more permits up-front fees. This means debt negotiation firms must reach settlement agreements before charging their consumers. This gives these companies an incentive to reach the negotiations they promise and prevents unrealistic promises.

Second, credit card debt negotiation services must inform consumers about specific things, including how long negotiations will take, just how much the process will cost, and the possible negative consequences of debt negotiation attempts. For instance, in order to compel credit card companies to settle, debt settlement companies sometimes tell customers to stop paying the credit card firms and rather put the money into a dedicated account that will later be used to pay off settlement amounts. Credit card issuers are more likely to bargain if they are not getting paid. Credit card companies normally will not bargain while you are still paying them. But if the credit card issuers refuse to negotiate, this tactic may backfire, leaving consumers owing the original debt in addition to the fees and interest that compiled in the meantime. Under the Federal trade commission rules, debt negotiation companies need to disclose this risk.

With these rules in place, credit debt services are a much safer bet for customers. Though some companies are still suspect, that’s true of any industry. Most follow these regulations and give consumers a way out of debt.