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September 30th, 2008

FTC Holds Debt Settlement Workshop

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On September 25th, the Federal Trade Commission (FTC) held a workshop titled “Consumer Protection And The Debt Settlement Industry”. Video and transcripts of the workshop are available on the FTC’s website. The primary focus of the workshop was to discuss the use of debt settlement companies by consumers and what can be done to protect consumers from deceptive marketing practices. Anyone considering debt settlement would be well served by spending an hour or so scanning thru the transcripts.

The 2nd panel covered the following topic, “The For-Profit Debt Settlement Industry Today: Perspectives on Current Industry Trends and Practices”. The speakers, some representing debt settlement companies, did a good job of covering some of the more common issues within the industry.

Credit Score Impact

Several of the speakers pointed out that current marketing and sales practices mislead consumers into thinking there will be little or no impact to their credit score when going through the debt settlement process. In reality, if you stop making payments to your creditors when attempting debt settlement, you will see your credit score drop.

Debt Settlement Fees and Costs

Some debt settlement companies do a poor job of explaining how their fees are paid. How much and when you pay the debt settlement company can have a direct impact on your success with debt settlement. Many firms are moving to a front-loaded fee structure where upwards of 60% of the money you are setting aside for debt settlement in the first 6-18 months goes towards paying the company you are working with. This leaves very little to use for settlement and ensures the company receives most or all of their fee prior to seeing any results.

Stop Paying Your Creditors

Some debt settlement companies will instruct you to stop paying your creditors. According to the speakers in the workshop, this is not proper advice. Those who benefit from debt settlement are those who are already unable to meet the minimum payment requirements of their creditors and are falling behind. If you are current on your accounts and have the financial means to pay the minimums on your accounts, debt settlement may not be the best option for you.

Important Omissions

Many debt settlement companies also tend to underplay the likelihood of your creditors taking legal action against you prior to finishing the debt settlement process. The longer the debt settlement process, the more likely you will be sued by your creditors and potentially have your wages garnished.
The fact that forgiven debt can also be taxable is very seldom mentioned in marketing material and sales pitches.

Collection Calls

Many debt settlement companies claim in their marketing messages that they can put an end to harassing collection calls. While a debt settlement firm may be able to assist in reducing the number of collection calls you receive, there is no guarantee that they can prevent collection agencies or creditors from calling you directly.

There are plenty of other issues with the current debt settlement industry that are covered during this workshop. If you are considering hiring a debt settlement firm, the information from the workshop will be helpful in navigating through the confusing marketing and sales messages.

Sources:
Federal Trade Commission

About the Author:
Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA), a membership based organization helping those who have suffered a financial crisis restore their credit and reinsert themselves back into the credit-driven economy. Prior to founding CAA, Chris had successfully helped consumers achieve their financial goals as both a Financial Advisor and the Vice President of a Mortgage Origination Firm.

Post written by Chris Rocks

2 Responses to “FTC Holds Debt Settlement Workshop”

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  • Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score. Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management. He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others. He can be contacted by visiting his personal site, GoodCreditLiving.com.

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