By FPA member Eric Toya, CFP®
Last Updated: November 1, 2010
As the saying goes, desperate times call for desperate measures. And in these difficult economic times, many are finding themselves falling further and further into debt, desperate for some relief. Unfortunately, the very companies that they turn to for help often turn out to be a scam, taking payment without proving any debt relief. For many, desperate measures turn out to be deceptive measures.
Fortunately, a new set of debt relief laws have recently taken effect to protect consumers from such unscrupulous practices. Beginning on October 27, 2010, Debt Relief Companies are prohibited from collecting a fee until a set of criteria towards debt relief has been achieved. Fees may not be collected until:
- At least one of the consumer’s debts is settled or has its terms altered
- A settlement agreement, debt management plan or other agreement between the consumer and the creditor is in place; and
- At least one payment to the creditor has been made within the terms of the agreement negotiated by the debt relief company.
Unfortunately, the new law only applies to consumers who enroll in a debt relief service after the law is in effect. No relief has been offered to consumers who may have been victim to the abusive practices prior to October 27, 2010.
The new law includes additional provisions, including restrictions on debt relief companies that require consumers to set aside funds in a dedicated account. The account may only be required if the consumer controls and owns the funds, including the interest, the right to withdraw and the account is maintained at an insured institution. Additionally, the debt relief company may not own, control, receive referral fees from or have any affiliation with the financial institution administering the account.
Learn more about the new debt relief rule in the guide issued by the Federal Trade Commission.
FPA member Eric S. Toya, CFP®, is Vice President of Wealth Management for Trovena, LLC. Toya graduated from the University of Southern California with a BS in Finance and Accounting.