Contact: Linda Sherry, (202) 544-3088 | Ruth Susswein, (301) 718-2511

Washington, DC — Consumer Action applauds new Federal Trade Commission (FTC) rules issued today that offer consumers substantial protections against debt settlement company abuses.

Debt settlement companies, also called “debt relief” firms, will have to stop charging in advance on Oct. 27, 2010. These companies will no longer be able to collect fees until they have successfully negotiated a reduction in a consumer’s outstanding debts. In addition to covering sales calls to consumers, the rule will apply when consumers call these firms in response to ads.

The rule applies to for-profit companies that sell debt relief services over the telephone and via advertisements. Covered firms include for-profit credit counseling, debt settlement, and debt negotiation services that aim to reduce credit card or other unsecured debt.

“Too often consumers see their last few dollars disappear with the empty promise that their overwhelming debts will be reduced,” says Consumer Action’s Linda Sherry. “The FTC’s new rule ensures that companies that claim to reduce a consumer’s debt burden must make that happen before they get paid.”

Sherry, Consumer Action’s Director of National Priorities, was at the White House when FTC Chairman Jon Liebowitz and Vice President Joseph Biden introduced the advance fee ban. The Vice President’s Middle Class Task Force sponsored the event. “A strong middle class equals a strong America,” said Vice President Biden.

The FTC has ruled that no fees maybe collected until:

• a company successfully settles, or reduces, at least one debt
• there is a written agreement between the creditor and consumer that the consumer has agreed to, and
• the consumer has made one payment to the creditor under the new settlement terms.

Consumers will now receive key information upfront such as the cost of debt relief services, the length of time before borrowers can expect to see results, and what further credit damage can occur from using a debt settlement company. Click here to visit the Federal Trade Commission release on the rules.

“This new rule will protect the very consumers who can least afford to lose money to profiteers who falsely claim that consumer debts can be settled for only a portion of what is owed,” said Sherry.

Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A nonprofit 501(c)3 organization, Consumer Action focuses on financial education that empowers low to moderate income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.