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FTC takes on debt-settlement firms

Mannequin holding red word Debt

TEXT OF STORY

Steve Chiotakis: As unemployment goes up, so do the number of people having trouble paying off their debts. Now the Federal Trade Commission's proposing new rules to crack down on unscrupulous companies promising to negotiate a better deal for the debt-strapped -- for a fee. That's the subject of a public forum at an agency today, as Marketplace's John Dimsdale reports from Washington.


John Dimsdale: About two thousand firms sell debt relief services, and the FTC's Eileen Harrington says they rarely deliver on their promises.

EILEEN HARRINGTON: If they charge you money up front with the promise that they're going to reduce your debt and reduce your payments, it's a scam. Don't fall for it.

The FTC is considering prohibiting companies from charging a fee until they actually deliver on their promise to reduce a customer's debts.

David Leuthold is with the Association of Settlement Companies. He says it usually takes two to three years to reach a deal with creditors.

DAVID LEUTHOLD: To suggest that a company can sustain itself financially before settlements are made clearly would not be possible for a lot of companies.

But consumer advocates say prohibiting payment of up-front fees to debt settlement companies is no different than a congressional ban on advance payments to credit doctors promising to clean up bad credit reports. The proposed rules become final sometime next spring.

In Washington I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.
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Hi...I am considering "Debtfree Associates" for my credit card debt. what is your opinion of these companies? they want to charge 200 to set up the account and $75 per month maintenance plus another 13% overall. They say they can get the cc companies to cut the debt in half sometimes. I am very conflicted about not paying these debts while the "savings" accrue to settle later. The thought of being harrassed by telephone calls and possible litigation is scary. Some say it is worth it, that the banks get back all the money and more by selling the note and the settlement money from me.
What are your thoughts? please do not put this on the air as it is very embarrassing and painful

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