Debt settlement is a tedious process but fortunately there are multiple debt settlement companies out there for the ease of such customers who don’t want to go through the stressful journey. It’s a fact that these companies provide the kind of relief you want from your financial distress but if not regulated properly, they can pose significant risks too. Debt settlement companies in the US are regulated on both federal and state level. The agencies oversee the operations of the companies and ensure complete consumer protection against fraudulent or unfair practices.
Before beginning your settlement journey, it’s important that you learn about the regulatory bodies in detail for a smooth, seamless and safe debt settlement. Let’s break them down for you today;
1-Federal Trade Commission
The FTC is the main federal agency that’s responsible for regulating debt settlement companies. They ensure the enforcement of consumer protection laws against fraudulent businesses, unfair practices and deceptive methods. Key responsibilities of the Federal Trade Commission include;
The FTC is responsible for enforcing TSR which was introduced in the year 2010. It includes strict rules for debt relief companies. As per the rules, no debt settlement company can charge any fee upfront before resolving or settling the debt with the creditor. The company must disclose all the details of the program to the consumer including the negative consequences of settlement. Lastly, the company cannot misrepresent their services.
The FTC is also responsible for investigating the complaints of the consumers. They have the right to take legal actions when required. From civil penalties to lawsuits, they can take any such steps when a company violates the law and tries to scam a consumer.
2-Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau is another major regulatory body that oversees the operations of debt settlement companies especially in the case of a financial product or service. The key role is to supervise the major participants of the debt relief industry. The CFPB examines their business practices and ensures that they are fair. Moreover, this agency has the power to regulate consumer complaints and issue civil penalties against agencies that aren’t doing their jobs properly. If a company engages in any unfair or deceptive business practices, the CFPB can take legal action against them too.
As a consumer, you can directly submit your complaint to the CFPB. It’ll eventually lead to investigations and if proven guilty, the company can face lawsuits and other such strict actions.
3-State Attorney General And State Regulators
Every state comes with its own regulatory bodies and laws in order to regulate the operation and practices of debt settlement companies. They include;
- The State Attorney’s General
- Financial Services Department
- Licensing Boards and Banking Department
- Consumer Affairs Department
The state regulations commonly include;
- Debt settlement companies should hold a proper license to operate in the state.
- In some states, there’s a fee cap. Companies can only charge a certain amount of fee for their settlement services.
- In order to prevent any false or deceptive claims, state’s regulate the way companies advertise themselves.
- As an insurance, some states require the settlement companies to post a financial bond in order to protect the consumers from any financial harm.
4-Better Business Bureau (BBB)
The Better Business Bureau isn’t a government agency but it’s an online platform just like other industries like the American Fair Credit Counsel. These platforms help people by providing them original and legit reviews by other customers regarding settlement companies. Such platforms help in encouraging the debt relief companies to adhere to the ethical standards.
5-US Department Of Justice
The DOJ isn’t specifically for the regulation of debt settlement companies but it does play a crucial role in monitoring criminal behavior or fraudulent practices. The department has the authority of fraud prosecution where they can bring criminal charges to settlement companies that are using fraudulent practices. The DOJ also works with the CFPB and FTC to ensure fair practices of debt relief companies.
How Can Consumers Protect Themselves From Fraudulent Companies?
Even though there are proper government agencies that exist to regulate debt relief companies, you should take some safety measures yourself too. If you are considering using a debt settlement service, here’s what you should do;
1-Don’t Opt For Companies That Charge Any Upfront Fee
No debt settlement company can charge any upfront fee. The customers are only obliged to pay when the debt has been settled with the creditor successfully. If a company is asking you to pay a “small” fee before the negotiation starts then it’s probably a scam and you should avoid working with them.
2-Verify The Licensing
Ensure that the company you are choosing is licensed and verified. A professional debt settlement company will never operate in a state without a proper license. If the company isn’t showing you their license then it’s a red flag and you need to refrain from them.
3-Always Read Your Contracts Carefully
When using a third party debt settlement service, you should always read their contract in detail. Pay attention to everything mentioned in the contract including the fee, the timeline required, the possible consequences of the settlement and the legal side of debt settlement. Once you are clear with all the clauses mentioned in the contract, only then you should proceed with the settlement company.
4-Check Through Online Platforms Like BBB
Online reviews won’t tell you everything about a company and its services but at least, it’ll give you some idea whether you should trust them or not. Especially platforms like the Better Business Bureau are a great place where you can easily read online reviews of settlement companies. It’s a legit platform and you can trust whatever you see or read there.
5-Consult A Credit Counselor
If you aren’t sure if debt settlement is the best option for you and your circumstances then it’s best to consult a credit counselor or a financial advisor. With professional consultation, you can explore other options too.
Overall Verdict
Most of the debt settlement companies out there are regulated by federal and state authorities. When it comes to the most important federal regulators, you can trust the CFPB and FTC. On the other hand, the state government also plays a very vital role when it comes to the licensing and enforcement of debt relief companies. The regulations can help protect you against unfair or deceptive business practices by these companies. Moreover, they ensure that all the consumers get fair treatment during such critical financial times.
All you have to do is to understand the regulatory landscape, know your rights and choose the right company to work with. Hiring the right debt settlement company is a time taking process and you shouldn’t ever rush it. Do your due diligence, use online platforms like Yelp, Google and BBB to learn as much as you can about the company. Most importantly, never pay any upfront fee to any company without ensuring that your debt actually has been resolved or settled with your creditor.
FAQs
Q1.How To Tell If A Debt Settlement Company Is A Scam?
Deciding which company to trust and which not to is a difficult decision especially if this is your first time trying to find a reliable company. However, there are some noticeable red flags that you need to watch out for;
- The company demands upfront fee before settling your debt
- The company makes “too good to be true” promises and claims guaranteed results
- The company pressurizes you to stop communicating directly with your creditor
- The company isn’t clear about their contract and isn’t keeping things transparent.
Q2. Is It Possible To Get Your Money Back In Case Of A Scam?
Yes, it’s possible to get your money back after a scam. It’s just that the case would first be investigated properly by the related authorities and then they might issue a refund for you. It’s important that as soon as you get scammed, you inform the authorities on time with proof for immediate action. For example, if you are expecting to get your money back then try the CFPB, FTC or your state attorney general.
Q3. Is Debt Settlement Better Than Bankruptcy?
It completely depends on your financial situation, the amount of debt you owe and your creditor. If you feel like your creditor may accept a settlement offer then yes debt settlement is the better option instead of filing for bankruptcy. However, as debt settlement comes with its own risks like your creditor can sue you for the missed payments too. So if you don’t want to get into any such legal troubles then bankruptcy is the better way out.
Looking for a reliable debt settlement company that offers the most professional debt settlement services? Try Mountains Debt Relief today! We have been in the industry for more than a decade now and we guarantee you complete customer satisfaction like no other!