Despite the new rules, consumer groups warn that plenty of illicit debt-settlement businesses continue to thrive on the Internet, uncontrolled by the government. "The amount of consumer harm in this issue is unbelievable," says Christopher Viale, CEO of Cambridge Credit counseling, a nonprofit that tries to arrange low-cost debt resolutions for consumers. "There's $40 billion to $50 billion wrapped up in these types of programs, and there is only a 2% success rate."
Companies seeking upfront fees certainly exist. DailyFinance called one company, chosen at random, that advertises its services on Twitter. In a phone interview, a representative at a debt-settlement firm in Arizona said the company could settle credit-card debts for as low as 20 cents on the dollar, that it guarantees its services and that it would need an advance fee of $5,000 to start the settlement process. However, under the new rules, companies are prohibited from doing all of those things on the phone.
The Latest Loopholes
Debt-settlement companies offer to help people work their way out of heavy credit-card debts by bargaining with the credit-card companies: They agree to set up reasonable payment programs with the consumers in return for reductions in total debt. The threat is that the credit card companies will get nothing if they don't cooperate, but industry figures indicate these settlement companies rarely are successful in winning concessions from the big banks.
But FTC regulations specifically state that legal fees are not exempt from the regulations unless the sales pitch is made in person by the law firm, and not over the phone. As a result, some debt-settlement firms are now sending notaries and other officials to meet potential clients in Starbucks and Dunkin' Donuts outlets to get around that restriction, Viale says. The Association of Attorneys for Debt Resolution didn't return a call requesting comment.
Thinly Disguised Marketing
In another twist, some companies send text messages inviting debtors to participate in a survey about how to get out of debt. They then claim they're not telemarketing, but merely conducting a a survey.