FTC: No more upfront fees for companies to help consumers

The Federal Trade Commission adopted rules on Thursday that prohibit companies from charging upfront fees for promised elimination of credit card balances and other consumer debt.

However, the FTC regulations have big holes, and some analysts say Nevadans may need to pursue complaints under a new state law on debt collection services.

The FTC rule governs for-profit companies, not nonprofit groups that perform the same services for fees, but Nevada's law applies to both, officials said Thursday. The state Financial Institutions Division is completing rules under the Uniform Debt-Management Services Act, which Sen. Terry Care, D-Las Vegas, pushed through the Legislature in 2009.

While the FTC rules govern consumer responding to advertisements and telemarketing calls, the Consumers Union reported that the federal rules don't govern in-person sales or to Internet-only sales.

The Better Business Bureau gets numerous complaints about Southern Nevada debt settlement services base, and many of those transactions are done by Internet, said Sylvia Campbell, chief executive of the Las Vegas bureau.

"They make big promises and then don't do anything," Campbell said.

She read through complaints from consumers who paid $5,000, $2,600 and $700 to these organizations but received no benefits.

"Some of (the consumers) are desperate," Campbell said.

A couple that paid $5,000 for assistance was left without any help to deal with their debt woes.

"We're being sued right and left by our creditors," they said in a complaint.

Campbell welcomed the new FTC regulations but said the federal agency may be unable to quickly resolve the flood of complaints she expects it to receive.

"Something has got to help, because this is way out of line," Campbell said.

The Attorney General's Bureau of Consumer Protection can sue or criminally prosecute debt settlement services for deceptive trade practices, but the bureau cannot handle day-to-day regulation of debt settlement services, said Senior Deputy Attorney General Ernest Figueroa.

The state created a temporary void in regulation of debt settlement services when officials closed the state Consumer Affairs Division in June 2009, he said.

Under the new FTC rules, debt settlement companies will only be able to charge a fee once a customer's debt has been reduced, settled or renegotiated. The rule goes into effect Oct. 27. Since the start of the recession, the Better Business Bureau has received more than 3,500 complaints about debt settlement companies.

The Better Business Bureau seeks to mediate for consumers, but Campbell said some of these firms refuse to respond. The Better Business Bureau records the track records of debt settlement companies and posts the information for consumers on its website.

Customers are also often required to start setting aside money in a separate account maintained by the debt settlement company. This money is intended to eventually pay off any remaining debt.

Under the new rule, however, companies will only be able to require such an account if it's maintained at an independent financial institution under a customer's name. The customer must also be able to withdraw the money at any time without penalty.

The amendments to the FTC's telemarketing sales rule apply to any debt relief companies that sell services over the phone. They do no apply if the initial contact is in-person, or if the services are rendered entirely online.

The new rule will cover most of the debt settlement industry, however, because most companies use TV and radio ads to advertise toll-free phone numbers for customers to call, said Allison Brown, an attorney with the FTC.

Nonprofit credit counselors can be located on the National Foundation for Credit Counseling's website, www.nfcc.org.

The Associated Press contributed to this report.