A debt relief company promises to assist you in managing your debt or to repay it in your own terms and convenience for which they will charge a service fee from you. However, there is no reason to believe that these companies are always successful in such efforts. This is because the end result and success entirely depends on the willingness and connivance of the creditors or the debt collectors to be flexible enough to make such changes in their lending policy and terms.
According to the law the creditors are not obligated or cannot be forced to agree to your terms that you may have put to them through the debt relief company. In such a situation it is but natural that the debt relief company is not entitled to collect any service fees from you simply because there was no real ‘service’ provided to you. Any failed effort do not warrant for any service fees.
However, all debt relief companies are not so honest with their business practices and there are more than one too many instances wherein they have charged their customers their service fees and even an amount to pay the creditors without even starting the negotiating process with the creditor. A lot of customers were duped and were harassed by the unfair collection practices in the past which called the Federal Trade Commission to intervene.
The FTC designed new laws to prevent the debt relief services from such unfair practices and the new law specifically emphasizes on the collecting fees. If you hire or provide debt relief services, you must know this new Rule and act accordingly.
Law regarding the fees
The new rule about collecting fees as formulated by the Federal Trade Commission is applicable to all debt relief companies. Therefore, whether you choose Nationaldebtrelief.com or any other, you must know that the law says that no one can collect any fee from the customer until they meet a few specific requirements. These are:
The debt relief company must reach to a successful result after negotiating on behalf of their customer. In this process the company may perform several duties after which they can think about claiming their fees. Such actions involve:
- Renegotiating for a reduced monthly payment
- Reduction in the rate of interest
- Waiving off a considerable portion of the outstanding balance of the debt in the forms of fees and penalties and
- Settling a debt.
The second requirement by the debt relief companies to claim their fees is that there must be an agreement between the customer and the creditor. In this regard the law states lays down the following considerations:
- The customer must agree to the settlement agreement reached by the debt relief company
- There must be a debt management plan formulated
- There may be other results reached by the debt relief company with the creditor through the services.
According to the new rule there are also a few other requirements such as:
- It is required that all agreements from the creditor must be made in writing.
- As for the customer, they may agree to it orally.
- The debt relief company cannot charge any fees in advance by getting their customers to agree to an anticipated “pre-approval” of any possible negotiation in the future for settlement
The third requirement as per the law is that the debt relief company cannot front-load your fees.
- If multiple debts are taken up by the debt relief company they are not supposed to charge their fees in lump sum but should be in proportion of their rate for each debt
- Moreover, the debt settlement company cannot charge fees for the unsettled debts after settling one and promising to settle the others likewise
- They can only charge their fees only after the customer makes a payment to the creditor in full or part thereof as per the new agreement with the creditor and
- The customer must have made at least one payment to the creditor or the debt collector as per the negotiated agreement if the debt relief company has to claim for their fees.
Under such situation the dent relief company may collect a portion of their full fee.
Therefore, until and unless you complete one or all of these three required steps in connection to your debt management or repayment, the new rule allows you not to pay the service fees to the debt relief company you have hired.
Calculating the fees
The new TSR rule also provides the debt relief companies with two options to calculate the debt relief service fees from their customers who have enrolled for hiring their services for multiple debts. These options are:
- Proportional fee: According to the new rule, in this method the debt relief company must bearthe same proportional correlation to the total service fee for settling, renegotiating, reducing, or changing the terms of the whole debt balance as the specific debt amount may bear to the full debt amount. Here the “individual debt amount” and the “entire debt amount” both refer to the amount that the customer owed at the time of enrollment with the debt in the service. This means when a portion of the total debt amount is settled, the debt relief company is entitled to receive a fee that is in proportion of the total fee charged by the company for settling the entire amount.
- Percentage of savings: The law also allows the debt relief company to charge their fees based on the percentage of the total amount reduced or saved by the customer in the process and as the result of their services. This pricing model is called the contingency fee agreement wherein the percentage of fee charged must be the same for each of the debt the customer wants to settle. Furthermore, the amount saved is calculated based on the difference between the amount of money required to settle the debts or debts and the amount of total debt enrolled in the program.
All these rules save the customers as the debt relief companies cannot overcharge.