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According to a recent New York Times article the FTC‘s effort to shutdown misleading debt relief companies may reach too far.

Initiatives underway are calling for debt settlement to fall under the umbrella of debt collection style telemarketing rules. In addition, it will target many of the up-front fees that sustain debt-relief companies. According to the New York Times the proposal looks like this:

“The proposal calls for a regulatory switch that would apply telemarketing rules to debt relief companies that receive telephone calls in response to advertising, as well as to those that reach out to consumers. It would ban debt relief companies from charging fees before providing services; prohibit them from making misleading claims about how fast they can help or how much money they can save for someone, and from masking for-profit companies as nonprofit agencies.”

Many debt settlement businesses think that the FTC lacks an understanding of their business model and may end up hurting people that need their services.

One representative of the debt industry explained it like this:

”Our goal is to try to get people out of debt, but in a sense this would make us a creditor as well,” said Wesley Young, the legislative director for The Association of Settlement Companies, a trade group for the industry. He noted debt settlement can take two or three years, leaving companies providing lengthy services without taking in any revenue, and possibly then being left holding a bill if the consumer doesn’t pay.

A case involving numerous creditors and substantial debt could require numerous phone calls for settlements to be arranged, Young said. ”We think this will hurt the service we provide to the consumer and they’ll be less successful in the programs.”

What do you think? Is the FTC protecting the consumer or potentially wiping out the viability of the businesses that can help them?

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