FTC Debt Settlement Telemarketing Restrictions To Take Effect In September and October 2010

The Federal Trade Commission has announced sweeping amendments to the Telemarketing Sales Rule that significantly restricts the marketing of what it broadly characterizes as "debt settlement" programs. The restrictions include an advance fee ban and mandatory disclosures. As part of its announcement, the FTC has published a comprehensive explanation - Debt Relief Services & The Telemarketing Sales Rule: A Guide For Business.

Similar to the FTC's ban on telemarketing of advance fee credit and credit repair services, under the new amendments, beginning on October 27, 2010, for-profit companies that sell debt relief services over the telephone may no longer charge a fee before they settle or reduce a customer's credit card or other unsecured debt. Moreover, the amount of the fee that can be collected once a settlement or reduction is consummated is greatly restricted. In addition to the advance fee ban, effective September 27, 2010, marketers will be required to make specific disclosures to consumers regarding the service being offered.

The new amendments come in the wake of a series of enforcement actions targeting telemarketing of debt settlement programs. Given the overbroad nature of the new regulations, including the restrictions applicable to attorneys engaged in debt settlement programs, industry is seriously weighing a legal challenge.

IMPORTANT TIP: If you are engaged directly or indirectly in marketing or servicing debt settlement programs, you must carefully examine the new regulations and their potential implication to your business.

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