En español | Q. A debt relief company promised to get my credit card balances reduced but it wants a fee upfront. Is this legal?
A. First, let me issue a warning: Beware of companies that promise they can dramatically slash your debt. In many cases, these firms charge hefty, nonrefundable fees in advance for services that produce few or no results. More than 200 companies have been fined by the Federal Trade Commission over the last decade for luring consumers in financial trouble with what the agency called deceptive and abusive practices.
Now, as to whether advance payment for such services is legal, it depends. It is legal for a nonprofit company to charge upfront, but a new FTC rule that went into effect in October prohibits for-profit companies from charging upfront fees before it has settled or reduced your credit card debt.These companies can no longer collect payment from you until at least one of your debts is settled, with both you and the creditor agreeing to the new terms.
Before the new rule, for-profit companies were allowed to collect a payment before any debt was actually settled if the consumer initiated the call to the firm. But companies can no longer collect up front if the consumer is responding to an advertisement or other solicitation.
Also, debt relief companies must disclose to consumers how long it will take for consumers to see results, how much their services will cost and the negative consequences that may result from using debt relief services.
Carole Fleck is a senior editor at the AARP Bulletin.