Macco Law Group, LLP

What are disclosure requirements for credit card debt settlement?

What are disclosure requirements for credit card debt settlement?

When people find themselves burdened with and struggling under large amounts of credit card debt, they begin searching for debt solutions that can protect their interests and provide some relief from the harassment of creditors. Many people look into the possibility of a debt settlement program, which is a debt relief option generally provided by for-profit companies that involves negotiating a resolution to the debt with the creditors. By “resolving” their debt, debtors will generally make a lump sum payment that will satisfy the creditor but that is ultimately less than the amount originally owed.

Working with a debt settlement can have some benefits for consumers struggling with credit card debt but it also has certain risks. In addition, not all debt settlement companies are created equal, and some aim to deceive and exploit. For this reason, the law requires that debt settlement companies disclose certain things to consumers before a consumer signs up for a debt settlement program.

First and foremost, a debt settlement company must clearly disclose its price or fee arrangement, as well as any terms or conditions relating to the services it will provide or the fees it will charge. In terms of results, the company must clearly disclose how long it will take before a consumer obtains the desired result or how long it will be until the company puts forth a settlement offer to each creditor. Because debt settlement generally involves paying a lump sum of the debt owed, many companies require consumers to save up that lump sum before making any offers to a creditor. The company must clearly disclose how much it requires each debtor to save prior to making the offer to the creditor. Finally, the company must explain and disclose all potential negative consequences that could result from its recommended suggestions, such as stopping making payments to creditors.

In addition to the disclosure requirements related to the particular program or services provided by the debt settlement company, the law also requires these companies to make some generalized disclosures to all participants in order to ensure that participants understand their legal rights. One such required disclosure is that all funds saved while in a debt settlement program continue to belong to the program participant, who is entitled to interest. The program or company must also inform participants that they can withdraw their money from the program at any time without penalty.

Source: Federal Trade Commission, “Settling Credit Card Debt,” Nov. 2012