New laws to take effect for debt settlement companies

HOUSTON The problem with debt relief companies is that upfront fee. The changes will force the companies to actually reduce your debt before they get paid.

When Samantha Hicks wanted to repair her credit, she turned to a company that promised success for a price.

"It would be $175 initially and they said it could take up to two months so it may be an additional $99 and that's it, that's all the cost and they said yes," said Hicks.

She says the company she hired did not improve her credit and may have made things worse.

"Lo and behold, they turned me into a collection agency," she said.

Hicks has complained to the Houston Better Business Bureau about the company. When it comes to debt relief complaints, Hicks is not alone.

"Nationwide we have actually received over 2,600 complaints from consumers regarding these debt settlement companies," said Monica Russo of the Houston BBB.

Russo says consumers report being charged upfront fees by debt settlement companies and then see no results. But soon that will be a thing of the past thanks to new rules passed by the Federal Trade Commission.

"In the past, a lot of times people paid a lot of money up front and actually ended up paying more to the company than paying off the actual debt they were trying to get rid of," Russo said.

Starting in October, debt settlement companies will no longer be able to collect fees until a settlement has actually been reached on at least part of a consumer's debt. Beginning in September, the companies must provide consumers with detailed lists of all costs and promised services.

Tanisha Warner works for Money Management International, a company that provides credit counseling.

"This is a good thing for consumer credit counseling organizations because people are not informed that a debt settlement may not be the best option and now they will learn about different options," said Warner.

Keep in mind, debt settlement companies ask your creditors to take less money than you owe. If the company agrees, it gets listed on your credit report that you did not make a full payment which ends up hurting your credit score.

The new rules will change the way these companies advertise, but only for companies that solicit business from TV, radio, and print ads. It does not apply to internet ads.

So be very careful when agreeing to debt settlement, make sure you ask about upfront fees before agreeing.