According to the Mortgage News Post, many mortgage brokers were shifted to selling debt relief when the sub-prime mortgage sector went south.  It’s been more than two months after the start of new federal rules designed to curb abusive practices of shady debt settlement companies.  New debt relief law advocates continue to complain that consumers are still being duped into signing up for these erroneous debt settlement programs.  The industry best known for late-night television commercials promising to help consumers negotiate credit card debt for pennies on the dollar has changed since the new rules took effect.  Consumer advocates are saying that the new laws haven’t necessarily led to positive changes for consumers seeking true debt relief.

Critics and industry observers say the new federal rules have led debt settlers to either: “Today, we are seeing the debt settlement industry morph into other areas,” says William P. Binzel, senior adviser and counsel for the National Foundation for Credit Counseling. He represents nonprofit credit counseling agencies that help consumers create plans to manage their finances and pay off what they owe over time in debt management plans rather than make deals to reduce the principal amount of debt.  Their nemesis over the past several years has been the debt settlement industry — which has collected upfront fees and payments from consumers with the promise of negotiating settlements with creditors to reduce the principal by as much as 50 to 70%.  Unfortunately, as many consumers found, debt settlers often did not fulfill their promises and kept the fees and money paid to them by their clients, who still owed the original debts.

As of Oct. 31, 2010, for-profit companies that use telemarketing to attract clients cannot charge fees until after they have negotiated settlements with credit card companies and other creditors, according to the new Telemarketing Sales Rules drafted by the Federal Trade Commission. The rules also restrict the amount of fees that can be charged and ban ads that tout impressive settlement success rates unless they have evidence to prove those claims.  “All those guys that were getting customers and collecting fees and not providing any services … in the new world, they just by definition cannot exist,” says Andrew Housser, a member of the board of The Association of Settlement Companies (TASC), an industry trade group.

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