By YOUNG MONEY Staff
29 July 2010

The Federal Trade Commission revealed a new rule that will ban some types of fees charged by for-profit debt relief companies, reports the Wall Street Journal. As part of the newly signed financial reform bill, the federal government is cracking down on an industry built around helping, but sometimes exploiting, people struggling to get out of debt.

The new law will ban such companies from charging so-called "up-front fees," which the businesses collect before they have even begun attempting to reduce consumers' debt. The rule only applies, however, to those organizations which sell their services over the phone lines.

Phone-based debt-relief organizations will also have to disclose the total cost of their services.

One side effect of these rules may be to push such companies onto the internet, abandoning the old cold-calling tactic in favor of more sophisticated online marketing.

Debt-relief companies serve a real and growing market - Americans swamped by credit card, mortgage and medical debts. However, some have received a nasty reputation as unscrupulous and even outright predatory, manipulating their customers' fears while extracting exorbitant fees.

"These new reforms will go a long way towards cracking down on debt settlement scams, but we must go even further," said Democratic Senator Chuck Schumer, who has been a particularly harsh critic of the companies.