Spotting Debt Relief Scams & Understanding the FTC Advance-Fee Ban

Exactly when fees can be charged (TSR specifics)

Under the Federal Trade Commission's Telemarketing Sales Rule (TSR), companies cannot charge advance fees for telemarketed debt-relief services. Fees can only be charged after:

• At least one debt is settled: The company must successfully settle at least one debt before charging fees
• A payment is made: The creditor must receive a payment as part of the settlement before fees can be charged
• Fees are proportional: Fees must be proportional to the debt settled (not a flat fee for the entire program)

What this means: Legitimate debt settlement companies cannot charge fees before any settlement is reached. They can only charge fees after successfully settling at least one debt and making a payment to the creditor.

Dedicated account rules: Companies may require you to deposit funds into a "dedicated account" that they control. However, the FTC requires that you own this account and can withdraw funds at any time. Be wary of companies that charge fees before settlements are reached or that require you to use a specific bank they control.

Typical fees: Legitimate debt settlement companies typically charge 15–25% of the enrolled debt amount, charged only after settlements are completed. Ask companies for their historical outcomes: percentage of enrolled debt settled vs. all enrolled accounts, average net savings after fees, completion rate, and complaint history.

Red flags to avoid

Watch for these red flags when evaluating debt relief companies:

• Government-program claims: Companies that claim to be a "government program" or affiliated with the government are scams. The government does not run debt relief programs.
• Pressure to stop all creditor contact: Legitimate companies may advise you to stop paying creditors, but they shouldn't pressure you to stop all contact immediately. Scammers often pressure you to stop contact so creditors can't warn you about the scam.
• Unrealistic guarantees: Companies that promise specific settlement percentages, guarantee results, or promise to settle all debts are scams. Legitimate companies cannot guarantee results.
• Advance fees: Companies that charge fees before any settlement is reached are violating the FTC TSR and are likely scams.
• High upfront fees: Companies that charge large upfront fees or require payment through methods that are hard to track (wire transfers, gift cards) are scams.
• Lack of licensing: Companies that aren't licensed in your state (if required) or that refuse to provide licensing information are scams.
• No disclosures: Companies that refuse to provide historical outcomes, fee structures, or complaint history are scams.
• Pressure to sign immediately: Companies that pressure you to sign immediately without explaining alternatives or giving you time to review are scams.

How to spot scams: If a company exhibits any of these red flags, avoid it. Legitimate debt relief companies are transparent about fees, outcomes, and risks, and they don't pressure you to sign immediately.

Where to complain (CFPB/FTC)

If you've been scammed by a debt relief company, file a complaint with:

• Consumer Financial Protection Bureau (CFPB): File a complaint online at consumerfinance.gov/complaint or by phone at 1-855-411-2372
• Federal Trade Commission (FTC): File a complaint online at ftccomplaintassistant.gov or by phone at 1-877-382-4357
• Your state attorney general: File a complaint with your state attorney general's office
• Better Business Bureau (BBB): File a complaint with the BBB at bbb.org

What to include in your complaint:

• Company name and contact information
• Date and details of the scam
• Amount of money lost
• Copies of contracts, receipts, and correspondence
• Any evidence of the scam (recordings, emails, etc.)

What happens after you file: The CFPB and FTC review complaints and may take action against companies that violate laws. They may also use your complaint to warn other consumers about scams.

Check complaint databases: Before working with a debt relief company, check the CFPB and FTC complaint databases to see if other consumers have filed complaints. This can help you avoid scams.

How to protect yourself

To protect yourself from debt relief scams:

• Verify licensing: Check that the company is licensed in your state (if required) and verify licensing information with your state's licensing board
• Check complaints: Check the CFPB and FTC complaint databases to see if other consumers have filed complaints
• Ask for disclosures: Ask companies for historical outcomes, fee structures, and complaint history before enrolling
• Read contracts carefully: Read all contracts and agreements carefully before signing. Don't sign anything you don't understand
• Don't pay upfront fees: Don't pay fees before any settlement is reached. Legitimate companies only charge fees after settlements are completed
• Don't use wire transfers or gift cards: Legitimate companies don't require payment through wire transfers or gift cards. These are common scam payment methods
• Don't be pressured: Don't let companies pressure you to sign immediately. Legitimate companies give you time to review and ask questions
• Get everything in writing: Get all promises, fee structures, and outcomes in writing before enrolling
• Consult a credit counselor: Consult a nonprofit credit counselor before enrolling in a debt relief program. They can help you understand your options and avoid scams

Red flags to watch for: If a company exhibits any red flags (government-program claims, pressure to stop contact, unrealistic guarantees, advance fees, lack of licensing, no disclosures, pressure to sign immediately), avoid it.

Trust your instincts: If something seems too good to be true, it probably is. Trust your instincts and avoid companies that make unrealistic promises or pressure you to sign immediately.

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