Back in 2005, Phillip Shamas of Roswell, N.M., was struggling with $11,000 in debt. He turned to a debt-settlement company to find a way out of his financial hole but ended up paying thousands of dollars in fees while his credit record worsened and his debt barely shrank.

Fortunately, new federal regulations will help consumers from being ripped off by debt-settlement scams, but people like Phillip will still remain vulnerable.

That's because the Federal Trade Commission rules only cover debt-settlement services sold by phone since they were adopted under the Telemarketing Sales Rule. Because Phillip signed up in person at a debt-settlement seminar held at a local hotel, he would have remained unprotected had the new rules been in effect at the time.

There's no question that the FTC's new regulations provide important protections to consumers struggling to settle their debt. But the newly authorized Consumer Financial Protection Bureau or state lawmakers should extend these protections to all debt-settlement services regardless of how consumers sign up and cap the fees that can be charged, so that debt relief doesn't come at such a steep price.

The new debt-settlement rules were sorely needed, because most consumers who enroll in these services don't end up getting the help they've been promised. Debt-settlement companies are now required to disclose to consumers the time it will take to reduce their debt, when the company will negotiate a settlement with creditors and how much money must be set aside before a settlement offer will be made. Consumers also must be told about the negative consequences of not making payments to outstanding creditors.

A debt-settlement company cannot charge any fees until it reaches a settlement on at least one debt that the consumer agrees to in writing. If one portion of the debt is settled, the fee must be limited to a proportion of what the total fee would have been if the entire debt was settled or a percentage of the amount saved by the settlement.

While the fees must be proportional, that won't stop debt-settlement companies from setting an unfairly high fee. These companies typically charge consumers a fee based on the total amount of debt that is owed instead of how much the settlement saves for the consumer.

Since the new rules only cover debt-settlement services sold over the phone, some debt-settlement companies may try to circumvent the law by using a third party or notary to meet in person with consumers to finalize the contract after a traditional telephone sales pitch.

Or they may move away from selling debt-relief services by phone to conducting more in-person debt-relief seminars like the one that duped Phillip into signing up for assistance.

Phillip Shamas' story is all too common. He subscribes to a monthly e-mail newsletter published by Consumers Union and recently responded to a request we made of subscribers to share their experiences with debt-settlement companies. Phillip told us that he made monthly payments to his debt-settlement company for three years. Despite the fact that he deposited roughly $17,000 into an account with the debt-relief company, he was still $6,000 in debt. As one account would settle, others would swell from penalty fees and boosted interest rates. Moreover, some companies refused to work with the debt-settlement company and sued Phillip to collect.

Eventually, Phillip decided to break ties with the company and work personally with his creditors. Had he done that from the beginning, Phillip believes he would now be debt-free.

Some states are already considering ways to better protect consumers. Illinois this year passed legislation that caps fees at 15% of the savings achieved by the settlement — not the total amount owed by the consumer. The law applies to all debt-settlement contracts regardless of whether consumers sign up by phone, in person or online.

The FTC's new rules are a big step forward, but clearly more comprehensive protection is needed. The Consumer Financial Protection Bureau or state lawmakers should finish the job by extending the new protections to all debt-settlement contracts and capping fees so consumers don't get gouged in order to get a fair settlement.

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