Negative Option Marketing

November 12, 2013 19:34 by Consumer Ed

Dear Consumer Ed:

I signed up for a free trial of an online sports subscription, and a month later I was billed for it and had to call to cancel. The same thing happened to me with a credit monitoring service.  Fortunately, I caught it on my bank statement right away, but what if I hadn't? Are businesses allowed to automatically bill you every month after the free trial period is up?

Consumer Ed Says:

The two situations you have described are examples of so-called "negative option" plans. In a negative option plan, goods or services are provided to the buyer automatically unless, like you did, the buyer tells the seller that they don't want them. More specifically, your examples are of negative option plans in the form of a free trial offer, which are very common.

The legality of this practice depends on the terms and conditions of the particular plan, and on how the seller discloses these terms and conditions to the buyer. Under the Federal Trade Commission's Negative Option Rule, which the State of Georgia has adopted, the seller must disclose the following terms to you in a clear and conspicuous manner:

  • The fact that the offer is a negative option plan
  • Minimum purchase requirements, if any
  • Cancellation Rights
  • Refusal Rights
  • Postage charges, if any

If a business doesn't comply with the Negative Option Rule, the consumer isn't obligated to pay for the products or services associated with the contract.

If you were enrolled in a negative option plan without your knowledge, and the terms and conditions of the plan were not described in a clear and conspicuous manner, you may file a complaint with the Federal Trade Commission by visiting ftc.gov or calling 1-877-FTC-HELP (1-877-382-4357); or the Governor's Office of Consumer Protection by visiting our website at www.consumer.ga.gov or calling 404-651-8600.

Consumers who believe that they weren't appropriately notified of the negative option billing should also consider consulting a private attorney to discuss their situation.

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Is debt settlement legitimate?

October 11, 2013 19:08 by Consumer Ed

Dear Consumer Ed:

I owe close to $30,000 in credit card debt. I contacted a company that said it could help me get out of debt.  The counselor I spoke to told me to stop making credit card payments for six months and that he would then contact my credit card company and offer to settle my account for $10,000.  Well, it's now six months later, and the credit card company has refused to accept the debt settlement offer.  Because I didn't pay anything for six months, I now have an even worse credit rating, not to mention my creditors have added late fees to my balance and have turned my account over to a collection agency.  What can I do?

Consumer Ed Says:

This company is engaged in an illegal practice known as "debt settlement." While services known as "debt adjustment" may legally be provided to Georgia residents, these are strictly regulated by Georgia's 2003 Debt Adjustment Act.  The reason such practices are stringently regulated is that people seeking these services are among the most vulnerable consumers:  those already in dire financial straits.

Before July 2003, debt adjustment, along with debt settlement, debt negotiation, and debt "counseling", were all illegal in this State.  When our legislature began to allow some of those services to be provided to Georgia consumers, it enacted tightly written laws that established clear and rigid standards through which such businesses could ply their trade.

If a debt adjuster is charging for its services, it cannot provide them to Georgia consumers using any business model or fee structure other than the one contemplated under the Act.  Under this model, the debtor sends money directly to the debt adjustment company, which places the funds in a trust account and then disburses the money to the debtor's creditors after taking a percentage of not more than 7.5 percent off the top as its fee. While up-front fees, which are fairly common, may be permitted (debt adjustment companies may charge you an up-front fee, monthly fee, or both), the combination of these fees may not exceed 7.5 percent of the amount paid monthly by the consumer to the debt adjustment company for distribution to his or her creditors.  In addition, the debt adjustment company must disburse all funds received from the debtor, less any fees, to creditors within 30 days of receiving them.

The company you contacted is using a model whereby the company tells consumers not to make payments to their creditors, then attempts to negotiate a lump-sum "settlement" with those creditors.  This practice is not permitted under the Debt Adjustment Act.

Companies that commit these types of violations can be subject to legal action on State and Federal levels. In fact, the Consumer Financial Protection Bureau recently took action against Meracord, LLC, a debt settlement payment processor that is alleged to have charged millions of dollars in illegal fees to over 11,000 consumers, nearly half of whose accounts were closed without ever being settled. The company must now pay $1.376 million in penalty fees and immediately cease all illegal activities.

If you believe the business you're working with may have violated the Debt Adjustment Act, you can file a complaint with the Governor's Office of Consumer Protection (www.consumer.ga.gov or 404-651-8600), and/or file a private a legal action of your own.  If the company is found to be in violation, it could be required to refund all of the fees you paid and, in a private action, you may request an additional $5,000 as restitution.

Because your debt has been turned over to a third-party debt collector, you are entitled to certain protections under the Federal Debt Collection Practices Act (FDCPA).  Among other things, the FDCPA prohibits a debt collector from contacting you at unreasonable times and places, using abusive tactics to collect the debt, or falsely representing themselves.  For more information about your rights under the FDCPA, visit: http://consumer.georgia.gov/consumer-topics/debt-collectors.

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I need help managing my debt

July 31, 2013 18:18 by Consumer Ed

Dear Consumer Ed: 

I was out of work for nine months and couldn't pay all of my bills.  My debts have really piled up and I need some help.  How can I find an honest credit counseling agency?  

Consumer Ed says:

A reputable credit counseling agency can be very helpful. Credit counselors can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. They can also renegotiate the terms of your credit agreements and arrange to pay off your debts. You are right to take care when choosing a debt management company, as not all of them are legitimate. Some may charge excessive fees, misrepresent what they will be able to accomplish, or not pay your creditors in a timely manner, thus actually worsening your debt problems and your credit score. The National Foundation for Credit Counseling can help you locate a reputable credit counseling/debt management service in your area. You can contact them at 800-388-2227 or www.nfcc.org.  

Make sure you know your legal rights concerning debt management companies. Under Georgia's Debt Adjustment Act:

 

  • A debt adjuster may not charge you a fee of more than 7.5% of the amount you pay monthly for distribution to your creditors.
  • All funds received from a debtor, minus authorized fees, must be disbursed to creditors within 30 days.
  • A separate trust account must be maintained for your funds, along with certain insurance coverage, and audited annually.
  • Copies of these audits and insurance policies must be filed annually with the Governor's Office of Consumer Protection.

 

Please report any violations to the Governor's Office of Consumer Protection by visiting www.consumer.ga.gov, or calling 404-651-8600.

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