FTC reins in debt-relief practices

A bit of good news this week: The Federal Trade Commission ended July by offering consumers some relief from so-called debt-relief companies.

The agency ruled that such businesses can't charge you a fee until they get you the promised relief.

Companies that promise to reduce or eliminate your debt are often bad news for consumers, but they have flourished the past several years as homeowners have struggled to pay mortgages and credit cards.

Usually such companies require an up-front fee before they will negotiate with the credit card company on your behalf. The worst of these businesses never do any negotiation. Also, consumers are told to quit paying their credit card bills during this process and to put the money aside in a special account. In the end, you're usually just deeper in debt.

Under the new rule, companies also must tell you how long it could take to get results and what it will cost in the end. Also, any money that is set aside must be in an independent financial institution under your name.

Businesses that violate the rule will pay a $16,000 fine for each violation. The rule goes into effect Oct. 27.

North Carolina already has a law that makes it illegal to charge upfront fees. But it's nice to see the FTC getting into the game and with some hefty fines. Now let's hope the enforcement matches.

I also wish the FTC had gone further. Its rule covers only those debt-relief services that are initiated over the phone. Right now that's the majority, as anyone who watches TV knows. Those "eliminate your debt" commercials should also be banned, in my opinion. With this new rule, I predict online come-ons will increase.

The rule only covers for-profit companies. There are such businesses that pose as nonprofits. The FTC did warn that it might go after those groups as well. Let's hope so, and let's hope it moves faster next time.

This year, N.C. Attorney General Roy Cooper said his agency was hearing from as many as 15 consumers a week with complaints about such businesses. The national Better Business Bureau gets thousands of complaints annually. Debt-relief businesses have been making those top 10 consumer complaints lists for years.

So what should you do if your debt is crushing? Figure out exactly what you owe and contact your creditors directly to work out a plan. If you need help, find a reputable agency. Contact the National Foundation for Credit Counselors at www.nfcc.org or 800-388-2227 for sources.

I've been thinking a lot about all those college-bound students facing higher tuition than they were expecting.

The increase approved by the General Assembly came too late to apply for most financial aid this year, work-study options at most schools are already closed out and, well, we all know how tough it is to find a job. I talked to one dad, Steven Cox, who has two in college - a daughter at UNC-Chapel Hill and a son at N.C. State - to find out how his family was managing.

Cox, I should point out, has two jobs. He works as an engineer and has a small CPA practice in Cary that focuses on tax returns and providing resources to help his clients manage their household finances. You can use them as well by going to stevenlcoxcpa.com or carycpa.com.

10 years of saving

Cox had started a 529 savings plan for his children's education through the N.C. College Foundation about 10 years ago and had saved aggressively since he was getting a late start.

He thought he had all those years of college tuition covered. He found out differently this summer, of course, when the legislature upped the ante. So Cox turned to his household budget.

The man is a fan of Quicken and said that the software made it easy to figure out where the fat was in the family's plan.

Finding the fat

"I looked at discretionary spending, dining out, traveling and the like," he said.

Those cuts along will go a long way toward covering the additional costs this year, but he realizes he's not in the clear until he sees two diplomas.

"You worry that the money is gong to run out before you are expecting it to," he said.

So until then, the family will rely on their old cars, live within their means and spend responsibly.

Now I keep a household budget so I went through it to see if I could come up with a $1,000 in fat. I was pretty sure I couldn't, because I consider myself pretty frugal. But in one month I saw way too many spur-of-the-moment dinners out, too many trips to the bookstore and a whole lot of puppy toys. Busted. Luckily, I have a few more years to save for college, so I'll keep checking my budget to see where I'm overspending and correct.

I realize, however, that not everyone's budget is as fat. I would like to hear from others about what they're doing this year to handle the higher tuition costs. More loans? Taking a year off? Working? Send me e-mail.