It has been more than two months since the United States’ new Federal Trade Commission/FTC laws have come into effect putting a restraint on the abusive practices of the for profit debt settlement companies. However, it has been reported by some advocates that there have been instances where consumers are still being hoodwinked by the debt consultants of the debt settlement companies. The consumers who are going to seek debt settlement help are still being subject to desperate unscrupulous practices from the creditors.

Although the abundance of television commercials of such companies promising to eliminate the debt burden for pennies on the dollar has reduced since the FTC laws came into effect, yet advocated comment that the changes haven’t been made for the best interest of the debtors. The critics of the debt settlement industry have studied that after the FTC rules have come into effect, most for profit debt settlement companies have gone out of business, changed their operating system in compliance with the rules and changed their marketing tactics.

According to a study done by an eminent member of the National Foundation for Credit Counseling, they are seeing the debt settlement process switch over to some other areas. The credit counseling agencies that help debtors create new plans to address their debts, have suddenly become more popular. People are running for debt management help than hovering around debt settlement companies to reduce the principal amount drastically and trash their credit score.

An industry analyst and a member of the TASC (The Association of Settlement Companies) reported that those creditors who made money by making grandiose promises with no intention of keeping can no longer exist in the debt relief industry. As they cannot collect upfront fees or reduce their debt burden by 50-60%, they will soon be replaced by some other beneficial debt relief option.

• How the debt settlement industry spread like an epidemic

Over the past few years, the debt settlement industry has spread like an epidemic. It started in the year 2000 with a dozen players but escalated to 100 players by the year 2006. Then there was a rapid increase in 2007 after the mortgage industry fumbled, most workers shifted from the mortgage market to the debt settlement market. As 2009 ended, there were at least 1000 companies offering debt settlement help to financially stressed consumers.

Though there are no verifiable figures to express the washout rate of the debt settlement programs, according to the reports of the FTC, only 25% of the clients who had enrolled in debt settlement programs have backed out before completing their debt repayment plans. The rest of the clients either took recourse to bankruptcy or looked for some other ways to pay off debt.

An eminent member of the TASC has said that he had witnessed a dwindling result on the strength of his organization. The number of companies came down from 200 in January 2010 to 67 in January 2011. The proposed reason behind such negative effect is perhaps the FTC rules that have prompted most companies to get out of this industry and pursue some other job. A person form the credit counseling foundation however contradicts saying that the FTC has not precluded the companies from doing business. The rules are implemented to safeguard the consumers from being seriously flawed by such companies.