Debt settlement fees: what the FTC rule says companies can and cannot charge

By LoansGenerator.com · Last updated August 6, 2026

There is a federal rule that governs what a debt settlement company may charge you and when. It is short and specific, and it is worth reading before you sign anything.

This page quotes it directly. The rule is 16 CFR Part 310, the Telemarketing Sales Rule, and the debt relief provisions live at section 310.4(a)(5). The eCFR text quoted here was checked on October 28, 2026. Section 310.4 was last amended by a rule published April 16, 2024 (89 FR 26784). eCFR's current version of the section dates from May 16, 2024.

The core provision: no fee before a result

The rule makes it an abusive telemarketing practice for any seller or telemarketer to engage in:

"Requesting or receiving payment of any fee or consideration for any debt relief service until and unless:

(A) The seller or telemarketer has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement, debt management plan, or other such valid contractual agreement executed by the customer;

(B) The customer has made at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement between the customer and the creditor or debt collector"

Both conditions must be met before the company can collect any fee. A debt must actually be settled or changed under an agreement you executed, and you must have made at least one payment under that agreement. Part (C), below, then limits how the fee is calculated.

The FTC's own guidance for businesses states it in one line: "It's illegal to charge upfront fees. You can't collect any fees from a customer before you have settled or otherwise resolved the consumer's debts."

This applies per debt. As the FTC puts it: "If you renegotiate a customer's debts one after the other, you can collect a fee for each debt you've renegotiated, but you can't front-load payments."

The two permitted fee structures

Once a debt is settled, the rule constrains how the fee may be calculated. Subsection (C) provides that where debts are settled individually, the fee must be one of exactly two things.

Structure one: proportional to the debt. The fee must bear:

"the same proportional relationship to the total fee for renegotiating, settling, reducing, or altering the terms of the entire debt balance as the individual debt amount bears to the entire debt amount. The individual debt amount and the entire debt amount are those owed at the time the debt was enrolled in the service."

In practice: if you enrolled $40,000 of debt and the company's total fee for the whole program is $8,000, then settling a $10,000 debt (25% of the enrolled total) entitles the company to $2,000 (25% of the total fee). Note the anchor date. Both the individual and the total amount are measured at the time the debt was enrolled, not at settlement, which stops a company from re-basing the calculation on balances that ballooned while you stopped paying.

Structure two: a percentage of the amount saved.

"Is a percentage of the amount saved as a result of the renegotiation, settlement, reduction, or alteration. The percentage charged cannot change from one individual debt to another. The amount saved is the difference between the amount owed at the time the debt was enrolled in the service and the amount actually paid to satisfy the debt."

Two constraints worth pulling out. The percentage is fixed across all your debts, so a company cannot charge 15% on the easy settlements and 35% on the hard one. And "amount saved" is again measured against the balance at enrollment, not against the inflated balance after months of missed payments and penalty interest. That definition matters, because without it a company could let a balance grow, settle it near the original number, and bill you for a large fictional saving.

The rule does not cap the fee. It caps the timing and the method. Anyone telling you the FTC limits debt settlement fees to a particular percentage is describing something the rule does not say.

Dedicated accounts: permitted, with five conditions

Companies may ask you to set money aside. The rule allows it, then fences it. Nothing in the fee provision:

"prohibits requesting or requiring the customer to place funds in an account to be used for the debt relief provider's fees and for payments to creditors or debt collectors in connection with the renegotiation, settlement, reduction, or other alteration of the terms of payment or other terms of a debt, provided that:

(A) The funds are held in an account at an insured financial institution;

(B) The customer owns the funds held in the account and is paid accrued interest on the account, if any;

(C) The entity administering the account is not owned or controlled by, or in any way affiliated with, the debt relief service;

(D) The entity administering the account does not give or accept any money or other compensation in exchange for referrals of business involving the debt relief service; and

(E) The customer may withdraw from the debt relief service at any time without penalty, and must receive all funds in the account, other than funds earned by the debt relief service in compliance with § 310.4(a)(5)(i)(A) through (C), within seven (7) business days of the customer's request."

Condition (E) is the one to remember. You can walk away at any time, without penalty, and your money must come back within seven business days minus only fees the company has already lawfully earned. If a contract says otherwise, the contract is describing terms the rule does not permit.

Conditions (C) and (D) exist to stop the account administrator from being a related party quietly recycling fees back to the settlement company.

Which companies this covers

The rule reaches for-profit sellers of debt relief services and their telemarketers. The FTC defines the service broadly: "a program that claims directly, or implies, that it can renegotiate, settle, or in some way change the terms of a person's debt to an unsecured creditor or debt collector. That includes reducing the balance, interest rates or fees a person owes."

That definition sweeps in three business models the FTC lists by name:

• Debt settlement, companies that say they can settle debts for less than the full balance.
• Debt negotiation, companies that say they can reduce monthly payments by getting creditors to cut interest rates or make other concessions.
• Credit counseling, companies that act as liaison to negotiate and administer a debt management plan.

The 2010 amendments expanded the rule's reach in the way that matters most to consumers. It previously covered outbound calls, meaning calls the company places to you. It now also covers inbound calls, meaning calls you place to the company in response to its advertising. The FTC spells this out: calls made "in response to TV or radio commercials; infomercials; home shopping programs; ads in magazines, newspapers or the phone book; online ads; billboards; or ads in other media," and calls in response to "postcards, flyers, door hangers, brochures, 'certificates,' letters, email, faxes, etc."

So dialing the number on an ad does not put you outside the rule's protection.

The exception to know. Existing TSR exemptions still apply, and the FTC notes that businesses "that meet with their customers face-to-face before signing them up for their services are exempt from the TSR." A company that gets you into an office before you sign may sit outside these fee rules. That is worth knowing before you agree to an in-person appointment you did not ask for.

The other two obligations

The advance-fee ban is one of three principles the FTC identifies. The other two:

Disclosure before signup. The FTC's guide tells companies that before people sign up they must disclose how long results will take, how much the service costs, the negative consequences that could result, and key information about dedicated accounts if they use them.

Read that list against a sales call you have actually been on. A company that never volunteered the negative consequences was not doing you a courtesy by staying positive.

No misrepresentation. The rule "prohibits you from making false or unsubstantiated claims about your services." Unsubstantiated is the operative word. A success rate a company cannot back up is a violation whether or not it happens to be true.

Substantial assistance: the rule reaches further than the settlement company

You do not have to sell the service to have obligations under the rule. The FTC: "it's illegal to provide 'substantial assistance' to another company if you know they're violating the Rule or if you remain deliberately ignorant of their actions."

The examples given are specific:

• Obtaining and selling leads, meaning potential customers' contact information, to other companies.
• "helping a debt relief company with its back-room operations, for example, by reviewing customer files, processing customers' payments or contacting customers' creditors once they've signed up"
• "offering dedicated accounts to customers where they set aside the debt relief provider's fees and funds for payments to creditors or debt collectors"

The FTC's closing line on this: "Willful ignorance isn't a defense."

What this means when you are the one on the phone

A company may charge you after it has settled or altered at least one enrolled debt under an agreement you signed, and you have made at least one payment under that agreement. The fee must be proportional to that debt's share of your enrolled total, or a fixed percentage of the amount saved measured from the enrollment balance.

A company may not charge you anything before that. Not a setup fee, not an enrollment fee, not a monthly administration fee collected before the first settlement, not a "good faith deposit." The rule bars "any fee or consideration," which is broad on purpose.

One charge can start earlier. The independent company that runs your dedicated account "may charge you a reasonable fee to manage the account," according to the FTC. That fee goes to the account administrator, not the settlement company. Ask for it in writing before you sign.

A company may not front-load its fee across your later settlements, vary the saved-amount percentage between your debts, keep your dedicated account money when you quit, take longer than seven business days to return it, or run the account through an affiliate.

A company may not misrepresent what its program will do. The rule bars misrepresenting any material part of a debt relief service, including how much you may save and how many customers get the promised results (16 CFR 310.3(a)(2)(x)). A guarantee is a warning sign: the CFPB's list of companies to avoid includes any that "represents that it can settle all of your debt for a promised percentage reduction," "guarantees it can make your debt go away," "tells you it can stop all debt collection calls and lawsuits," or "guarantees that your unsecured debts can be paid off for pennies on the dollar." The FTC states it plainly: "No one can guarantee that your creditors will forgive your debts."

If you were charged an upfront fee

The FTC's consumer guidance is unambiguous: "A legitimate debt relief company won't make you pay up front. That's illegal."

You can report it to the FTC at reportfraud.ftc.gov, submit a complaint to the CFPB, which forwards it to the company and works to get you a response, and contact your state attorney general, since many states regulate debt adjusting separately and some more strictly than the federal rule.

Keep the contract, the fee schedule, the dedicated account statements, and any recording or written summary of what you were told before signing. The disclosure obligations mean what you were told before signing is itself evidence.

Where to read it yourself

The rule is at 16 CFR 310.4(a)(5). Its source is 75 FR 48516, published August 10, 2010, amended at 76 FR 58716 (September 22, 2011), 80 FR 77559 (December 14, 2015), and 89 FR 26784 and 26785 (April 16, 2024). The FTC's business guide, published July 2010, is the plain-language companion, and the FTC notes it "represents the views of FTC staff and is not binding on the Commission."

It is a short read. If you are considering enrolling in a program, read the fee section of your contract next to the rule text above and see whether they agree.

To compare settlement with the other routes, see debt relief options.

Disclosure: Loans Generator is paid by lending and debt relief partners, including National Debt Relief, a debt settlement company. This page has no partner button, but the debt relief options page it links to does. That is precisely why this page quotes the rule rather than summarising it. Read the source and judge any company, including the ones we work with, against it.

This page is general information, not legal advice. State law may impose additional or stricter requirements on debt adjusting and debt settlement companies.

Sources

• 16 CFR 310.4, Abusive telemarketing acts or practices (Telemarketing Sales Rule), accessed October 28, 2026.
• 16 CFR 310.3, Deceptive telemarketing acts or practices (Telemarketing Sales Rule), accessed October 28, 2026.
• Federal Trade Commission, Debt Relief Services & the Telemarketing Sales Rule: A Guide for Business, accessed October 28, 2026.
• Federal Trade Commission, How To Get Out of Debt, accessed October 28, 2026.
• Consumer Financial Protection Bureau, What is a debt relief program and how do I know if I should use one?, accessed October 28, 2026.
• Federal Trade Commission, Signs of a debt relief scam, accessed October 28, 2026.