The explosion of credit card use in the U.S. in recent years has left many consumers drowning in credit card debt and turning to debt relief companies to help pay off what they owe.

The increase in consumers seeking financial assistance has also led to a surge in unscrupulous debt companies preying on consumers.

Since the start of the recession in 2007, the Better Business Bureau has received thousands of consumer complaints from all over the country regarding debt-settlement companies.

To help protect consumers, the Federal Trade Commission created new regulations to curb shady practices of debt-settlement companies. The soon-to-be-implemented regulations are designed to curb misrepresentations and scams within the industry.

Here’s a breakdown of what you need to know.

Who it Covers

The new regulations apply to any for-profit debt relief organizations, including for-profit credit counseling, debt settlement companies and debt negotiation companies.

“Debt relief companies are going to act as a liaison between the consumer and the credit card company to negotiate either a reduction or a settlement,” says Evan Zullow, an attorney with the FTC’s division of financial practices.

The rules do not apply to organizations with a non-profit status, but does cover organizations deceitfully claiming to be nonprofit.

Disclosure and Fees

On Oct. 27, debt-relief companies are prohibited from collecting a fee upfront.

Under this provision, the company must successfully settle or negotiate at least one of the consumer’s debts and the consumer must make at least one payment to the creditor before any fees are paid.

“[Companies] can’t collect the front load or the upfront fee if [they] settle one out of four debts,” says Zullow.  Zullow explains that some companies would charge consumers the entire fee for only settling one out five debts.

According to the FTC, before a consumer signs up for any services, the company must provide a written contract, debt settlement plan, or oral agreement outlining the pay-back strategy. The company also needs to detail potential pitfalls of debt relief services.

Be aware, the new rules do not set a limit on how much a consumer will have to pay services.

“[The FTC] did what they could with the authority that they have,” says Gail Hillebrand, leader of the consumer’s union Defend Your Dollars. “They don’t get to dictate a cap on the amount, only on when the [fees] are earned.”

New Restrictions on Telemarketing 

The new rules also expand the restrictions of the Telemarketing Sales Rules to include calls that consumers make to debt relief companies through TV and radio advertisements.

Providers have to make disclosures when telemarketing and must tell any potential clients how long it will take to see results and the basics of what services will be provided.

“These companies…advertise on television, radio, or some other media, and provide consumers with a 1-800 number and that’s what initiates the telephone contact,” says Zullow. “It broadens the types and nature of the calls.”

To access the complete Telemarketing Sales Rule, click.

Even with the new protections, experts still say consumers should do their homework before working committing to a debt-relief agency.

 â€śI think it’s too early to see, but you’re going to have the scammers out there saying this is a government program,” says Dottie Callina, a spokesperson for the Better Business Bureau.  

“ Contact your local Better Business Bureau, FTC, the Office of Consumer Affairs, or any organization that can actually verify that that company is with the government.”

Make sure that debt settlement makes financial sense for you.

“Debt settlement is a funny kind of service; your creditors don’t get paid while you’re saving up the money for settlement,” says Hillebrand. “Creditors don’t like to wait to get paid and some of them will sue you. Debt settlement companies don’t do litigation and then they’re worse off than they were before.”