Upfront Fees for Business Debt Relief: What the Telemarketing Sales Rule Does and Does Not Establish

The Telemarketing Sales Rule (TSR) bans advanced fees on debt relief, but business-to-business telemarketing calls are exempt from much of the rule, so for business debts, it’s less clear whether the fees are illegal or not.

The fee ban in the TSR’s debt relief rules bans any advance fee before a service provider has settled or reduced a customer’s debt, and before the customer has made an agreed-upon payment to the creditor or debt collector. If creditors are paid one at a time, the fee charged per-debt must be a proportional share of the total fee, or a set percentage of each dollar of debt forgiven. The same percentage must be charged on every debt.

Telemarketing Calls to a Business

What about business debt? The TSR definition of a debt relief service covers any program to settle or change debts owed to unsecured creditors. No definition restricts this to only household debt, or to individuals, and “person” under the TSR includes business entities. There is a catch: telemarketing calls to a business are exempt from most of the TSR, including the fee ban. The only part of the TSR that still applies is a ban on misrepresentation and false statements.

If you called a company after seeing its ad for debt relief, the incoming call could be covered under the TSR. But none of that cancels the separate exemption for business-to-business calls. In 2024 the FTC amended the rule, so that a ban on material misrepresentation also applies to business-to-business calls. In a business-to-business call, a debt relief company still can’t misrepresent the promised services, how much you’ll save, how long it takes, how much you must save before the company will start negotiating, how it will affect your credit score and collection actions, what percentage of customers get any result, or say it’s a nonprofit if it isn’t.

If the company defrauds a business by misrepresentation, then yes, that is illegal. Absent that, the upfront fee is probably not a TSR violation, but it is not clear that it is definitively legal, either. Where the rule does apply, the FTC cautions attorneys they can still be bound by the TSR rule, and so not entitled to demand an upfront fee. What if they call it a “retainer”? No. The FTC still warns attorneys not to deceive clients by disguising illegal advance fees as a “retainer.”

An FTC staff opinion suggests that a sale might be exempt from the TSR if a business has at least one in-person meeting with the customer before any money is exchanged. To meet the definition of face-to-face, the meeting must happen before the sale and before payment, and not by teleconferencing; it must be in-person.

What They Must Tell Customers Right Away

The rule tells companies in a covered sale what they must tell you right away. They have to tell you the whole cost of the service, and how much you must save before it makes offers to your creditors. They also have to spell out how long it will take before the company negotiates settlements with your creditors. The company must tell you that skipping payments can get you sued, grow your debt with fees and interest, and hurt your credit score.

The TSR does let a company have you save money in a separate account to pay creditors, but only if they use an insured bank where you own the funds and interest, the administrator is not affiliated with the company, and they still can’t take a fee before the debt is settled and you have made the agreed-upon payment. You can quit any time, without penalty. Once you decide to stop the program, the company has to give back your money in seven business days, minus only the fees already earned.

The Contract Terms

As with anything else, you must look at the contract terms and know exactly what they will do and what you will pay. Find out if you’ll be charged a fee even if a debt is not settled. Ask how much of the money goes to them. Have they assured you that there is an exit door? Without penalties if you decide to stop any time. If they insist the upfront fee is legal, ask them how, with a written explanation. Don’t agree to pay for the service until they prove a debt has been settled, and you made your agreed payment.