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Forewarned, forearmed: 'Debt relief' scams persist

Agency tightened regs on debt settlement industry, but problems remain

If you are considering filing for bankruptcy protection, chances are you've been using Web searches to learn about the ways to reduce debt and alternatives to bankruptcy.

FTC lists major options

Under the heading "Facts for Consumers," here's what the Federal Trade Commission (FTC) has to say:
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You're not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn't have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt settlement is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Certainly, a realistic budget is necessary, regardless of the option you ultimately choose. Credit counseling from a legit firm may well be an alternative, as well as a loan for debt consolidation: an experienced, trained bankruptcy can help counsel you about these alternatives as well  as explain the power of bankruptcy protection.

Be alert to 'debt-relief' programs that can do more harm than good

However, if you run across ads for "debt settlement" programs, or "debt relief" or "debt management" programs, be wary. Although it's true that reputable firms do exist, several states' attorneys general and the FTC have brought action against many firms that were ripping off consumers, not only charging high, hidden fees but also often not even helping people and, in fact, making their situations worse. Last fall, new FTC regs took effect, reining in such companies that use telephone solicitation.

However, as this May 10 piece at a consumer-oriented site tells us, "Debt settlement companies work on behalf of the debtor to handle debt negotiations and payments and while many do legitimately achieve the elimination goals of the consumer, there are still companies setting up shop only to make a quick buck.

"The Federal Trade Commission has stepped up its game to monitor these fraudulent companies to ensure that consumers are not being scammed. Typically what occurs with a scam company is the debtor pays an upfront fee for debt help only to later find nothing was done and the agency made off with their cash. As many debtors become desperate for help and are overwhelmed with debt, they fail to first investigate the company they sign with for debt assistance.

"But it is that investigative process that the FTC recommends to all consumers to prevent scams and con artists from taking advantage of a desperate consumer. Regulations have been increased but there are still those agencies that slip through the cracks or find loopholes to solicit customers."

FTC recommendations

Here's what the FTC recommends:

Researching Companies

If you decide to pay a company to negotiate your debt, do some research. Consider other people's experiences. One way to do that is to enter the company name with the word "complaints" into a search engine. Read what others have said. You are making a big decision that involves spending a lot of your money that could go toward paying down your debt.

Protect Yourself

Be wary of any debt relief organization that:

  • charges any fees before it settles your debts

  • pressures you to make "voluntary contributions," another name for fees

  • touts a "new government program" to bail out personal credit card debt

  • guarantees it can make your unsecured debt go away

  • tells you to stop communicating with your creditors

  • tells you it can stop all debt collection calls and lawsuits

  • guarantees that your unsecured debts can be paid off for just pennies on the dollar

  • won't send you free information about the services it provides without requiring you to provide personal financial information, such as credit card account numbers, and balances

  • tries to enroll you in a debt relief program without spending time reviewing your financial situation.

  • offers to enroll you in a DMP without teaching you budgeting and money management skills.

  • demands that you make payments into a DMP before your creditors have accepted you into the program.

You can report suspect companies

According to the May 10 Ground Report article, "The Federal Trade Commission plans to continue their aggressive monitoring of scam companies and consumers are encouraged to report suspected scams involving debt settlement companies to their local Attorney General’s office. The more knowledgeable a consumer is about debt settlement rules, the less likely they will be the victim of a scam."

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