Debt Settlement Firms Outsmart Government Regulators

By Johnnie Grant

The debt settlement business has boomed in recent years as more Americans find themselves unable to keep up with outstanding debts. The number of such firms has grown from 100 or so in 2007 to about 1,000 in 2010. As the industry grew, so did the complaints.

Consumers have stated these firms charged them thousands of dollars in upfront fees, but never delivered any debt relief. The Better Business Bureau has received more than 2,500 complaints, so it began tracking the debt relief industry as a separate category in 2010. Hoping to stop the scams, the Federal Trade Commission has barred debt settlement companies that use telemarketers from accepting upfront fees.

However, some companies found a loophole. Now, debt settlement firms
are partnering with attorneys to charge upfront fees as high as $7,000
or more.

Reilly Dolan, of the Federal Trade Commission, says that the current
telemarketing rule included no specific exemption for attorneys, so the
FTC would need to evaluate debt settlement firms that affiliate with
attorneys to see whether they are in compliance.

“We are concerned about companies that are partnering with attorneys
and not complying with the telemarketing sales rule. The problem in
charging upfront fees is that a consumer’s entire monthly payment may go
toward settling the firm’s charges first,” he says. Meanwhile,
customers continue to accrue late fees or interest, and possible
negative marks on their credit reports, and may still be sued by
creditors after enrolling in such a program.

Before signing up with any debt relief company, make sure to get
acquainted with the possible scam activities many of these companies
indulge in. Call the initial lender yourself to make a debt settlement;
more likely than not, they will work with your good-faith efforts.

Fraudulent settlement firms aim only at making money and frequently indulge in the following activities:

1. They will not provide you with complete details as to how they go about the settlement process with you.

2. They assure you that you will not receive any harassing calls from
your creditors, but in reality do not take any initiatives to help you
contact creditors.

3. They deceive consumers into thinking that they can help them out
with huge savings on their debts, and they hide the actual amount the
consumer needs to pay to the settlement company in “service charges.”

4. The settlement company might urge you to stop paying your creditor,
and suggest you open a savings account. The company usually keeps the
details of this account and draws a monthly fee from there. Nothing goes
towards YOUR outstanding debt. This can lead to huge losses for you
over time.

Rather than sign up with a for-profit, possibly dishonest company, seek
out a credit counseling service in your area. In Asheville OnTrack
Credit Counseling (formerly the Consumer Credit Counseling Service) in
the United Way building is a nonprofit organization with a sterling
reputation. They can be reached online at www.OnTrackWNC.org, by phone
at 828-255-5166, or at their office at 50 South French Broad Avenue,
Asheville, NC 28801-3271.