Tell­tale signs of debt-re­lief scams

The Washington Post Sunday - - BUSINESS - Michelle Singletary

Peo­ple are so des­per­ate to get out of debt that they will be­lieve any­thing and any­one promis­ing re­lief. They of­ten turn to debt-re­lief com­pa­nies pro­mot­ing plans that can sup­pos­edly solve their prob­lems. But for many, not only does the re­lief not come, but the steep cost of the plans — some­times thou­sands of dol­lars — can also dig them in deeper.

Re­cently, the Fed­eral Trade Com­mis­sion an­nounced a $7.9 mil­lion set­tle­ment with one debt-re­lief op­er­a­tion that the agency said scammed peo­ple by mak­ing false prom­ises. The com­pany waived its rights to “chal­lenge or con­test” the charges, ac­cord­ing to the set­tle­ment.

What the FTC found was trou­bling. And if the right knowl­edge is power, let’s look at the anatomy of how this one scam worked.

The promoter: DebtPro 123. Un­for­tu­nately, this com­pany is not alone. Just look for com­pany names in­tended to lure you into think­ing that they feel your pain and want to help elim­i­nate your debt in just a few short years.

The pitch: Ac­cord­ing to the FTC com­plaint, DebtPro 123 told

folks that its “debt res­o­lu­tion pro­gram would com­pletely re­solve con­sumers’ credit card and other un­se­cured debts (in­clud­ing depart­ment store ac­counts, per­sonal loans, med­i­cal bills, stu­dent loans, and ac­counts with col­lec­tion agen­cies).”

It also told con­sumers: “DebtPro will re­duce a client’s to­tal debt by 70 to 80 per­cent on av­er­age in­clud­ing all fees” and “With set­tle­ments as low as 10 per­cent, this means when all is said and done, a client’s sav­ings could be as much as 20 cents on the dol­lar in­clud­ing our fees.”

Now re­ally, doesn’t that state­ment sound too good to be true? And it was. What would you say if you were told this? “With hon­est and in­for­ma­tive ad­vice, out­stand­ing cus­tomer ser­vice, and a proven debt set­tle­ment process, we can en­sure our clients be­come debt­free quickly and com­fort­ably and get back on the path of financial free­dom.”

I homed in on two words: “quickly” and “com­fort­ably.”

Un­less you come into some big bucks, the process of pay­ing down your debts is long. It is painful. And if some­one tells you dif­fer­ent, don’t be­lieve it.

Oh, and there was the debt cal­cu­la­tor to help the un­be­liev­ers. It was de­signed to back up the ridicu­lous claims of a quick debt re­duc­tion.

The two phases of the pro­gram: In phase one, cus­tomers put money in a “Cred­i­tor Fund/ Set­tle­ment Ac­count.” They were told they needed this pot of money for ne­go­ti­a­tions with their cred­i­tors. In phase two, cus­tomers were as­sured that the com­pany was work­ing on their case to get all their debt terms changed.

Dur­ing th­ese phases, cus­tomers were ad­vised to stop pay­ing their bills and to stop all communications with their cred­i­tors. Bad move. Of­ten in th­ese cases, peo­ple find out later that noth­ing had been done on their be­half and that fees, in­ter­est and penal­ties had been pil­ing on while they waited on re­lief.

The FTC com­plaint said DebtPro made ref­er­ence to its “le­gal depart­ment.” And, in phras­ing that’s mim­icked by other such com­pa­nies, DebtPro told its clients: “The at­tor­neys will com­mu­ni­cate di­rectly with your cred­i­tors and debt col­lec­tors via the mail and tele­phone. They will au­dit your bills and the col­lec­tion meth­ods be­ing used by the cred­i­tors to de­ter­mine if your con­sumer rights have been vi­o­lated.”

Other prom­ises: Your credit will be bet­ter be­cause the firm will work to re­move neg­a­tive in­for­ma­tion from your credit files. Ex­cept it failed to make clear that if the in­for­ma­tion was true — that you didn’t pay your bills as agreed — this in­for­ma­tion can’t be re­moved. By law, most neg­a­tive credit in­for­ma­tion can stay on your re­ports for seven years.

The real plan: Make money off des­per­ate peo­ple. “For many con­sumers, more than half of their monthly pay­ment went to­wards de­fen­dants’ fees,” the FTC said. “For con­sumers who were in the pro­gram longer than 18 months, de­fen­dants also charged a $49 monthly ‘main­te­nance fee.’ ”

The failed prom­ises: Debts weren’t re­duced quickly. In fact, in many in­stances, the debt-re­lief com­pany didn’t start set­tle­ment ne­go­ti­a­tions un­til af­ter the client had re­ceived let­ters from cred­i­tors warn­ing of an im­pend­ing law­suit for fail­ure to make debt pay­ments.

Set­tle­ments weren’t sig­nif­i­cantly less than what was owed. Neg­a­tive in­for­ma­tion was not re­moved. And there was “no le­gal depart­ment, ‘le­gal in-house coun­sels’ or any at­tor­neys on staff,” the FTC found.

Peo­ple ended up with more debt, some lost their homes, and oth­ers had their wages gar­nished or had to file for bank­ruptcy pro­tec­tion.

Now that you know the in­side deal, don’t get suck­ered into this type of debt-re­lief scam.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.