TILL DEBT DO US PART Com­pa­nies of­fer chance to avoid bank­ruptcy, but scam artists abound

The Washington Times Weekly - - National - BY WILLIAM EHART

The ads are ev­ery­where — on the In­ter­net, in your e-mail and on the ra­dio.

“Se­cret pro­gram the credit-card com­pa­nies don’t want you to know about.” “Elim­i­nate 75 per­cent of your debt without a bank­ruptcy.” “Cut pay­ments, get out of debt and save.”

A free lunch al­ways sounds good, but never bet­ter than now with Amer­i­cans stag­ger­ing un­der near-record debt loads and los­ing their jobs by the hun­dreds of thou­sands ev­ery month. It is true that credit-card is­suers are in­creas­ingly will­ing to ne­go­ti­ate re­pay­ment terms with their cus­tomers. And there is a boom­ing cot­tage in­dus­try of providers of­fer­ing to ne­go­ti­ate on your be­half — usu­ally for a big up­front fee.

Af­ter all, you may owe money to half a dozen card is­suers, and try­ing to reach a set­tle­ment on your own can be dif­fi­cult. Don’t ex­pect your cred­i­tors to play nice.

But the real sharks in the wa­ter are not the com­pa­nies de­mand­ing re­pay­ment but the scam artists who fleece peo­ple drown­ing in debt by promis­ing to throw them a life pre­server — for just a few thou­sand dol­lars more.

“The con­cern is that many con­sumers aren’t get­ting any ser­vices at all in the vast ma­jor­ity of cases or not nearly the amount promised,” said Ali­son Brown, a staff at­tor­ney for the Fed­eral Trade Com­mis­sion.

Such abuses have brought in­creased scru­tiny from reg­u­la­tors and law en­force­ment.

The in­dus­try took off four years ago af­ter fed­eral bank­ruptcy re­form made it more dif­fi­cult for debtors to shed their obli­ga­tions, ac­cord­ing to Michael P. Kerr, leg­isla­tive di­rec­tor for the Na­tional Con­fer­ence of Com­mis­sion­ers on Uni­form State Laws. The group is ap­pointed by the na­tion’s gov­er­nors.

“Debt set­tle­ment re­ally popped up into ex­is­tence in 2004-05, and states are just now ad­just­ing to the mass of mar­ket par­tic­i­pants,” Mr. Kerr said. “There are some com­pletely il­le­git­i­mate play­ers out there.”

Keith Nelms and his debt­set­tle­ment fir m, Allegro Law, were sued by the state of Alabama last month for fraud­u­lent prac­tices.

The firm was ac­cused of op­er­at­ing one of the big­gest debt­set­tle­ment schemes in the coun­try, op­er­at­ing in all 50 states and col­lect­ing mil­lions of dol­lars from 15,000 cus­tomers. Pros­e­cu­tors charge the com­pany pock­eted hefty fees yet did noth­ing to help its clients.

Mr. Nelms had his law li­cense sus­pended for three years in July.

In May, West Vir­ginia sued James R. Arm­strong Jr. of Coral Springs, Fla., charg­ing he “mas­ter­minded a web of for-profit com­pa­nies to en­rich him­self un­der the guise of pro­vid­ing debt-man­age­ment ser­vices with Fam­ily Credit Coun­sel­ing Cor­po­ra­tion,” which he con­trolled.

Scam artists thrive on the patch­work of state laws that al­low them to op­er­ate vir­tu­ally un­reg­u­lated in some states. Mr. Kerr’s group has worked to sew up that patch- work. Its pro­posed leg­is­la­tion has been adopted in a hand­ful of states and calls for debt-re­lief fees to be spread out over 18 months.

The FTC is tak­ing pub­lic com­ments through Oct. 9 on even stricter pro­posed reg­u­la­tions that would bar fee col­lec­tion un­til af­ter the debts are set­tled. A pub­lic fo­rum — less for­mal than a hear­ing — will be held on the pro­posal in Novem­ber.

The As­so­ci­a­tion of Set­tle­ment Com­pa­nies, one of the main trade groups for the debt-set­tle­ment in­dustr y, sees that as a mor­tal threat to the busi­ness.

The group prefers the leg­is­la­tion ad­vanced by the com­mis­sion on uni­form state laws, and is work­ing closely with the states on it, said Wes­ley Young, leg­isla­tive di­rec­tor for the group.

“We do sub­stan­tial amounts of work be­fore we set­tle the debt. When you have a con­sumer who has fin­ished the pro­gram be­fore he is fin­ished pay­ing the fee, we have trou­ble col­lect­ing the rest of the fee,” Mr. Young said.

“I don’t think all the prob­lems come from bad play­ers, al­though there cer­tainly are bad play­ers. But some are just new to the in­dus­try and in­ex­pe­ri­enced,” he said.

Crit­ics say such debt-set­tle­ment trade groups — also in­clud­ing the United States Or­ga­ni­za­tion for Bank­ruptcy Al­ter na­tives — have not weeded out those bad ac­tors.

“Th­ese at­tempts at sel­f­reg­u­la­tion have failed mis­er­ably. I look at them as price col­lu­sion,” said Michael Bovee, founder of the Con­sumer Re­cov­ery Net­work, a debt-set­tle­ment and con­sumer-ed­u­ca­tion com­pany based in Sand­point, Idaho.

“If you charge the kind of fees that 90 per­cent of the com­pa­nies in my in­dus­try charge, in my opin­ion you’re driv­ing them to­ward bank­ruptcy,” said Mr. Bovee, who fa­vors fed­eral reg­u­la­tions.

Mr. Young coun­tered that “neg­a­tive per­cep­tions” about debt set­tle­ment are be­ing spread by ri­vals such as debt-man­age­ment or­ga­ni­za­tions that are just fight­ing for mar­ket share.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.