Debt relief and consolidation scams still rampant post-recession

Sunday, December 8th, 2013 By

Penny coins

Debt reduction or debt relief companies promising that debts can be settled for pennies on the dollar are probably scams. Photo Credit: Jon Sullivan/released to Public Domain.

Over the past few years, some may have noticed a greater number of advertisements and other media relating to debt relief or debt settlement companies. Though many of these companies are legit, there are a number that are scams. Despite increased regulations, there are still a lot of fraudulent debt relief companies out there.

Crooks ignore Federal Trade Commission regulations

More than half a year ago, the Federal Trade Commission created new regulations to help deal with the growing number of complaints about ineffective or fraudulent debt settlement and debt relief companies. Debt servicing companies, according to KNDU, an NBC affiliate in Washington state, are prohibited from asking for an advance fee, have to make specific information available up front and cannot misrepresent themselves in any way. Companies have to give customers realistic estimates of how much money the could save and disclose exactly what fees are included in the service. However, some companies are not following the law.

Large debt relief company busted

Freedom Debt Relief was stung recently by the states of Washington and New York for not following laws regarding debt services, according to WalletPop. The California firm was found to have misled consumers in those states. The company agreed to a settlement of nearly $2 million to be paid to its customers in both states. The company previously settled similar cases with four other states and is currently part of a class action lawsuit. The Federal Trade Commission, according to the Wall Street Journal, recently won large settlements against two debt management companies illegally “robocalling” customers with automated phone messages. Advanced Management Services NW and Dynamic Financial Group were found to have robocalled customers and told those who responded they could reduce debt for a hefty upfront fee. Advanced Management Services offered a refund if efforts were unsuccessful, but both companies would just pocket the cash and send a card telling customers to pay credit card bills on time.

Too good to be true

The old maxim that “if it looks too good to be true, it probably is” holds true when it comes to debt settlement companies. The Federal Deposit Insurance Company and Federal Trade Commission both warn that any company promising to remove negative items from credit reports or a settlement for “pennies on the dollar” is probably a scam. Also, it is illegal for any debt settlement or debt reduction company to ask for any money whatsoever until after the debt is reduced or somehow changed. There are also plenty of nonprofit debt counselors who can help consumers come up with a debt reduction plan. The FDIC advises consumers look at a not-for-profit credit counseling service before looking at any for-profit debt reduction service. For instance, check with the National Foundation for Credit Counseling to find qualified financial advisers in the area.

Sources

WalletPop

KNDU

Wall Street Journal

FDIC

FTC

National Foundation for Credit Counseling

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