40 States Ask FTC To Crack Down On Debt Relief Companies

Attorneys general in 40 states just asked the FTC to step up the fight against debt relief companies that mislead and overcharge consumers, like Credit Solutions of America (CSA), reports Consumer Affairs.

Why are so many states going after debt relief companies? Because they insert themselves between consumers and creditors and suck up the money earmarked for creditors by promising that they’re going to renegotiate payments—and then they don’t keep that promise.

According to a lawsuit by the Illinois Attorney General, Credit Solutions of America does just that; it “continually fails to negotiate with consumers’ creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA.”

So now the AGs are asking the FTC to tighten telemarketing rules, like prohibiting them from collecting fees before rendering services.

“In an ever-building wave of ploys and scams on consumers, debt settlement and debt negotiation companies promise to help consumers eliminate or reduce their debts, but often fail to deliver on these promises,” said Ohio Attorney General Richard Cordray. “Tougher regulations will help to rein in some of the most deceptive and unfair practices in this industry.”

“States Want Coordinated Crackdown On Debt Relief Firms” [Consumer Affairs]

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  1. smiling1809 says:

    Just file BK or negotiate a settlement yourself. Your credit is in the crapper either way.

  2. dragonfire81 says:

    These companies are scum. They prey on people who don’t know any better and then don’t deliver their promised services at all. They are one of the biggest scams going these days and must be stopped.

  3. gStein_*|bringing starpipe back|* says:

    in case anyone is wondering, the states that didn’t send a letter:

    Alabama
    Indiana
    Kentucky
    Louisiana
    Michigan
    New Jersey
    New York
    Utah
    Virginia
    Wisconsin

    (interestingly enough, Guam’s AG did send a letter)

  4. H3ion says:

    Why not license these businesses the same way real estate brokers are licensed, with some minimum standards set by the state or by the FTC? I’m sure there are some debt reorganization groups, especially the non-profits, that try to perform a service for the debtor. There needs to be a separation of the good from the bad and I think licensing/standards would help do this.

    • temporaryerror says:

      @H3ion:
      CCCS is a nonprofit that seems to do a decent job. You still get your CC statements every month so you can ensure that those match the statement you get from CCCS.
      (Consumer Credit Counseling Service)
      I think that most midsize and up cities have one.

  5. Shoelace says:

    I knew a guy who got involved with one of these companies following a nasty divorce. He said he was caught up in an endless loop of having to pay them fees in order for them to negotiate with his creditors, and he couldn’t get out. The negotiated payments plus the fees was more than the original payments would have been.

  6. thereisn0try says:

    Does anyone have experience with any legit debt-reduction organizations? I just made my first payment to the Consumer Credit Counseling Service, and though I have heard first-hand from acquaintances that they had success with CCCS, I am nevertheless concerned if they fall into the same category as those like CSA.

    • lincolnparadox says:

      @thereisn0try: Check with your local Better Business Bureau. If there’s a grievance, it will probably be filed there.

    • mac-phisto says:

      @thereisn0try: you might want to follow thru w/ the creditors to make sure they are receiving payments on your behalf. in more than one instance i’ve heard of people paying into credit counseling (not necessarily with CCCS) w/o having their debts paid.

      the worst story was a couple that had paid into a program for more than a year only to have all their debts go into default & subsequently have civil suits filed against them by a few of their creditors. i don’t know if they had any luck recovering the money they spent, but i know it took them a long time to recover from the effects.

    • bohemian says:

      @thereisn0try: If this is the one that is run by Lutheran Social Services, at least I know that one is legit. I have had a couple of friends use them.

    • cassiopia1177 says:

      @thereisn0try: The CCCS service is one of the few legit ones. I’ve been with CareOne for an eon – payments are slow, but balances are going down (I’d have been done years ago but did the dumb thing of slowly adding things to it instead of going whole hog and just stopping all CC usage at once). Never paid them a fee, never had a serious problem. The *truly* non-profit ones are great – it’s the pretenders that are scary.

    • Karita says:

      @thereisn0try: I’m using Care One right now, and I’m really really happy with them. They are for profit, but the fee is, in my opinion, low. $35 a month or something like that. My monthly payments for 5 bills are now less than the monthly payment for just one of them was before I started.

      I’m on the debt management program rather than the debt settlement program. I wanted my interest rates reduced, but I’m not trying to reduce balances. I’ve looked at their forums, and people seem to have a lot more complaints about the settlement program. Honestly, if I were trying to settle, I’d do it myself. But they were able to get me interest rates that I could never get on my own.

      • h3llc4t, breaker of office dress codes says:

        @Karita: The only bad thing I have to say about CareOne is that they are absolutely relentless. I considered going into a debt management program after some family issues came up and I had $10k worth of debt dumped on my lap. I contacted CareOne for some preliminary information and six months later I still get a letter every few weeks asking me to contact them if I’m interested (despite telling them over the phone that I am not).

        • Karita says:

          @h3llc4t has a slow work day: Oh I would hate that. I have decided not to use companies many times after getting too many calls or letters. When I contacted Care One, I had already looked into my options, and signed up right away. But if I hadn’t, I would definitely be put off by the letters.

    • temporaryerror says:

      @thereisn0try:
      See my above comment. I’ve been using them for a year and havn’t had a problem. You still get your CC statements so you can compare them to the statement that they send you.

    • Looseneck says:

      @thereisn0try: I used CCCS about 15 years ago and I never had a problem. I had about $6k in debt and paid it all within 2 years. They made me cut up my credit cards so I couldn’t rack up any more debt. I don’t remember having to pay a fee – it might have been included in the weekly payments.

    • Jevia says:

      @thereisn0try: I tried using them about 15 years ago when my husband had lost his job. They are legit and do make the payments to the creditors, BUT they don’t do your credit and credit rating any good. And if a creditor won’t deal with them, CCCS will still pay the creditor what they want to pay them, even if it means you continue to get hit by insufficient payment charges ($39 a pop) until that particular creditor becomes the ‘snowball’ recipient.

      I had two credit cards that wouldn’t reduce my payments/interest rates, but CCCS wouldn’t pay them more than like $15 a month instead of the $30 or whatever it was the creditor wanted, so the creditors continued to add another $39 a month (plus interest) to my account for insufficient payment. Of course, I could pay that extra amount myself, but that was defeating the purpose of what I signed up for, imo, and CCCS didn’t care.

      Also, CCCS set (imo) unrealistic limits on my other expenses (like electric bill at $100 a month when it was really $150 a month) and told my family that we should move my young daughter into our bedroom and rent out her room to someone for extra income. Yeah, not going to happen.

      We just filed for bankruptcy instead. Wiped out all the credit card bills, kept the house and car, and frankly didn’t do our credit report/rate any worse than signing up for CCCS in the first place (and 15 years later, its all gone anyway). Of course, that was before the bankruptcy law overall too.

      • thereisn0try says:

        @Jevia: I wonder if their policies have changed in the years since then; they made it sound like part of their contract with the creditors is that they do not charge insufficient payment fees or other sorts of fees once the payment plan has gone into effect (a couple of months in). I’m hoping this is so, because the amount given to creditors under their plan is less than my current minimum payments. I think that’s part of how it works though.

        In general, regarding everyone else’s comments: I think that the difference here is between questionable debt “consolidation” or “settlement” companies like those mentioned in this blog entry versus those with “debt management programs (DMP)”. I wasn’t sure before if it’s simply slapping a different name on it, but thus far my experience has been positive and I’ve received realistic information and goals rather than any miraculous promises.

    • gStein_*|bringing starpipe back|* says:

      @thereisn0try: i have a friend who had a Bank of America credit card (started out as one card, and was purchased 2 or 3 times, then BofA bought it), racked up somewhere around $3500 in charges, and decided to stop paying.
      He recently settled with them for around $1600 (yes, settled with BofA, not a collections agency) – you might consider working out a plan directly with the cc issuer

  7. Lucky225 says:

    Can’t be any worse then the collection agency your debt was sold to, you pay them and magically your debt is still listed on the report yet they sucked up all the payments — just dispute the debt by time it gets to an agency, you have no agreement with that collection agency, so the debt you ‘have’ with the collection agency you don’t ACTUALLY have. Just because Mr. Big Corporation doesn’t want to waste money trying to collect on you and sells your debt off to someone else does not make you actually in debt to that someone else — you are only in debt to Mr. Big Corp, you are not in debt with Tiny, the biker guy he sent to go collect the debt who is now claiming you owe him when you don’t even know who he is.

    • Coles_Law says:

      @Lucky225: Unfortunately, debt is legally transferable: [en.wikipedia.org]

      Not saying it’s right, but it is legal.

      • Lucky225 says:

        @Coles_Law:

        I sure hope you don’t think that just because someone BUYS MY DEBT or you read something in wikipedia that I somehow OWE THEM. This would be like if your mother asked Visa to settle my credit card bill for 50% of my total bill, Visa agrees, and then your mom turns around and asks me for 80% of the bill because she got the original creditor to charge me off. What someone else does with their money towards MY accounts does not make me in debt to that someone else. The debt purchaser/collector is NOT a creditor, they are a collection company, they are in the business of asking me for my money because the original CREDITOR gave up. I do not owe THEM the money.

        Some things collection agencys do from the same wiki article you posted:

        * Pursuing debts that are not actually owed by the person being targeted
        * Attempting to collect, improperly suing, or threatening to sue people on debts that are past the applicable statute of limitations or were settled and closed via bankruptcy
        * Reporting inaccurate creditor information to a credit bureau
        * Impersonating law enforcement and threatening to have a person arrested, or threatening to directly garnish a person’s wages, seize their property, etc.
        * Failing to validate debt in writing when requested
        * Continuing to call a person’s place of employment when instructed not to
        * Ignoring Cease and Desist notices to stop telephoning and communicate only via mail
        * Refusing to state the name of the collection company, or individual agents giving obviously fake personal names (for example, an agent from a call center in India giving their name as “Jack Wilson”)
        * Verbally abusing, using obscene language, threatening and harassing consumers

        Obviously there are good reasons not to pay a 3rd party company whom you don’t have a relationship with nor do you actually OWE any debt to.

        • Coles_Law says:

          @Lucky225: I’ll agree Wikipedia is not the best source of information, and I am aware that debt collectors frequently cross lines. Poor link on my part. My point was debt can legally be sold, just like a gift card or savings bond. If I have a $1,000 bond that matures in three years and I sell it to someone today for $800, that person has every right to go after the government for $1000 in three years time. They do NOT have the right to violate laws in any of the manners you listed. The industry needs regulation, but the basic concept of selling debt is legal.

    • econobiker says:

      @Lucky225: And often Mr. Big Corporation owns the debt collection company through a shield of subsidary companies…

  8. Steven Francis says:

    These mediators are really a blood suckers. I have met some agents of these agencies. They are so polite to consumers that everyone will think they are to help us. But finally they will put us in a more sort of bother. So its a welcome move.

  9. Snarkysnake says:

    The biggest irony in all of this is that these companies buy massive amounts of advertising to be run on the Dave Ramsey show , Clark Howard and other consumer help radio programs – The very programs that tell you that they are all fraudulent.

    Normally , if someone takes your money and doesn’t provide a product or service that is promised , that is Theft By Deception. But give them a website and an 800 number and the authorities turn the other way.

    I say make ‘em illegal…

    • Snarkysnake says:

      @Snarkysnake:

      Just a clarification : These crooks don’t buy ads FROM Dave Ramsey , Clark Howard etc… They buy them from the local stations that carry the show.

      • econobiker says:

        @Snarkysnake: I always love that irony that these scum suckers play commercials in Dave Ramsey’s show even when he says he has no way to stop them.

        This from Dave’s home radio station market in Nashville, TN- and yes I have driven by his building in Brentwood, TN.

  10. pecan 3.14159265 says:

    At least the AGs aren’t luring debt relief company employees into homes, holding them hostage and torturing them.

  11. gaya2081 says:

    My parents are currently using a debt relief company and its working out very well for them. Do not know which company they are using though. They had a lot of medical bills and my father is working 2 jobs to help pay everything down. Irony is both my parents are RN’s and my father works at a hospital.

  12. techstar25 says:

    Here is a page that lists government information and has links to approved agencies. Actually there is a lot of info on these pages.
    [www.justice.gov]

  13. theblackdog says:

    I’ve started seeing more and more signs go up on the roads around here advertising the debt relief.

  14. AllanG54 says:

    I worked for HFC and Citicorp and neither would accept arrangements from a FOR PROFIT credit counseling place. Now CCCS which is NOT for profit is actually paid by the creditor to help the customers. The creditor pays 10% of the payment to them (actually it’s just subtracted from the payment) with the total payment being applied. So if the payment was $50 CCCS would send $45 but the bank would still apply the $50. There is only a small set up fee billed to the debtor by CCCS and it’s about $50.

  15. Credit Solutions says:

    This is the biggest scams going these days and must be stopped.