Debt Adjusting Industry

Debt Adjusting Industry – Let’s Just Shut It Down

Search “credit card relief scams” on the Internet, and you will land a ton of hits. I searched this phrase today (11.24.2011) via The Google and received over 7.2 million hits.There is no shortage of writers on this important topic and the laws are very much pro-consumer. Here in Washington, the pro-consumer Debt Adjusting Act offers strong protection for Washington consumers who have been ripped off by debt settlement companies. Debt settlement companies doing business in Washington must limit their fee to 15% of the amount each installment submitted by the consumer to the debt adjusting and loan modification companies. These companies are also required to distribute at least 85% of each installment to the consumer’s creditors. Violations of these requirements allows consumers to receive a total refund, plus legal fees.Despite these requirements, many of not most debt-adjusting companies operate outside of the law, and this has been a long-term problem.Let’s go back over 30-years ago and revisit what was being said about the industry.In 1977, then Washington State Attorney General Slade Gorton’s consumer protection and antitrust division counseled the Washington legislature thatDebt adjusting for profit in this state should not be regulated but rather should be prohibited. While it is highly unusual for this office to recommend such a step in view of our strong support for competition and free enterprise with a minimum of regulation, our experience in this area indicates that this field, even with regulation, is open to abuse. The same sunset audit noted that “an estimated 50 percent of clients signing up for a program never complete it.”According to the debt settlement industry’s statistics from 2010, the dropout rate is almost 66 percent. Of that 66 percent, 65 percent leave the programs with no settlements. Telemarketing Sales Rule, 75 Fed.Reg. 48,458, 48,472-73 (Aug. 10, 2010). As the Federal Trade Commission observed in 2010:Debt settlement is a high-risk financial product that requires consumers simultaneously to pay significant fees, save hundreds or thousands of dollars for potential settlements, and meet other obligations such as mortgage payments. Failure leads to grave consequences; increased debt, impaired credit ratings, and lawsuits that result in judgments and wage garnishments.Consumers drop out of debt relief programs for many reasons, but the record shows that providers’ practice of charging substantial advance fees is a significant cause.” Because of this, and because of the ” deceptive and abusive practices of debt relief service providers,” the FTC has banned advanced fees for debt settlement companies, reducing the incentive and opportunity for debtor abuse. Those who enter a debt adjustment program but eventually drop out are generally much worse off than if they had not participated in the program at all. Not only have they paid substantial fees to a debt adjuster, but their debt problems continue to grow and spiral out of control.For over 30-years, the debt settlement industry has been preying on consumers. Maybe it’s time to shut them down for good, just like then Attorney General Slade Gorton’s consumer protection and antitrust division suggested in 1977.

We offer a free consultation with our consumer debt attorneys.

If you have questions or would like to learn more, please visit our consumer debt protection attorney services section.  We are waiting to assist you.