DEBT SETTLEMENT SCAMS
DEBT SETTLEMENT SCAMS
What you need to know to protect yourself.
In case you haven’t noticed, there is a consumer debt crisis in America. More and more people are falling victim to high-interest credit card bills. Personal debt, foreclosures, and bankruptcies are at an all-time high as families are spending more than they earn. Between the 2001 recession and 2009 consumers added close to one trillion dollars in debt (not including mortgage debt). Total household debt (consumer and mortgage debt) grew from $7,659 trillion, or 75% of GDP ($10,205.6) in 2001 to $13,803 trillion, or 95% of GDP ($14,061.8) in 2009.
Seeking Professional Help
Faced with this unprecedented crisis, individuals and families often seek the assistance of professionals to help them settle their credit card and medical debt or renegotiate their home mortgages or car loans. Unfortunately, many of the debt settlement companies, loan modification firms, and attorneys see your personal debt crisis as an opportunity to enrich themselves. These companies offer to fix your problems for a fee that you often have to pay up front.Once they have your money, they do little to nothing more. Or if they do provide some services, the plan is so inadequate that many consumers find themselves in foreclosure or being sued by creditors for delinquent debts. And, once this occurs, those companies that promised legal help or debt solutions are nowhere to be found. Luckily, there is recourse against those who preyed upon you when you reached out for help (and paid good money to get it). Civil enforcement action has proven successful in seeing the return of the money you paid for the assistance.
Credit Card Debt
Hot on the heels of the banking crisis, the employment crisis, and the mortgage/foreclosure crisis, the country is on the verge of experiencing a credit card crisis. There is over $852 billion in debt in the United States and 98% of that is credit card debt. Most Americans carry at least three credit cards, with an average APR of 13.67%, and one out of every seven people use eighty percent of their available credit. Seventy three percent of Americans rely on credit cards to meet their basic needs!Americans have a serious and growing problem with credit card debt. In 2006, the average balance per open card was $1,033. By 2011, that amount had swelled to over $3,752. Even consumers over the age of 60, who typically live on a fixed income, have increased their use of credit cards at a rate of 4% over every two years. While the average American household without credit cards has approximately $16,000 in debt, those households that carry credit cards are nearly $54,000 in debt.Credit card defaults are expected to hit 10 percent this year. This will drive many banks closer to failing their stress tests. However, it will have an even greater impact on the lives of people who find themselves sinking deeper into debt. It’s a particularly vicious economic circle: Americans, faced with layoffs and tough economic times, are forced to use their credit cards to pay for essentials like food, housing, and medical care, the costs of which continue to escalate. As their debt rises, they find it harder to keep up with their payments. When they don’t, the banks, trying to offset losses in other areas, turn around and raise interest rates and impose all sorts of fees and penalties, all of which makes it even less likely consumers will be able to pay off their growing debts.That is not the end of the downward spiral of the U.S. economy. As more and more Americans default on their credit card debt, banks will find themselves faced with a replay of the toxic securities meltdown from the mortgage crisis. Credit card debt is routinely bundled together into “credit-card receivables” by Wall Street and sold to investors, often pension funds and hedge funds. Securities backed by credit card debt is a $365 billion market that has motivated credit card companies to offer cards to high risk borrowers and to allow greater and greater amounts of debt. As these borrowers continue to default, banks and the investors who bought their packaged debt will see their investment erode. And how are the credit card companies trying to offset the rise in bad debts? By raising rates on the rest of their customers, making it likely that more of them will end up defaulting, causing even more losses for the banks. And round and round and round we go.
Who is to blame?
As everyone knows, consumer debt, bankruptcy and default are at an all-time high in the USA. If you were to take a survey and ask people why this is the case, most of them would say it is because consumers are spending beyond their means and using credit to buy things they can’t afford.Perhaps there is another reason for the consumer debt crisis.Corporate deception is a major cause of consumers’ financial troubles. Their usury and deceptive tactics are designed to drive their customers deeper and deeper into debt. Consumers are led into debt traps by deceptive offers and raw deals. Here are just a few examples to illustrate this point.
Fees, Fees, And More Fees
Late fees, overdraft fees, over the limit fees, application fees, policy fees, service charges, convenience fees……. They just keep getting higher and higher! This is one way corporate greed empties everyone’s pockets, making it harder for people to pay their bills.On the other hand, creditor advocates such as the online blog the Real Truth, declare thatCredit is not the problem. A lack of self-control drives many into irreparable debt—even bankruptcy. The reckless, impulsive mentality behind most consumers’ borrowing has turned the loan industry into a thriving business. Credit is often used to purchase luxuries, leaving little to show for it except the bills. As a finance reporter for BBC News stated, “The temptation to borrow too much is greater than ever before.”Obsession with material goods further fuels the ever-growing debt crisis. In order to have more, people today spend more than they actually make. They are accustomed to increasingly luxurious lifestyles, feeling the need to spend more—to have the best clothes, newest gadgets and fanciest cars—the “keeping up with the Joneses” mentality. They are further driven by the rationale, “Everyone else is doing it!”Many have the tendency to shop when feeling unhappy or discouraged in order to feel “better.” Ironically, much of their initial unhappiness and worry stem from debt. So the cycle continues.Wherever you stand on the issue, what remains clear is that there is a crisis. What is equally clear is that there are people out there ready to exploit you in your moment of need. Acting under the guise of providing debt settlement services, these companies will do little and cost you a lot.
What Recourse Do You Have Against Companies That Prey On Your Hard Times?
Like many Americans, Tracey, a school teacher, had racked up a mountain of credit card debt. Divorced and raising three children, she was carrying a total balance of about $25,000 on her seven credit cards. In 2007, she was contacted by a debt settlement company based in San Francisco, California. “They told me I’d be debt free in 18 to 24 months and my credit would be better than it was before I got into the program,” Tracey, 37, recalls. Tracey agreed to pay a $1,300 enrollment fee and send the company $350 a month. They told her to stop paying her credit card bills, cut off all contact with her credit card companies and to change her phone number, which she did.Tracey believes she paid the debt settlement company about $7,000 during her two years as a client. In that time, she says, the company lowered her $25,000 balance by less than $5,000. “They don’t tell you the interest and late charges keep compounding,” she says. Since they weren’t getting paid, the credit card companies garnished her paycheck and bank account. Fearing she had no other option, Tracey contacted a lawyer and is seeking bankruptcy protection.This is a story heard time and time again. As Andrew Cuomo said at a news conference in 2009,“People think they’re reaching out for a helping hand, and it turns out to be a hand that pushes them further under.”
What You Need To Know About Debt Settlement Companies
Debt settlement companies are a risky way to go because they almost always require a sizeable payment upfront. Most promise a money-back guarantee, but getting a refund can be difficult, if not impossible. Most importantly, they do what you can do on your own by contacting your creditors to see if they will lower your interest rate or make some other money-saving concession. Not all debt settlement companies are crooks, but clearly, there are many bad apples in this barrel. Washington State Attorney General Rob McKenna has sued several debt relief companies. “They claim to have special relationships with the credit card companies or to know ‘secrets’ about how to reduce the amount you owe,” McKenna says. “But they consistently fail to deliver on those promises.”
Debt Settlement Scam Solutions
There are statutes that provide potent ammunition against a scam company. The Washington Debt Adjusters Act, the Federal Trade Commission’s MARS rule are the primary tools you can use. There are also the old fashioned common law remedies of breach of contract and fraud. Further, malpractice claims can be made.Litigation is usually not practical to see the return of your money. If the money involved is under $5,000 then it is generally not worth taking someone to superior court over. Attorney fees and costs make it a risky venture.You could take the company to small claims court, but as they are generally a corporate entity, they could be represented by an attorney while you would not be. Also, as many of these companies are from out of state, any judgment you obtained would have to be entered and enforced in the home state of the company.Our experience is that most companies are willing to settle the claim if contacted by an attorney. If the services involved an attorney or other licensed individual then there is considerable leverage in forcing a settlement. Complaints to licensing bodies, particularly bar associations that also have client reimbursement funds, can be very effective and the licensed person knows this. They are often willing to pay rather than deal with a complaint.Further, companies that are not about to go under and disappear are often willing to settle: they are still making money and are willing to accept a settlement as the cost of doing business. However, I always try to get the money out of them quickly, as you never know when the “pyramid scheme” will collapse. Complaints to regulatory agencies about unlicensed individuals or companies are less successful. The attorney general’s office has a consumer complaint mechanism as does the Department of Financial Institutions. Neither has proven very successful at pursuing out-of-state companies in particular.