Beware of Debt Settlement Companies “Come-on’s” this Summer

The television, radio and Internet debt settlement ads are more aggressive ever. The promises to “Get Out of Debt Fast” and “Cut Your Debt by up to 60%” are flooding consumer channels and as a call to action, Consolidated Credit is issuing a roadmap for consumers with the main theme of buyer beware.

Burdened with piling credit card debt in a down economy, thousands of consumers have been mislead by television, radio, and Internet debt settlement advertisements designed to lead people to think “government programs” will help them get out of debt. Debt settlement companies that charge high fees and often mislead consumers would be tightly regulated under the Debt Settlement Consumer Protection Act that was introduced in May 2010. This legislation attempts to protect consumers from unfair, deceptive debt settlement practices, but it will likely not go into effect until the fall or winter of 2010. Until legislation is passed these companies are making a last ditch effort to lure people to sign-up for their debt settlement services.

Settlement firms often advertise that consumers only have to pay 40% of balances they owe to credit issuers, but once the consumer is signed up, they may find huge fees, deceptive business practices, and no solutions to their debt problems. These companies prey on people who are desperate and have accumulated high credit card debt.

Typically, the settlement firms promise to negotiate with credit card companies to reduce the amounts that consumers owe. Costs vary, but companies may charge up to 20 percent of the total debt. Fees are usually demanded upfront even though a settlement may never be secured. In fact, many credit card companies refuse to work with debt settlement firms.

Consolidated Credit warns consumers who are seeking debt relief that hiring a debt settlement company doesn’t stop the collection calls, interest and financing charges continue to be charged and consumers can be sued. Most people who use debt settlement companies drop out after six months and the only money that is paid out goes to the debt settlement agency. What’s more, even if a settlement is reached – either independently or through a third party – it can severely hurt your credit score.

Under the legislation put forward by Senator Charles E. Schumer, D-N.Y., and Senator Claire McCaskill, D-Mo., debt settlement companies would not be able to collect fees until a settlement was reached. Consumers also would get clearer upfront disclosures, including a detailed list of all costs and promised services. The legislation provides for enforcement through the state attorney general and the Federal Trade Commission. The federal agency also would be given authority to regulate the industry”s advertising and marketing practices.

Consolidated Credit applauds Senators Schumer and McCaskill for introducing important legislation to crack down on debt settlement companies. These firms often charge outrageous fees by claiming that they can slash the amount consumers owe their credit card companies. However, the reality for many debt settlement clients is more debt, a ruined credit rating, and a bleak financial future.