Bucks Blog: Be Wary of Debt Settlement Calls

It may sound like a solution: You are mired in debt and a telemarketer calls, offering to help reduce the amount you owe, in exchange for a fee.

But consumers should be very wary of such calls, said Claire Rosenzweig, president and chief executive of the Better Business Bureau of Metropolitan New York. “If someone just willy-nilly calls you and says they can reduce your debt, just don’t do it,” she said. The better choice is to hang up and do your own research about the legitimate resources that are available to help you, she said. Then, you can initiate your own call, once you are comfortable with an agency’s credentials.

Debt settlement firms typically offer to negotiate with creditors in exchange for a fee. But you can often do that yourself at no cost, she said, and in most cases, it makes sense to use the money you would pay to the settlement firm to pay down your debt directly.

Most settlement firms charge a fee, and some hold your money while they negotiate with creditors. But consumers’ credit ratings may suffer in the interim, and they may ultimately may wind up further in debt if the firm doesn’t follow through. In the worst case scenario, firms may take your money and do nothing.

That’s what is alleged to have occurred, in a case announced by the federal government on Tuesday. The government charged a debt settlement company with defrauding more than 1,200 people who were struggling with credit card debt.

The office of Preet Bharara, the United States attorney for the Southern District of New York, announced the unsealing of an indictment against Mission Settlement Agency, its manager and three employees. Officials said the firm, operating for several years in Manhattan and Brooklyn, systematically defrauded consumers across the nation. A message left at the agency’s phone number wasn’t immediately returned.

The action was the first criminal referral from the federal Consumer Financial Protection Bureau. “These wolves in sheep’s clothing take money from consumers who are already struggling to pay their bills, falsely promising them help while really making their problems worse,” the bureau’s director, Richard Cordray, said in prepared remarks.

According to the indictment, the firm contacted consumers by phone as well as by mail and promised to reduce their debts, typically by 45 percent. The firm took thousands of dollars in fees from customers, telling them it had to set aside money in escrow while it negotiated with creditors. But in the majority of cases, the firm did little or no work and “failed to achieve any debt reduction whatsoever.”

“Preying upon the financial desperation of individuals struggling to pay their credit card debts,” the indictment said, “the defendants falsely and fraudulently tricked over a thousand such individuals into becoming Mission’s customer with significant — but false — assurances about Mission’s ability to help.”

Ms. Rosenzweig of the Better Business Bureau said debt settlement firms know consumers are vulnerable to hearing what they want to hear.  But if you want help negotiating your credit card debt, the Justice Department accredits certain organizations to provide debt counseling and maintains a list on its Web site. Most accredited agencies offer their services for a low fee, or sometimes free — but you should ask up front.

Additional information about other options for managing your debt — like help if you are in trouble with your mortgage — is available from the Better Business Bureau and from the Federal Trade Commission.

Have you ever used a debt settlement firm? What happened?

Article source: http://bucks.blogs.nytimes.com/2013/05/07/be-wary-of-debt-settlement-calls/?partner=rss&emc=rss