Yes, You Should be Cautious of
Debt Settlement Companies
Although there are some debt settlement companies who are legitimate and will attempt to provide the service they agree to perform, you should be very cautious as the debt settlement industry is rife with companies who are nothing more than frauds. The problem is that it is difficult or even impossible to determine which company is legitimate and which is a fraud, that is, until it is too late!
Although many of these dishonest companies have been put out of business by State and Federal Regulators, many are still operating.
Among other things, these companies misrepresent what they can and will do, exaggerate the dollar amount of total past settlements, as well as, the number of customers they have had. They fail to disclose important necessary information, charge exorbitant and sometimes illegal fees.
Most require that all of your debt settlement funds be kept in their “trust account”. They try to raise your confidence by telling you that your funds are FDIC insured. The truth of the matter is that when your money is placed in their “trust account” it is forever beyond your access, ownership, and control. The mission of too many debt settlement companies is to extract money from you, not to settle your debts.
In too many instances unsuspecting consumers have found that these debt settlement companies take their money, yet provide little or no service. After a period of time they find that they are unable to reach the debt settlement company by phone.
To their dismay they find that the debt settlement’s phone has been disconnected, that they can only talk to “voice mail”, or the debt settlement company representative will not return their phone call.
They may find that the debt settlement company has been closed down by regulators, has gone out of business, or has filed for bankruptcy. The consumer is then confronted with the reality that few, if any, of their debts have been settled, that they are unable to get back the debt settlement funds they have paid that are being held in the “trust account”, and that the fees they have paid to the debt settlement company cannot be re-covered. They come to the sad reality that their financial difficulties have become much more serious. Most find that they have no recourse.
Merely because a debt settlement company does a great deal of television and/or radio advertising and enjoys a prominent ranking on the Internet search engine websites is no guarantee that these companies are legitimate. Some of the most visible companies are either presently under investigation, have been investigated, are presently under a Cease and Desist Order, or are paying civil fines. Some are in the process of being closed down by State or Federal regulators.
There are some red flags you may want to consider. Among other things they include some of the following:
Debt Settlement Companies Red Flag # 1
Some debt settlement companies try to gain your trust by advertising that they are a member of the Better Business Bureau (BBB) or one or more trade organizations. While being a member of such organizations is laudable, membership is NO evidence of the honesty, competence, or legitimacy of a company. In most instances, being a member of these organizations entails nothing more than paying a membership fee.
Debt Settlement Companies Red Flag # 2
Some debt settlement companies try to enhance their credentials by displaying in their advertising logos of major television networks such as CBS, CNBC, CNN, etc. In a subtle way they are trying to imply that these networks have given them some kind of recommendation. They usually go on to say that their company is “featured” on these networks. Simply put, their being “featured” is nothing more than they have bought some advertising with one of these networks. Many times this advertising was not even purchased for national viewing but has been bought and displayed on local affiliates of the networks. It might be no more that a spot on a local affiliated radio station.
Some debt settlement companies also try enhance their credentials and gain your trust by saying that their companies has been “featured” in Time, Newsweek or some other national publication. “Featured” does not mean that the publication has published a favorable article about the company. It means that the debt settlement company has purchased an ad and the ad was displayed in the publication.
These companies give the word “featured” a new meaning. Simply ask the debt settlement company representative when their debt settlement was “featured and what information was contained in the network presentation. Regarding print publications, ask the representative in what issue the article about their debt settlement company can be found. They will not give you a definitive answer.
Debt Settlement Companies Red Flag# 3
Some debt settlement companies, in an effort to give themselves legitimacy, advertise that their operation is “Attorney Based”, “Attorney Supervised”, or “Attorney Assisted”. You can determine quickly if the representative of the debt settlement company is telling the truth by simply insisting that you speak with the attorney who will be handling your account. You will be told that the attorney “is not available” or “doesn’t take calls”, etc. The truth of the matter is that an attorney will never be available to talk with you as there are no attorneys involved in their operation. Recent Federal legislation has made this practice illegal, however, some debt settlement companies are still doing it.
Debt Settlement Companies Red Flag # 4
Some debt settlement companies advertise that they are “Non-Profit” in an effort to give you an impression that they are not in the business of debt settlement to make a profit but only to be of assistance to consumers. Moreover, they want you to believe that you will not pay any fee for their services. Common sense has to tell you that no company can provide a service such as debt settlement without charging a fee. If they did provide this service with no remuneration, they would not be in business very long. It is now illegal for a company to say or imply that they are “Non-Profit” if they have not been granted the status of a “Non-Profit, 501-C3, tax exempt organization by the Internal Revenue Service. Simply ask them to provide you with a copy of their IRS 501-C3 tax exemption certificate. Chances are that at that point your conversation with them will be at an end. If they do have such a certificate you should ask where they get the funds for their operation. Most likely they are financed by the credit card companies.
Debt Settlement Companies Red Flag # 5
Some debt settlement companies, in an effort to portray that they must be honest and legitimate, assert that they are “Christian” or “Christian Based” organizations. Suffice it to say that several of these “Christian” or “Christian Based” organizations have been closed down by State and Federal regulators. There is no evidence to suggest that these debt settlement companies are more legitimate, more honest, or more credible that many other debt settlement companies.
As of October 26 of 2010 an amendment to the Federal Fair Debt Collection Practices Act (FDCPA) went into effect. In an effort to try to protect the consumer this amendment now places severe restrictions on the actions, statements, declarations, procedures, etc. of debt settlement companies. As a result many have had or, are in the process of going out of business. There are, however, still some that are doing “business as usual”. It will take some time for the regulators to close all of them down. It will, however, eventually happen. You could get involved with a debt settlement company whose days of operation will soon be over.
You must be so very careful if you want to acquire the services of debt a settlement company! As you know financial difficulties can be very stressful, not only for you, but for those close to you as well. These difficulties can be compounded many times over if you get involved with a debt settlement company. Your financial problems alone are certainly enough for you to worry about. You do not need the added burden of concerns about the honesty, integrity, and competency of your debt settlement provider. Why risk making your financial problems worse? You can have the confidence and peace of mind you need by using the debt settlement services of a licensed debt negotiation attorney.
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