Debt Settlement Industry Rips Off Consumers
Some 250 “debt settlement companies” pray on consumers who are overwhelmed by debts. Consumers are lured by Internet and TV ads promising consumers their debt problems will cease if they just sign up. Typically, the companies require the consumer to make payments to the company while not making payments on their debts. The companies promise that once a pot of money accumulates in the consumer’s account, the company will settle the debts with the creditors by paying a percentage of the debt.
In their sales pitches, the companies omit over the fact that they deduct outrageously high fees, that the accounts rarely get to the point there is enough money to settle any debts in large part because of their fees, and that creditors often sue the consumer while all this is going on. The net result is the consumer ends up worse than when he or she started.
At an industry convention in Palm Beach, FL, those present were warned the new federal Consumer Financial Protection Agency may put them all out of business. Here’s hoping.
The NY Times front page article includes comments from state and federal officials and representatives of consumer organizations who agree the industry is a scam. For example, Andrew Pizor of the National Consumer Law Center said that when consumers top paying on their bills collectors start calling the creditors file lawsuits. Another observer, the industry is akin to a Ponzi scheme with consumers paying thousands of dollars with no positive results.