Consumer Law

Complaints About Debt-Settlement Firms

By M. Stan Herring

Eleanor Laise, of the Wall Street Journal, has written an article that discusses the problem of dishonest debt collection agencies. According to the article, the number of complaints about debt-settlement agencies so far this year is double the number of complaints in 2007. The Federal Trade Comission has also seen an increase in complaints. More people are turning to debt-settlement agencies as the economy weakens.

The article uses an Ohio man as an example. Wally Bowman owed $15,000 in credit card debt and enlisted the help of a "debt-setllement" firm. The firm advised him to quit making payments to his creditors, saying they could settle his debt for far less.

Mr. Bowman paid hundreds of dollars in up-front fees and made regular monthly payments of $249 to Hess Kennedy, but the Coral Springs, Fla., firm never settled any of his debts, he says. By the time he dropped out of the program this summer, Mr. Bowman says, his debt had ballooned to about $20,000, due to interest and late fees, and creditors were threatening to garnish his wages. Finally, he filed for bankruptcy last month.
"I wish I had done that to begin with," Mr. Bowman says. "I'd have been much better off."

This particular firm was sued by the Florida attorney general for violating various laws and regulations.

Debt-settlement firms typically advise the client to cease payments to the creditor and, instead, put the would-be payments into a special account that they (allegedly) will use to resolve the debt. This tactic can diminish clients' credit scores and increase boost their taxes on top of the large fees the firm will charge. A typical up front fee can be 10%-15% of the total amount owed, as well as an additional monthly fee.

Clients who follow a firm's advice and stop paying their creditors directly are often subject to raises in interest rates, late fees and nonstop calls. Also, wages can be garnished or the creditor can sue the debtor.

If you have had any issues dealing with debt-settlement firms, feel free to contact us.

Full post as published by Alabama Consumer Blog on April 12, 2009 (boomark / email).