FTC Crack Down on Debt Consolidation Companies
Recently the Federal Trade Commission has decided to join attorney generals around the country in looking at debt consolidation companies to see whether they’re misrepresenting what they say they’ll do for consumers, as well as verify that they’re not harming consumers at the same time.
Their first issue is in determining how these companies are obtaining clients in the first place. They actually sued and froze assets of one company, United Savings Center & Mutual Consolidated Saving, for violating telemarketing rules. At the same time, they cited them for promising lower interest rates on outstanding debt while collecting high fees up front.
A reality with companies like this is that most people who sign up with one of them, more often than not, will drop out of the program once the going gets tough, and the going will get tough. Most debt consolidation companies, if they’re not non-profit groups, will wait until your credit is trashed before they’ll attempt to take action, which could be as long as 18 months. During that time, you’ll receive both collection letters and calls, and could even possibly be sued, though most of these companies tell you it won’t happen. So, people drop out, then realize that money they’ve already paid is non-refundable.
Also, companies they negotiate with don’t have to reduce either interest rates or payments, though many of them will once you’ve reached a very bad spot. So, the promise that they will do it is a violation of the law, since it’s something they can’t really guarantee.
The FTC’s second issue, therefore, is in the promises that are made to the consumers, along with the make up of the deals they have consumers sign. Most of those deals have people pay an upfront fee, then monthly fees. The New York State Attorney General’s office released guidelines for people to follow, and one of the first is to never pay up front for services from these companies until they’ve accomplished what they say they will, which almost no one will because that’s not what they’re trying to do for you. Many of these companies, who are now trying to distance themselves from the pejorative title of “debt consolidation” and are switching to either “debt settlement” or “debt negotiation,” won’t begin talking to anyone on your behalf until they know they can negotiate a rate that will also afford them the opportunity to collect a nice percentage of the savings on the back end.
Having outstanding debt is scary. That doesn’t mean one should sacrifice common sense in the face of fear. Check out any debt consolidation company with your local Better Business Bureau. Check them out online to see how many complaints there are against them, and what types of complaints they are. The first step everyone should take, though, is to contact the lenders and creditors themselves first, to see if an agreement can be arranged. In these days of a tough economic environment, many people are finding lenders and creditors willing to work with you to get something, and it will protect your credit history much better than any contracts you may sign with a debt consolidation company.
As always, be wary of outstanding promises of almost anything. Protect yourself and your money; someone’s always willing to take it from you.
See more:
Debt Consolidation Companies Under Fire
New York Attorney General Launches Investigation Into Debt Consolidation Companies