Message from Montie

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Are debt settlement companies that claim to eliminate credit card debt a scam?

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Message from Montie

Shamontiel is the author of two novels: "Change for a Twenty" and "Round Trip." Check her out at shamontiel.com.

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Are you a victim of the debt settlement program?

Lately I've been hearing a lot of recordings for debt settlement offers that will give credit card holders the opportunity to settle their credit card debt. I wondered if these companies were anything like consolidation loan companies so I called. While talking to this company, I also looked up other debt settlement companies that claim to lower your credit card debt by 60 percent. Some have the Better Business Bureau stamp at the bottom, but when I looked up the company directly on the BBB Web site, the company name could not be found. That sent up a red alert.

 

Debt settlement companies ask for the following when they speak to you:

  • Social Security number
  • Copy of your driver's license and driver's license number
  • Full credit card numbers (the credit bureaus will only give partial numbers to protect our privacy)
  • Verify the balance due on each card (they will look it up by your Social Security number)
  • Annual salary or unemployment monthly rates
  • Contact information (name, address, home and/or cell number)
  • Monthly medical, grocery, auto, housing, utility and insurance expenses to calculate your income to expense variance
  • A voided check to deduct the agreed-upon amount directly from your checking account

 

Now that's quite a bit of personal information that this company is asking you for. However, some of this information is no different than a consolidation company. However, here are quite a few differences between a consolidation company and a debt relief company, and all of them are red alerts.

 

Red Alert 1: The debt settlement company states that the credit card owner may receive threatening or continuous calls about late payments. The debt settlement company says to ignore those calls and to have the credit card collections agencies call them. But if the debt settlement company has already negotiated a settlement amount, why would a credit card collection agency call you in the first place? The contract should be clearly stated.

 

Red Alert 2: The debt settlement company states that the credit card owner may be sued for late fees and not paying the full amount and the debt settlement company is not responsible for court costs. But why would a credit card company sue you for an amount they agreed to via contract?

 

Red Alert 3: The debt settlement company claims that they know how much you'll have your credit card debt reduced just by looking at your current balance before talking to the credit card lenders. How does a debt settlement company know exactly how much each company will settle for before talking to that company? Why would a debt settlement company ask you to sign a contract for a certain amount if they don't know and you don't know that the credit card lenders may not agree to that amount?

 

Red Alert 4: The debt settlement company encourages you to close your current checking account and open a new one if you have credit cards affiliated with the same company that you bank with. The debt settlement company wants you to close your current account because credit unions are notorious for freezing accounts for lack of payment. They say banks are less likely to freeze accounts though. The debt settlement company's rationale is that a credit union or banking account will see your balance is higher than what you're paying and collect that money to make up for late fees and current balance due. Why would a credit card or bank issue a late payment amount if a negotiation rate was agreed to other than to collect the owed amount that they have no idea why you're not paying?

 

Red Alert 5: The debt settlement company claims that you may terminate your account at any time by contacting their customer service hotline with written notice. The debt settlement company also claims that your account may be canceled at any time without notice for inactivity, but they want you to pay or a negative balance if the account is closed. But why would you have a negative balance if the credit card owner is not allowed to deduct money from the debt settlement account, only add money?

 

 

 

These are the types of questions I asked after speaking with a representative and getting the contract. The customer service representatives are quick with the answers, but none of them make sense. I also contacted my bank to ask about this company, and they'd never heard of the debt settlement company. Don't you think if the average person could eliminate all of their credit card debt in 12 to 36 months for up to 60 percent less that banks and credit unions would be more familiar with these companies. I talked to five different representatives and went into a banking institution and was met with a blank stare or pause by each company and then the same response, "What was this company's name again? I've never heard of them."

 

I then took this information to the Federal Trade Commission. As you may already suspect by now, these debt settlement companies are a fraud. If you feel you may be a victim of identity theft or fell for the debt settlement agreement, send any information you have (including emails from the company) to the FTC at spam@uce.gov.

 

What do I do in the meantime?

 

  • If you have more than one checking account, transfer your remaining funds into an account that the debt settlement company does not have access to. Close the checking account that money is being deducted from immediately.

 

  • Call all of your credit card companies that you have given out full information on and cancel the cards or ask for a different account number. Even if the credit card company says without an expiration date, the debt settlement company can't do anything, they still have access to your information.

 

  • Contact the fraud or scam department with your bank so they are aware of the debt settlement agreement in case there is a backlash.

 

  • Contact the Better Business Bureau with the company name that has their BBB stamp. One debt settlement company I found stated it was based in Santa Ana, California, but the company is really in Arizona and the BBB stated it was not accredited.

 

  • Contact the Social Security Administration and all three credit bureaus to put an alert on your account in case you may potentially be a victim of identity theft. Remember that the debt settlement company now has your Social Security number and your license. It's hard to fight a financial case when the debt settlement company knows as much about you as you do.

 

    For more information, contact the FTC.

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    10 Comments

    kosterholt said:

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    I am not sure which company you are talking about, but I know of several that have A ratings with the Better Business bureau. I was in the debt collection business for 10 years as a Director of Operations. It is a fact that settlements exist in the credit & collection world. Although we never had actual contracts with debt settlement company's we settled out millions through them giving them the best rates for volume. A debt settlement program is not for everyone, these programs are designed for people who have fallen behind and cannot catch back up. I think that you should do some more research before you try to steer people away from Bankruptcy alternatives that actually work. Your doing more harm then good. True there are a lot of bad company's out their just like any other business(Remember the mortgage company's). Consumers need to do their homework understand what they are getting into, and if it is a good fit for them. TASC & USOBA are 2 organizations that regulate the debt settlement industry and have a ton of information for consumers. You have to look at the facts; debt settlement has been around for over 20 years if it did not work why would it be growing? We live in a time where banks are dropping available credit to what the current balance is then raising the interest rates by 10+ points, effectively eliminating the consumer from using the credit while forcing them to pay ridicules rates. This would be fine if they missed a payment, but these people have not been late in 15 years and now are being punished for a bad economy. The fact is debt settlement works the Association of Women Senators recognized this a few months ago everyone else should too. What we need is regulation, license requirements standard disclosures to weed out the bad apples. I have been on both sides & know that this works, just not for everyone. The consumer needs to inform themselves and the company's need to make sure that the consumer is informed

    Message from Montie said:

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    Kosterholt, you are welcome to list the ones that have grade A with the Better Business Bureau. If you list two of the ones I'm referring to, I'll know something is wrong with this list. You say not to steer people from bankruptcy alternatives, but you're missing the biggest point. Some of these debt settlement companies REFUSE to admit that they're using the same tactics as bankruptcy. The one I talked to acted like it was a consolidation loan without the loan, like they were being my banker instead of putting me at risk for late fees. The monitored call afterwards that asks me to confirm that I understand that I can be sued, that I may be harassed by creditors, that I'm allowing them to go into all of my accounts, that wants a driver's license number (I DON'T EVEN USE MY DRIVER'S LICENSE NUMBER TO PAY BACK CREDIT CARD BALANCES). No matter how hard up a person is, I would never suggest using a debt settlement company that basically says, "Hey, I'll take your money but I don't care about what happens to you for the next three years. Let me just keep withdrawing every month." Something is off about that whole set-up.

    Message from Montie said:

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    As far as your question about why debt settlement programs would still be around after 20 years, according to FTC sites, they're still around because they find new and creative ways to scam people. Let's face it. It looks good on paper to get a 60 percent discount off of credit card debt. Internet hackers and identity theft artists have been around for years too. That doesn't mean they're honest, but they'll continue to grow just like those emails about transferring money overseas to somebody's royalty bank account in Africa will just keep on coming. Internet scamming and money hustles are just sophisticated pickpocketing.

    kosterholt said:

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    you are right about that but their are companies that offer legal counsel in the event you get sued and actually have in house attorneys for harassment. \

    kosterholt said:

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    Red Alert 1: The debt settlement company states that the credit card owner may receive threatening or continuous calls about late payments. The debt settlement company says to ignore those calls and to have the credit card collections agencies call them. But if the debt settlement company has already negotiated a settlement amount, why would a credit card collection agency call you in the first place? The contract should be clearly stated.
    Answer: There is no negotiated amount until the account gets charged off. So of course the bill collector is going to keep trying to earn his commission until it is paid. They want to get as much money as they can and by scaring the consumer they might just get more then the settlement company will give them.

    Red Alert 2: The debt settlement company states that the credit card owner may be sued for late fees and not paying the full amount and the debt settlement company is not responsible for court costs. But why would a credit card company sue you for an amount they agreed to via contract?'
    Answer: Same answer as above. Now a person will almost never get sued by a creditor before it is settled. Too many things have to happen before a lawsuit can take place & more importantly why would they sue someone who pay up front court and attorney fees only to get a judgment that will not award interest and late fees. They wont it does not make monetary sense.

    Red Alert 3: The debt settlement company claims that they know how much you'll have your credit card debt reduced just by looking at your current balance before talking to the credit card lenders. How does a debt settlement company know exactly how much each company will settle for before talking to that company? Why would a debt settlement company ask you to sign a contract for a certain amount if they don't know and you don't know that the credit card lenders may not agree to that amount?
    Answer: Its an numbers game. they know that certain banks give certain discounts so it always averages out to the amount that they quote or less. The smart company's always quote high and finish low.

    Red Alert 4: The debt settlement company encourages you to close your current checking account and open a new one if you have credit cards affiliated with the same company that you bank with. The debt settlement company wants you to close your current account because credit unions are notorious for freezing accounts for lack of payment. They say banks are less likely to freeze accounts though. The debt settlement company's rationale is that a credit union or banking account will see your balance is higher than what you're paying and collect that money to make up for late fees and current balance due. Why would a credit card or bank issue a late payment amount if a negotiation rate was agreed to other than to collect the owed amount that they have no idea why you're not paying?
    Answer: Most credit card contracts with banks state that if you default they will take your checking and savings, so to avoid this you have to open a new account.

    Red Alert 5: The debt settlement company claims that you may terminate your account at any time by contacting their customer service hotline with written notice. The debt settlement company also claims that your account may be canceled at any time without notice for inactivity, but they want you to pay or a negative balance if the account is closed. But why would you have a negative balance if the credit card owner is not allowed to deduct money from the debt settlement account, only add money?
    Answer: If the debt settlement company tells you this run! The legitimate company's set up a trust account only in your name and never touch your money, they use a 3rd party to transfer all funds to and from your account. This protects them and you. You can always cancel and get all of your money back its your trust account.

    Remember these programs effect your credit negatively and are designed for people who are already behind or like I always say
    "One flat tire away from delinquency"

    Message from Montie said:

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    Kosterholt, I talked to a couple of debt settlement companies, and none of their information made any sense. Banks had never heard of these companies. After checking the FTC sites and several bank sites, they also warned against debt settlement companies that run off with your company. This business is just way too shaky to get involved in, in my opinion, and especially with the company who suddenly disappeared as soon as I said I wasn't going to follow through with the contract.

    But let's go back to the red alerts:
    1) Some of these debt companies are not paying until the settled balance is in the account so a person can have a 90-day late payment. That's ridiculous on their credit report. But the debt settlement company I talked to kept dodging that issue, and it was not on the contract.

    2) It does make monetary sense if they can get the difference that they have been owed for three years while the debt settlement company ran off with their money. If this company is not legitimate, nothing is paid, then the credit card company loses. Of course they'd take this person to court. And the company I talked to distintinctly stated that the client would NOT be bankrupt. The only way around not paying these credit card companies after something like that is to file for bankruptcy.

    3) Yes, and then the debt settlement client is paying higher wages all the way up until two to three years, and then the debt settlement company gets a percentage from the remaining amount. So they're paying for their own discount.

    4) This is also a way to freeze an account when they want the money that they are owed. Credit unions lose money by settling for a lesser amount and are not funded the same way banks are. I called a Chicago credit union up to verify this information as well and talked to a credit union manager.

    5) The debt settlement company I talked to definitely wanted money paid back for the difference. It was in the contract.

    For the person who is already behind, why would they want to take the risk of saving all that money to risk it being stolen two and three years from now? For the company I'm referring to, a client was sued for late payments, finance charges that put him over his available balance, and do these debt settlement companies show the debt settlement clients copies of the contracts from the banks? If so, then they shouldn't have to wait three years to get the difference in balance back.

    I can't see the FTC link I submitted saying it's a scam if it's less bad apples than good ones. The whole agreement sounds fishy.

    David Pasternak said:

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    That is an excellent article. The only way these scam artists are going to be controlled is if the government is aware of them. When you encounter one, you need to report them immediately.

    managingcreditcarddebt.org

    John said:

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    Hi! Good to know all this..

    kosterholt said:

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    Hey Montie,
    You have to remember that only people who cannot afford the monthly minimums and are already behind should enroll in this type of program. Too many people who can afford the payments and are not behind are trying to get into these programs to save money. This is not a "saving money program" it is an alternative to bankruptcy plain and simple. If you can afford your payments but want lower interest rates and a little of a break on the payment then you should be going with CCCS not debt settlement.
    The reason these programs help so many is because you have debt collectors that push people so hard for a lump sum that they just ignore it or pay it (with money they do not really have) or file bankruptcy destroying their credit for 10 years. Look I was in the collection business for 12 years working with debt buyers direct agencies and law firms that actually sued people for credit card debt. That business is heartless my first christmas as a bill collector I heard the managers telling people to take back little Johnnys present because it was stolen with the banks money. I eventually was promoted and ran (from an operational standpoint) law offices debt buying companys and other types of collection agencies. My point is that not everyone can afford their debt and not everyone wants to just file bankruptcy but they deserve a chance to pay back the debts and not be harassed by bill collectors or gouged by the banks. and the chance for litigation is very low if the client is right for the program. The problem is that unfortunately most debt settlement companies are just as horrible if not worse than the collection agencies. There are some out there with a BBB A rating (that does not mean they are good either) but all in all you have to find the one that explains everything to you or DO YOUR HOMEWORK before you enter into any kind of financial agreement.

    Keith Osterholt

    Message from Montie said:

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    Initially it seemed like an all right idea to me until I checked into the company I called. Something didn't sit right with me about a company that tells you to "ignore bill collector" calls. The other main problem was the fact that they let the collection of money you're depositing sit in a "savings" account until you make the payoff amount. Meanwhile if you sign up with 20 bills and only give them enough to pay off two, that means the interest rate on the other 18 are still going, including late fees. I just don't see how that's better than bankruptcy.

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