They are wolves posing as shepherds. Companies that claim they will lead you out of debt quickly and often just want to take your last dollar - leaving you more exposed to creditors than ever.
If the economy weren't so bad, these companies would be more recognizable for what they really are: predators. But debt and desperation have a way of playing tricks with your vision. What seems like a viable way out from a mountain of debt can turn out to be a counter-productive mirage unless you're careful at avoiding fraud and finding the legitimate services you need.
Keep in mind that, unlike bankruptcy lawyers, debt settlement companies are not bound by professional ethical codes. Moreover, even companies that try to be scrupulous may be unfamiliar with a full range of debt relief options.
The sad truth, however, is that many debt settlement companies are all-too-eager to take advantage of consumers who are down on their luck and burdened by debt. This article explores recent efforts by the Federal Trade Commission to create and enforce rules to protect consumers from deceptive debt relief practices.
Recent Florida Debt Relief Case
A recent case involving an apparently fraudulent Florida debt settlement company illustrates the nature of the problem. More than 440 complaints have been filed with the FTC in the last two years against a South Florida company called United Financial Systems, Inc.
United Financial took money from people upfront, saying it would settle their debts. But the company repeatedly failed to pay this money to the creditors to whom it was owed. This left United Financial's customers with delinquent payments and damaged credit ratings.
The Florida attorney general is investigating the case and has demanded that United Financial issue refunds to customers who are owed money. But those claims have not yet been fully resolved.
FTC Rules and Enforcement Actions
The Federal Trade Commission has taken several recent actions to confront the problem of deceptive debt relief agencies. This includes two important new or amended rules.
The Mortgage Assistance Relief Services Rule prohibits companies that are pitching foreclosure-rescue or mortgage-loan-modification services from collecting upfront fees unless certain conditions are met. The rule says a consumer must be provided with a written offer from his or her lender or servicer - and the consumer must agree that this offer is acceptable. There must also be a written document from the lender or servicer summarizing the key changes in the mortgage terms that would occur if the offer is accepted.
The FTC has also amended the Telemarketing Sales Rule to ban companies that sell debt relief services over the phone from collecting upfront fees before they have actually settled or reduced someone's unsecured debt. The ban has been in effect since October 27, 2010.
To be sure, having rules on the books is one thing and enforcing them effectively is another. But the FTC seems committed to going after deceptive debt relief practices aggressively. These protections are especially important in a down economy. With so many people struggling with debt, the wolves are likely to be resilient and keep offering ever-newer enticements trying to catch their prey.