Warnings about Debt Settlement Companies
When the Government Accountability Office (GAO) testified before the US Senate last month about their undercover investigation of 20 of the debt settlement companies that advertise the most across the country, it came as no surprise to credit counselors—as well as other nonprofit organizations trying to help consumers recover from financial challenges—that they found “fraudulent, abusive and deceptive practices” prevailed in the industry. For details, see www.gao.gov/products/GAO-10-593T.
While the government considers measures to reign in such harmful behavior, here’s a look at a few common myths promoted by the debt settlement industry, followed by their corresponding realities:
1. MYTH: “Your credit score will only drop a few points while on the program.”
REALITY: FICO (the pioneering credit score company) has indicated that scores typically fall 65 to 125 points when a consumer stops making payments to their creditors.
2. MYTH: “Creditors generally report settled debts as ‘paid in full’ or ‘paid as agreed.’”
REALITY: Again, according to FICO, creditors typically report such accounts as “settlement accept on the account” or “settled for less than full balance.”
3. MYTH: “Some settlement companies are associated with the federal economic stimulus package.”
REALITY: Such claims are not just deceptive but fraudulent. No section, paragraph or portion of the government stimulus package provides for any such consumer debt relief, nor is there a government office or agency set up to manage such a program.
4. MYTH: “Anyone can get their credit card debts settled for half of what they owe.”
REALITY: Credit card companies enact settlements with consumers experiencing true financial hardship. Creditors are unlikely to forgive any portion of a debt’s principle without good reason to believe the consumer is otherwise unable to meet their obligations.
So the next time you here one of those “sounds too good to be true” advertisements on the radio or see one on the television, let the others in the room in on the realities of their claims. You’ll be doing them a great service.
If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.