Consumer Alert - Business has been booming for debt settlement companies., but they're not all created equal. You need to be very careful who you choose to help you pay off your debts.
Robert Clark is a US Postal Inspector. He says, "They were telling customers 'hey you have all of this debt, we can settle it for approximately 45% of the debt.'"
Thousands of people carrying credit card debt jump at offers like this.
Clark says, "Customers who have all this debt are like you mean I have $50,000 in debt and I won't have to pay back $22,500, yeah that's what you do."
Authorities say the debt settlement firm in this case asked its clients to sign a contract and trust the company to manage their debt. What was the pitch they used?
Clark says they say, "Stop talking to your creditors. Make one monthly payment to us and as long as you can afford to make one monthly payment to us, sign a 3 year contract or a 4 year contract whatever works for you and in that time all of your debt will be paid off and you won't have to worry about it."
The problem is the company allegedly collected $2.2 million in fees from 1,200 customers and didn't pay off any of their debt.
Clark says, "Some of the victims we have spoken to admitted I didn't even ask what the fees. They were so enamored with the fact that they could stop paying off all the cards and one affordable monthly fees."
In fact, if a customer asked questions about the fees, the operators were prepared.
Clark says, "Salespeople were instructed initially to say 'our fees are included in the program' and that's it. If the consumer pressed they would say well, our fees are $49.00 a month."
The company's owner was not concerned.
Clark says, "His motto was 'just get them signed up' we'll deal with all of the complaints afterwards, just sign them up."
Postal Inspectors say there are ways to determine whether a debt settlement firm is legit.
"If they disclose all of the fees up front and they aren't trying to rush you through the contract it may be a more legitimate business."
Also you should know that there's a new law in place that requires debt settlement firms to meet with you in person to sign a contract.
Clark says, ""So if you have a company that emails you a contract that is another red flag."
Keep this in mind, though, you can negotiate payment terms with your credit card company, on your own.
"Contact the credit card company that should be the first step and say hey look this is my situation can you work with me," Clark says, "A lot of times they will agree to do different things for you to help you because in the end they want to be paid."
Postal Inspectors say it's easy to target people with high credit card debt because they are often desperate.
In most cases, debt settlement firms buy a so-called lead list which has phone numbers of consumers carrying excessive debt.