Settle Your Credit Cards

Federal Trade Commission Hearing on Debt Settlement

On September 25, 2008 the Federal Trade Commission held its first hearing on the debt settlement industry. Somewhat akin to speakeasys during prohibition, debt settlement companies provide a service that consumers want no matter how many consumer advocates say it’s bad or you or how many regulations state and federal consumer protection agencies throw in their path.

Spotty History

There have been many prosecutions surrounding the debt settlement industry. Some of those cases were well deserved actions where consumer money was stolen or promised services were never provided. Despite these prosecutions, the debt settlement industry had continued to grow due in large part because consumers want to avoid bankruptcy and cannot manage the often impossibly hostile collection process when they go into default.

They appeal to the consumer by offering a “champion” in your corner that “knows the game”. Overwhelmed consumers are desperate to have even the odds and have a fighting chance against the banks’ collection apparatus. A fight is likely exactly what the consumer will get. Some would argue that a fight is exactly what you ought to give the credit card issuers. Postings in many places on the Internet advocate the “give’m hell” approach that has become the hallmark of the debt settlement industry. Responsible Debt Relief advocates promote the non-adversarial approach that suggests working with your lender is better than fighting with them. Sadly, a few months of working with creditors often creates an appetite for fight.

Profiting on Consumers Drowning in Debt

Postings by consumer advocacy groups like Consumer Federation of America or the National Consumer Law Center often focus on the fact that debt settlement companies are profit-making business. Their advocacy has been for years the consumer benefit of the non-profit consumer credit counseling industry. The concern over businesses that profit from consumers in debt has extended to some consumer protection agencies that prohibit all consumer debt relief services – except those that are non-profit.

The Problem with Debt Settlement

There are several cautions for consumers who want to avoid bankruptcy by employing a debt settlement company. Fundamental to any plan that proposes to reduce your debt with a lender for less than full balance is going to cause a negative effect on your credit rating. Will that effect be as serious or as long lasting as a Chapter 7 bankruptcy? Common sense would suggest not, but the jury is out until serious research can be done.

Fees: Shop around. Fees range from 12% – 20% of total debt or 25% to 30 percent of the amount the debt settlement company saves you.
Promises: If they promise to absolutely get you out of debt for less than 50% of what you owe in less than 3 years, they are probably not telling you the truth.
Disclosures: The good debt settlement companies will provide a comprehensive list of disclosures about the consequences of their services. If they don’t, you have probably found a bad apple.

All of these issues are discussed on the FTC website noted previously if people selling the debt settlement service should “forget” to mention them.

The Better Business routinely negatively rates nearly all debt settlement companies. If you are concerned about a BBB report, check with your local consumer affairs department or consumer protection agency.

The debt settlement hearing has finally put all of the cards on the table for debt settlement. If you are considering debt settlement services, or if you have already hired a debt settlement provider, take an hour to review the postings related to the FTC hearing and draw your own conclusion about what is best for you.