A Free Public Service

SCAMS BULLETIN Host Jay White is an inactive attorney in San Mateo County, California.

July 26, 2022

DEBT RELIEF FRAUD

Courtesy AARP

When debt seems like a hole you will never climb out of, a phone call, email, website or ad promising to settle your liabilities for pennies on the dollar can be very tempting. But proceed with care: Some debt relief offers are scams that will dig you in even deeper.

There are reputable companies and organizations that can help you get out of the red. They can advise you on budgeting and money management, negotiate concessions with creditors or set you up with a plan to put away money each month to pay down your debts, usually over a period of years.

Scammers, on the other hand, offer sham “guarantees” to get you out of debt quickly and cleanly — and, crucially, “they ask you to pay them before they do anything for you,” says the Federal Trade Commission (FTC). That is illegal, and a big red flag that your would-be debt savior isn’t on the up-and-up. (Legitimate debt relief firms do charge for their services but can collect only when they get results.)

Some scammers will take your money and run; others will string you along, collecting payments and making promises while you fall farther behind on delinquent accounts.

Student loan debt, which has ballooned to $1.6 trillion and is a growing burden for older Americans, is an especially ripe market for fraudsters. They collect in advance and ongoing fees with bogus promises to enroll customers in government debt-forgiveness programs. Amid the economic anxiety caused by the coronavirus pandemic, consumers have been targeted by scam robocalls offering student loan repayment help and other debt assistance, the Federal Communications Commission reports.

Even with legit companies, debt settlement carries considerable risk. Many fake firms instruct clients to stop paying their debts, on the premise that this will compel creditors to negotiate a reduction. It might — but creditors are under no obligation to settle rather than, say, sue, and you could accrue interest, penalties and damage your credit score. Some  firms do not fully explain the potential consequences, according to the FTC. The commission encourages consumers to carefully weigh a range of options when looking for ways to dig out of debt.

Warning Signs:

A fake debt relief company asks for fees before it settles any debts.

The fake company guarantees it can eliminate your debt or reduce it by a particular amount in a set time.

The fake company advises you to cut off communication with creditors.

The fake company won’t send you information about its services unless you provide financial information such as credit card account numbers and balances.

Do’s:

*Do your homework on a debt relief service you are considering working with. *Search online and check with your state’s attorney general and consumer protection agency to see if the company has been the subject of complaints.

*Do know the disclosure requirements for debt settlement companies. Among other things, they must explain all fees for and conditions on their services, estimate how long it will take to settle each debt, and lay out the risks of stopping payments to creditors.

*Do be skeptical of claims that a “new government program” or change in the law will reduce, forgive or cancel student loans, credit card debt or other liabilities.

*Do consider other options for dealing with debt, such as negotiating directly with creditors or using a nonprofit credit counseling agency.

Don’ts:

*Don’t pay a debt relief or credit counseling service fees in advance, even if they’re couched as “voluntary” contributions.

*Don’t believe guarantees. No company can ensure that it will reduce your debt by a certain amount or stop collection calls and lawsuits.

*Don’t let a company enroll you in a debt relief program without reviewing your financial situation with you.

*Don’t buy that a company can get negative information out of your credit file. If data on delinquency, defaults and other problems is correct, it stays on your credit report for at least seven years, by law.

More Resources:

The FTC and the U.S. Consumer Financial Protection Bureau offer background and advice on debt settlement, credit counseling and other ways to get out from under your financial liabilities.

Have you seen this scam?

Call the AARP Fraud Watch Network Helpline: 877-908-3360

Report debt relief scams to the Federal Trade Commission, online or at 800-382-4357.

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