There's a reason why Andrew Cuomo, the attorney general in New York, calls the debt settlement industry a "Rogue Industry.
" It's because there are many unethical practices going on, even among the biggest of these debt relief companies.
Even though debtsettlementprovide a good solution for many people drowning in debt, lawmakers must look into these unethical practices, and put laws into place to safe guard consumers.
Lets take a look at some of the problems and what needs to be regulated: First: Most debt settlement companies charge an exorbitant fee: 15% to 20% of the entire debt.
If these companies negotiate your debt with a creditor down to 40 cents on the dollars, and tacks on 20 cents, you are paying 60 cents on the dollar, not the 40 cents that they claim.
Better than paying in full, but still too much for "negotiating," even if their good.
Imagine if you are in $100,000 dollars of debt...
you are paying them $20,000 to negotiate.
Although negotiating is useful, charging a client this amount for this service is outrageous.
And the problem is most debt settlement companies do it.
Second: Most debt settlement companies do everything they can to hide how much they charge.
If a company does not specifically tell you how much they charge on there website or flyers, that is because they are trying to hide their exorbitant fees.
They will reveal it to you only after they have "sold you" on their program.
This needs to be in plain sight.
Third: Many debt settlement companies charge their "settlement fees" before negotiating the settlement There is something wrong with a company charging a settlement fee when they have not settled a thing.
Often times, these companies walk off with this money, even when they haven't settled anything due to client hardships.
which forces them to drop out of the program.
Fourth: They don't disclose the negative consequences of debt settlement.
Many of these companies will tell consumers to default on their credit cards and settle with their creditors using their services without revealing the negative impact on the consumer's credit reports.
We must make sure that regulation is in place that make debt settlement companies reveal all the material facts to their prospective clients.
Fifth: Debt settlement companies have been known to tell people to sell their TV's and mow lawns to raise money to make their monthly payments.
These little things are not going to make a difference in a client's financial situation, just the pocket books of these companies.
If a client is this desperate to raise cash for a payment, they might have to view Ch.
7 bankruptcy as a better alternative.
As for the debt settlement company, they should not be allowed to give such useless advice when they are fiduciaries to their clients.
Sixth: Some debt settlement companies are not putting people on plans that have monthly payments that are large enough to pay back creditors.
These companies do this just so that they can get paid settlement fees (before settling any accounts), without any real concern on if the client will get out of debt or not.
We need to make sure that the monthly payment are significant enough to get their clients out of debt, not just enough to pay up-front settlement costs to debt settlement companies.
Seventh: Clients aren't being told about potential up coming litigation that a creditor may pursue.
These companies need to stay on top of their clients files and make sure that their client know when they might be getting sued so that they can strategize on the best way to deal with the situation.
The bottom line is that the debt settlement industry provides good value because they allow people to get out of debt in a manageable way, but these issues must be regulated to fix the reputation of the industry.
" It's because there are many unethical practices going on, even among the biggest of these debt relief companies.
Even though debtsettlementprovide a good solution for many people drowning in debt, lawmakers must look into these unethical practices, and put laws into place to safe guard consumers.
Lets take a look at some of the problems and what needs to be regulated: First: Most debt settlement companies charge an exorbitant fee: 15% to 20% of the entire debt.
If these companies negotiate your debt with a creditor down to 40 cents on the dollars, and tacks on 20 cents, you are paying 60 cents on the dollar, not the 40 cents that they claim.
Better than paying in full, but still too much for "negotiating," even if their good.
Imagine if you are in $100,000 dollars of debt...
you are paying them $20,000 to negotiate.
Although negotiating is useful, charging a client this amount for this service is outrageous.
And the problem is most debt settlement companies do it.
Second: Most debt settlement companies do everything they can to hide how much they charge.
If a company does not specifically tell you how much they charge on there website or flyers, that is because they are trying to hide their exorbitant fees.
They will reveal it to you only after they have "sold you" on their program.
This needs to be in plain sight.
Third: Many debt settlement companies charge their "settlement fees" before negotiating the settlement There is something wrong with a company charging a settlement fee when they have not settled a thing.
Often times, these companies walk off with this money, even when they haven't settled anything due to client hardships.
which forces them to drop out of the program.
Fourth: They don't disclose the negative consequences of debt settlement.
Many of these companies will tell consumers to default on their credit cards and settle with their creditors using their services without revealing the negative impact on the consumer's credit reports.
We must make sure that regulation is in place that make debt settlement companies reveal all the material facts to their prospective clients.
Fifth: Debt settlement companies have been known to tell people to sell their TV's and mow lawns to raise money to make their monthly payments.
These little things are not going to make a difference in a client's financial situation, just the pocket books of these companies.
If a client is this desperate to raise cash for a payment, they might have to view Ch.
7 bankruptcy as a better alternative.
As for the debt settlement company, they should not be allowed to give such useless advice when they are fiduciaries to their clients.
Sixth: Some debt settlement companies are not putting people on plans that have monthly payments that are large enough to pay back creditors.
These companies do this just so that they can get paid settlement fees (before settling any accounts), without any real concern on if the client will get out of debt or not.
We need to make sure that the monthly payment are significant enough to get their clients out of debt, not just enough to pay up-front settlement costs to debt settlement companies.
Seventh: Clients aren't being told about potential up coming litigation that a creditor may pursue.
These companies need to stay on top of their clients files and make sure that their client know when they might be getting sued so that they can strategize on the best way to deal with the situation.
The bottom line is that the debt settlement industry provides good value because they allow people to get out of debt in a manageable way, but these issues must be regulated to fix the reputation of the industry.