Debt Settlement Services Under Scrutiny
Action taken against debt counseling service in West Virginia…
Government statistics may show that consumer spending is holding steady, but some economists are concerned about the increasing level of credit card debt American’s are facing and whether or not they’ll be able to pay it off. Increases in consumer credit card debt could further amplify the ongoing mortgage crisis and eventually lead to a widespread market collapse. And with more consumers likely to fall behind, states are beginning to worry about the increased activity of so-called debt settlement services.
Although debt settlement services are unrestricted in some states, West Virginia’s Attorney General, Darrell McGraw, is scrutinizing the debt relief industry in an effort to protect consumers who are already facing dire financial circumstances. McGraw recently won a court order that temporarily forbids a Florida law firm, Hess Kennedy of Coral Springs, from offering their debt settlement services anywhere in the state.
Debt settlers such as Hess Kennedy set-up repayment plans to help consumers repay outstanding debts, at a deep discount, to avoid being sued or filing for bankruptcy. Consumers then make monthly payments to the debt settlers, who in turn claim to negotiate with creditors to reduce the amount of debt owed.
McGraw says Hess Kennedy claimed to assist consumers who were struggling to make payments to their creditors. But his investigation, although still under way, appears to show that Hess Kennedy was charging excessively high fees for their service. West Virginia law requires for-profit debt settlement companies to charge a monthly fee of no more than 2%. With fees in excess, consumers can end up paying much more for their debt over time– and end up paying for it twice as long. “Although the debt settlement approach to debt relief may work for some persons, the service has legal consequences and should only be offered by persons licensed to practice law,” McGraw said.
With a struggling economy and growing credit worries, it’s likely more and more consumers will find themselves dealing with debt problems over the coming year. Experts advise avoiding debt settlement services altogether, if possible. They recommend setting-up a budget, reducing unnecessary expenses and eliminating high interest credit cards and loans as soon as possible. If it’s absolutely necessary to use a debt settlement service, look for a non-profit company and make sure you do your research!
January 19th, 2008 at 6:16 am
In the old days, we used to charge a very small retainer up front, but the main fee was based on a percentage of the savings achieved during the negotiation. So the fees were based on success, and did not interfere with the client’s ability to accumulate funds for early settlements.
Nowadays, it’s a rare company that operates this way, and the result is that very few settlements take place during the first 12 months when clients are enrolled in a third-party debt settlement program. Skip the fees! Learn how to do this yourself. You’ll be out of debt faster, and you’ll have more control over the process.