A recent study from the Better Business Bureau found companies that promise to reduce a person’s debt or improve their credit often fail those consumers.
“These companies are supposed to be following federal regulations, and a lot of them are slipping under the radar,” said Katie Grevious, marketing and communications manager with the BBB of Western Michigan.
Grevious explains that debt relief and credit repair companies often advertise quick and extensive fixes for low scores or past-due bills, but the BBB’s analysis revealed a much more limited ability to enact change than implied. According to the study, of those who entered settlement plans, nearly half dropped out before finishing payment.
Additionally, the fees requested by the companies frequently cost consumers thousands of dollars and leave them worse off. The study cites a Michigan woman’s experience in which she negotiated a contract to pay a little more than $27,000 of her father’s debt. However, when the balance reached a few hundred dollars five years later, she realized only $5,780 went to the creditors. The settlement company got the rest.
"It's not just identifying the clear scams," said Grevious. "It's these businesses that are legitimate businesses, but they're doing things the wrong way, and making the industry worse, when really the point is to try to help people, help them get out of their debt, help them pay things off."
The BBB has received more than 12,700 complaints and negative reviews about the industry since 2020. Many of the companies in question are based in the Western U.S.
In its study, the BBB recommended state and federal regulators ensure clear and upfront disclosures of what fees are being chartered and encouraged them to continue to monitor advance fee or advance fee-like payment structures.
Grevious notes people can negotiate settlements themselves, but it takes time and effort. She suggests consumers seek out highly rated companies whose consultants provide easy to understand, detailed information about their services.
Red flags for predatory debt and credit assistance companies
Watch out for companies that use these tactics:
- Try to convince consumer to stop paying their debts to begin settlement
- Promise they can settle with any creditor
- Use credit reports to add debts to consolidation that consumer didn’t ask about
- Employ high-pressure tactics to get consumers to consolidate quickly
- Hide or attempt to downplay fees for consolidation
- Fail to provide holistic advice for improving credit
- Claim they can guarantee a credit score improvement
- Make big promises about the types of credit report issues they can address
Red flags for debt and credit assistance scammers
Avoid companies if they do any of these things:
- Ask for upfront fees
- Attempt to gain access to bank information
- Say they have special access to loan forgiveness programs
- Insist that taxes need to be paid before debt is settled or consolidated
Consumers' and debt collectors' rights
Collectors can do the following:
- Contact you by phone, letter, email, text message or social media as long as they identify themselves as debt collectors
- Contact you at work unless you tell them you are not allowed to get calls there
- Contact other people about you to find your address, phone number and place of employment, but CANNOT contact them more than once or discuss your debt with them (except for your spouse or your attorney).
- Call before 8 a.m. or after 9 p.m. (unless you agree to it)
- Pretend to be someone else, like a government agency or credit reporting company, or use a false company name
- Use threats of violence or harm or use obscene or profane language
- Publish a list of names of people who don’t pay their debts
- Falsely claim you have committed a crime
- Misrepresent the amount of money you owe
- Lie about whether the papers they send you are legal forms or give you something that looks like an official document if it isn’t
- Tell you that you will be arrested if you don’t pay your debt or say they will seize, garnish, attach or sell your property unless they are permitted by law to do so
- Threaten you with legal action if doing so would be illegal or if they don’t intend to actually do it
- Try to collect any interest, fee or other charge on top of the amount you owe unless the contract that created your debt – or your state law – permits the charge
- Deposit a post-dated check early
- Contact you by postcard or any other means that can outwardly be identified as coming from a debt collector
This story was originally published by Marisa Oberle at Scripps News Grand Rapids.