 Rip Offs & ScamsThere are thousands of companies offering a variety of services to consumers who claim to help those most in need but many are just scams who provide very little in return for your money or are services that you can do for yourself at no cost. Some of the services offered are:
- Debt Reduction
- Fighting foreclosure
- Delaying foreclosure
- Mortgage modification
- Debt settlement/negotiation
- Interest rate reduction
Debt Negotiation Programs
Debt negotiation is not the same thing as credit counseling or a debt management plan. It can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit. Many states have laws regulating debt negotiation companies and the services they offer.
The Claims
Debt negotiation firms may claim they can arrange for your unsecured debt -- typically, credit card debt -- to be paid off for anywhere from 10 to 50 percent of the balance owed. The firms often pitch their services as an alternative to bankruptcy.
The firms usually tell you to stop making payments to your creditors, and instead, send your payments to the debt negotiation company. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program.
The Truth
Most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you've supposedly saved.
There also is no guarantee that a creditor will accept only partial payment of a legitimate debt. If you stop making payments on a credit card, late fees and interest usually are added to the debt each month.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. This can result in a negative entry on your credit report. In certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Credit Repair Services
Some companies offer credit repair services as part of qualified debt management or credit counseling plan. These services are designed to help consumer’s increase their base credit score by identify possible inaccuracies on a consumer’s credit report, correct those inaccuracies, and help the consumer reduce his debt to credit ratio. Credit repair services offered in conjunction with legitimate debt management or credit counseling services can help you better understand your credit history and how to better manage your credit.
Problems with Credit Repair Services
While legitimate credit repair services offered in conjunction with a reputable debt management or credit counseling service can benefit some consumers, you should avoid companies offering only credit repair services. Often, these companies lure consumers with exaggerated claims promising to erase negative credit history. Don’t buy it! Accurate account history, positive or negative, will stay on your credit report for at least seven years, and some things, such as bankruptcy, may stay on your report up to ten years later.
Another pitch used by disreputable credit repair organizations is they can create new credit history for consumers. Avoid any company promising this. Your credit history, good or bad, is yours and the negative only disappears with time. Companies claiming the ability to create new credit history will usually suggest that you apply for a federal Employer Identification Number (EIN), which is essentially a social security number for businesses. These companies will then report items to this new EIN and have you open new lines of credit using this number. Never agree to this! This practice is both ineffective and highly illegal.
Credit Card Rate Reduction Services
A growing trend within the debt relief industry is companies offering only credit card rate reduction services. Essentially these companies will, for a set fee, negotiate lower interest rates with your credit card companies. Consumers are advised to avoid these services.
In most cases, you can negotiate lower credit card interest rates on your own, without the assistance of a third party. Before you call your credit card company, research the going interest rates for other credit cards and their requirements. Knowing this information shows your credit card company that you have shopped around and might stop using their card. Don’t be afraid to ask for a supervisor or someone authorized to negotiate interest rates. Also don’t be afraid to keep calling every month to ask for a lower interest rate.
Common Warning Signs of Scams
- A company that guarantees it can remove your unsecured debt or promises that unsecured debts can be paid off with pennies on the dollar
- A company that claims using its system will let you avoid bankruptcy
- A company that requires upfront fees in excess of $50
- A company that requires you to pay monthly fees in excess of $40 per month
- A company that tells you to stop communicating with your creditors
- A debt management company that does not provide you with a monthly accounting showing payments made to your creditors
- A company that tells you creditors never sue consumers for non-payment of unsecured debt
- A company that promises using its system will have no negative impact on your credit report or that it can remove accurate negative information from your credit report
- A company promising to create new credit history
- A company claiming to represent your credit card’s “card services” or “account services” departments
- A company claiming to work for one the credit reporting bureaus
- A company that does not require you to sign a written contract
- A company that does not have a refund and cancellation policy
If you decide to work with a debt relief company, be sure to check it out with your state Attorney General, local consumer protection agency and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Also, ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Avoid foreclosure prevention or loss mitigation companies.
If you fall behind in your mortgage payments, many for-profit companies will contact you promising to help you avoid foreclosure. Some may even appear to be affiliated with your lender. Many also list their services on the internet and ask that you fill out a referral form online. It is best to avoid dealing with these companies. Most will charge you a hefty fee upfront for information that your lender or a HUD approved counselor will provide to you for free. You can obtain the same workout plan or a better plan for free by contacting your lender or a HUD approved counselor. Use your money to pay the mortgage instead.
Do not fall victim to a foreclosure recovery scam.
If any business or individual offers to help you stop foreclosure immediately by signing a document authorizing them to act on your behalf or to set up financing for you, do not sign without consulting a professional (an attorney or HUD-approved counselor). This may be a trick to get you to sign over title to your home. You are then vulnerable to losing your home and all of your equity in your home to the so called “rescuer.”
The links below are companies that are subject of lawsuits by the Florida Attorney general.
Click on a company to see a brief description of their questionable business practices and a link to an affidavit and instructions for consumers to fill-out if they have been a victim.
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