Debt settlement companies feel pressure – tips on choosing a credit counseling organization

Recently, the state of Wisconsin filed actions against five debt settlement companies operating in the state. The actions stated, in part, that the companies were not licensed in Wisconsin and each charged large upfront fees, a violation of the Wisconsin Department of Financial Institutions, Division of Banking, requirements.

We, at GreenPath, applaud the State of Wisconsin for taking steps to protect consumers. Unfortunately, there are predators in the marketplace that prey on people who are experiencing financial hardship.  These companies make lots of telemarketing calls, buy ‘leads’ from marketing companies, and make attractive promises to entice consumers to sign up for their programs.

In part, the Wisconsin Department of Justice said “The company stated it would…negotiate with the creditors to forgive up to 60 percent of the consumer’s debt, and use the accumulated funds in the trust account to pay the creditors. Unfortunately, in many instances the upfront fees absorbed most of the trust money such that there were insufficient funds to pay the creditors.”

The department highlighted a couple who paid more than $6,900 without receiving any adjustment services. After the company took fees out of the account, only $2,300 remained for the creditors.

TIPS ON HOW TO GET HELP

 The United States Federal Trade Commission (FTC) publishes a guide (www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm)  to help people recognize the difference between a legitimate credit counseling organization and a predatory debt settlement company.  The FTC says that “debt settlement differs greatly from credit counseling. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit.” 

When looking at an advertisement or website, it can be difficult to distinguish between a debt settlement company and a legitimate credit counseling organization.  

GreenPath Debt Solutions, headquartered in Michigan, with more than 60 other branch offices across the United States, (including Wisconsin offices in Madison and Milwaukee, where the above actions were filed), has provided some guidelines in helping individuals choose a legitimate credit counseling organization. 

  • Be wary of companies that claim they can arrange for your debt to be paid off for a much lower amount — 30 to 70 percent of the balance you owe. 
  • Beware of any company that contacts you through telemarketing.
  • Legitimate companies should help you develop a budget and action plan free of charge.
  • You should not be required to pay more than $25 to $75 in upfront fees to set up a debt repayment program.
  • Work with a company that has been in business for a long time, with an established track record of service. 
  • Log on to GreenPath and learn the differences between debt settlement and debt management.
  • Do some research on companies you are considering. What is their rating with the Better Business Bureau?  Do they have a physical address?  How long have they been in business?
  • If you are experiencing financial difficulties, contact a non-profit credit counseling organization.  A good place to start is with the National Foundation for Credit Counseling at 800-388-2227.
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