GAO Covert Operation Nabs For-Profit Debt Settlement Companies

May 5, 2010 by thinkhappy

GAO Covert Operation Nabs For-Profit Debt Settlement Companies

For the last several years, consumers have been struggling with high levels of debt and shrinking incomes. Looking for help and lured by radio and TV advertising, many people have turned to debt settlement companies as a way to eliminate some of their unsecured debts. These settlement companies tout their ability to reduce debt by 40 - 60%, however, most of time, the companies charge excessive fees, do not live up to their promises, and leave consumers in worse shape than they were originally.

There have been a huge number of consumer complaints about the fraudulent, deceptive and abusive practices of debt settlement companies. In response, the U.S. Government Accountability Office agents mounted a covert operation to determine the extent of these illegal practices. They called twenty companies posing as fictitious consumers, made surprise visits to several of the companies that were called and interviewed industry insiders.

The GAO recently released a report of its findings. The following are highlights of this report:

*17 of 20 companies said they collected fees before settling the consumer’s debts, which the FTC says is harmful to consumers. (The FTC is proposing to ban this practice.)

*Nearly every company advised the GAO callers to stop paying their creditors even if they were up-to-date with their payments.

*Many companies made fraudulent or inaccurate assertions about their success rate in settling debts, (some said they had a 100 percent success rate, but FTC investigations have found the success rate to be closer to 10 percent).

*Some claimed to be operating under a government debt relief program, (which doesn’t exist).

*Some claimed to pay consumers $100 if they don’t settle their debts within 24 hours. (This is impossible, and companies don’t pay outright after consumers sign up.)

It was determined from this covert operation that the complaints filed by hundreds of thousands of consumers across the country were valid and widespread. The report highlights several cases where a debt settlement company caused more financial harm than good. One case involved an Arizona debt settlement company that claimed to have helped a New York couple reduce their debt. In fact, after calculating the fees paid and the settlement amount, the total paid to the settlement company was more than 140% of what the couple originally owed.

State and federal agencies are increasing their efforts to bring legal action against debt settlement companies that have engaged in illegal practices. Consumers who are deeply in debt should consult with accredited nonprofit credit counseling agencies before approaching for-profit debt settlement companies. To locate a nonprofit credit counseling agency go to the NFCC or AICCCA.websites.

Written by Hollis Colquhoun

Learn more about Hollis Colquhoun

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