When the economy isn’t doing so well, you can guarantee that scammers, con artists and schemers will be on the prowl full-time, and these times are no different. Likely, you have seen plenty of for-profit credit counseling companies popping up here and there, telling consumers that they offer debt management plans that work.
There are tons of people out of work these days and treading in deep debt waters, making bankruptcies more popular now than any time in the last six years. Today, many people are desperate to get out of debt and back to financial freedom, so when they hear of these debt management and relief services, they are a lot more likely to jump on the bandwagon. After all, who doesn’t want to be clear of bad credit? Although there isn’t anything inherently wrong with debt management plans, it is wise to still be skeptical of anyone promising things that sound too good to be true.
Throughout the last decade or so, there has been a development of a new breed of credit counseling companies. These agencies are known to make unscrupulous promises about what they’re able to negotiate on the behalf of the consumer, and then charge extremely high upfront and ongoing fees. These same companies spend loads of money on TV and radio ads, thanks to the huge profits they’re making off of desperate consumers, who then also have to face the headache of dealing with shady companies.
If you turn on your television or radio, you will see and hear plenty of these ads. You may have even gotten unsolicited emails and phone calls from such companies that claim to be nonprofit debt relief services. But be wary, because the term “nonprofit” doesn’t necessarily mean the services are safer. There are plenty of such companies that are technically 501(c)(3) organizations, just to gain the trust of potential customers, but this doesn’t mean they don’t have motivations for their own bottom lines.
Don’t Despair, There is Help
A new rule was rolled out by the FTC a few months back that offers consumers protection against these forms of debt assistance scams. On October 27, 2010, a rule was made that these credit counselors are no longer allowed to collect fees before assisting you with your debt. Of course, it was never a good idea to pay these companies before actually getting assistance from them, but now it has been made official by the FTC.
Certain criteria must be met in order for these debt relief companies to be able to charge customers fees:
- The company has to successfully help their clients in changing the terms of at least one of their debts.
- The consumer has to agree to terms with a creditor regarding a settlement agreement or debt management plan.
- The consumer has to have made at least one payment under their new agreement.
For consumers, this is unequivocally a good thing. This will keep debt relief customers from making money off of you upfront, with unrealistic promises. By stopping these upfront fees, these companies will only be able to charge consumers when they have been at least somewhat successful. This should prevent them from preying on consumers that they are unable to help, and will hopefully also slow down the production of misleading advertisements.
It’s Best to Remain a Skeptic
Another FTC rule from September of last year also makes it mandatory for debt relief companies to disclose specific services that they are able to provide to consumers, to better prevent them from making any misrepresentations. All this means is that these companies are required to tell their potential customers upfront what their services cost, how long it will take for them to see results and what things could possibly go wrong. They are also required to establish dedicated accounts for their clients in order to make payments to creditors, their company, and so on. Since the clients own the accounts in full, there is a margin of protection between their money and the debt relief companies.
Although this is all good news for consumers, it also means that these companies are going to try harder to find loopholes in the new rules. So it never hurts to remain a skeptic. Before you decide to sign up with an agency, you should do a lot of research and verify that they indeed have your best interests in mind. One place you can start for your research is at the NFCC web site, where you will be able to find info on legit credit counselors.
When you have the right help on your side, you can easily get back on your feet and begin rebuilding your credit history.
This is a post from the NerdWallet.com team of financial bloggers and experts in helping consumers find the best rewards credit cards.