Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Debt Settlement Companies Under Investigation for Exploiting Consumers by NY Attorney General

Posted by Hopeton on May 12, 2009

The following press statement was released by the New York Office of the Attorney General on May 7, 2009.

New York Attorney General Andrew M. Cuomo has launched a nationwide investigation into the debt settlement industry, subpoenaing fourteen debt settlement companies and one law firm. Companies in the debt settlement industry often prey upon consumers who find themselves unable to keep up with credit card payments during these difficult economic times.

Andrew Cuomo

Andrew Cuomo

“Today, millions of hardworking Americans are finding themselves imprisoned by debt. In response, a rogue industry has stepped in, offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation,” said Attorney General Cuomo at the press conference announcing the investigation. “Our mission is clear: to hold unscrupulous businesses accountable; to rein in a renegade industry; and to ensure that people are not victimized when faced with financial hardship.”

As part of his broad investigation of the debt settlement industry, Cuomo  issued subpoenas to fourteen debt settlement companies and one law firm: American Debt Foundation, Inc.; American Financial Service; Consumer Debt Solutions; Credit Answers, LLC; Debt Remedy Solutions, LLC; Debt Settlement America; Debt Settlement USA; Debtmerica Relief; DMB Financial, LLC; Freedom Debt Relief; New Era Debt Solutions; New Horizons Debt Relief Inc.; Preferred Financial Services, Inc.; U.S. Financial Management Inc. (d.b.a. My Debt Negotiation); and the Allegro Law Firm.

The subpoenas include requests designed to uncover the companies’ fee structures, how many people have benefitted from the companies’ services, and what kind of relief the companies are actually providing.

Cuomo is also currently investigating Nationwide Asset Services, Inc., based in Phoenix, Arizona, and Credit Solutions of America, Inc., based in Addison, Texas.

The debt settlement plans offered by these companies are often inherently flawed and, based upon consumer complaints, it appears that many consumers are being misled regarding the nature of the services offered by these companies. For example, some companies falsely represent that they can reduce consumers’ credit card debt by as much as 75 percent through negotiations with creditors. In addition, the companies often take their fees up front and keep their fees even when they do not provide the promised services.

The debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the company’s fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation.

Some of the companies also urge consumers to seek additional sources of funds through means such as selling their blood plasma, mowing lawns, cutting down on car insurance, and borrowing from their neighbors and church. Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

Many consumers may benefit more from working directly with their creditors, seeking credit counseling, or consulting an attorney about filing for bankruptcy. Additionally, even when enrolled in a debt settlement plan, consumers are often still subjected to collection efforts and lawsuits filed by their creditors. Consumers are even told not to discuss their debt situation with creditors.

Attorney General Cuomo has actively pursued unscrupulous companies and individuals that have attempted to take advantage of people who are experiencing personal financial problems during these trying economic times. On April 14, 2009, the Attorney General arrested the owner of Long Island-based American Legal Process for allegedly providing “sewer service” to thousands of New Yorkers owing debt. According to the Attorney General’s criminal complaint and civil suit, this company failed to properly notify individuals that they faced debt-related lawsuits. As a result, individuals would unknowingly default and have judgments entered against them, without the chance to defend themselves.

Consumers who believe they are being defrauded by a debt settlement company are urged to contact the Attorney General’s office at 800-771-7755 or www.oag.state.ny.us.

The Attorney General’s investigation of the debt settlement industry is being spearheaded by the Bureau of Consumer Frauds and Protection in New York City and several of the Attorney General’s Regional Offices across the state, under the supervision of Consumer Frauds Bureau Chief Joy Feigenbaum and Deputy Attorney General for Regional Affairs David Sampson.

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2 Responses to “Debt Settlement Companies Under Investigation for Exploiting Consumers by NY Attorney General”

  1. Just like money does not grow on trees neither do debt settlements. Negotiating settlements on unsecured credit card debt is a process that sometimes is not as easy or as smooth as some debt settlement services make it out to be, before signing on with a debt settlement company seriously study the possibilities that such a program may not be the best option.

    The hook, line and sinker most debt settlement companies use is that everyone they speak to regarding their debt is that they will be out of debt in 36 months. In some cases this is true, especially for those with funds readily available to negotiate with their creditors and collectors. It may take anywhere between a day and several years to negotiate a specific account even if the funds are available. Although I have seen some people join a debt settlement program and be done in less than a month negotiating all of their debt, all cases vary.

    The other very important thing to remember is the percentages of savings advertised on websites or spilled out by debt settlement counselors which in many cases are in credit card debt themselves. Trust me I have worked for several successful debt settlement companies and had to lend my co workers money for bus fare. Now everyone knows who they are getting advice from when they speak to someone over the telephone. I have seen some people come away with incredible savings on their debt as I have seen people become completely broke; lose their homes and their families. Always keep in mind there is savings when negotiating credit card debt, how much? No one can really tell.

    If anyone reading this article is expecting for me to promise them the world when it comes to debt settlement, I hope I have not burst the bubble. It is true debt settlement can yield high amounts of savings, I have seen it and settle at great percentages for some of my clients, what I’m saying is do not expect this to happen with everyone of the accounts entered into negotiations. Also, do not expect every creditor or collector to welcome you with open arms simply because you are looking to negotiate your outstanding debt. Simply put it takes work to save money via debt settlement, it takes courage and strength and best and most important of all even if a debt settlement program is joined, it needs the debtor’s 100% undivided attention and cooperation, without this even the best debt settlement company is hopeless.

  2. […] For more information on the New York Attorney General’s investigation into debt settlement companies click here. […]

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