Is Your Newest Facebook Friend a Sleazeball Debt Collector?

By Liliana Segura, AlterNet. Posted June 10, 2009.

And making a difference is lucrative, apparently. "The debt-settlement industry is growing very rapidly," boasts the IAPDA Web site. The IAPDA cites historic levels of credit card debt, as well as changes in bankruptcy laws that make it harder for consumers to clear debts, as reasons to "be a part of this exciting industry." In fact, it calls it one of the "top-rated career opportunities of the new millennium."

Last month, however, New York Attorney General Andrew Cuomo announced a nationwide investigation into debt-settlement companies, calling it a "rogue industry" that offers consumers "false hope, charging tremendous fees and leaving them in a worse financial situation."

"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," according to a press release released last month by the attorney general’s office. "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 cruelty of these plans is that they are based on a payment plan that is a set-up from the start.

"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."

"The real racket," says Anamaria Segura at MFY Legal Services, "is that they'll say, 'Oh you owe $4,000? We'll negotiate with your creditors and settle that for $2,500!' But the fact is, that if the consumer ever is able to compile the $2,500 to pay off the creditors, by the time that happens, the $4,000 balance is now $6,000, because of interests, fees and late charges -- and the debt-settlement companies know that,"

When people come up short, these companies end up telling consumers to find other ways to cough up the cash. This, according to the AG’s office can include telling people to mow lawns, "cut down" on car insurance, "borrowing from their neighbors and church," and perhaps most memorably, "selling their blood plasma."

"Debt collectors are totally different from debt-settlement companies," explains Segura. "I've had some debt-collection lawyers say to me, 'Oh they are terrible, we don't work with them, they really mislead people.' And they're right. But in my experience debt-collection lawyers are no better."

To know your rights when confronting debt collectors go here.

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Liliana Segura is an AlterNet staff writer.

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