According to the Consumer Financial Protection Bureau, Washington, D.C. leads the nation in complaints about debt settlement companies. In the CFPB’s latest monthly complaint report, the District of Columbia registered 893 complaints per 100k population. By contrast, Maryland had 521 complaints per 100k residents, and Virginia had just 385. As I have written previously, debt settlement companies are bad news.
The most common type of complaints that the CFPB receives about “other financial services” is about debt settlement companies at 50 percent of all complaints. Consumers complain about debt settlement companies more often than about credit repair companies and check cashing services, which each represented just 12 percent of all complaints.
The District of Columbia also experienced the greatest year-over-year percentage increase (450 percent) in complaints about debt settlement companies.
Complaints About Debt Settlement Companies
According to the report, consumers mainly consider debt settlement companies either fraudulent or scams after using the “services” for a period of time.
Consumers seeking to settle or consolidate outstanding debts reported making good faith payments to debt relief companies to pay off existing debt to creditors. Predictably, however, the companies did not forward payments to their creditors. And now those consumers face lawsuits for accounts they assumed the company was paying.
Debt settlement companies typically require upfront fees prior to being accepting clients. The CFPB reports that, upon paying the fees, consumers “often encountered little to no communication from the companies on the status of the accounts to be settled.”
Some consumers reported the accounts were often settled for much less than the amount stated to them by the debt relief company. Yet these consumers met resistance when trying to obtain a refund for the difference. Debt settlement companies don’t like issuing refunds.
Additional Problems with Debt Settlement Companies
“Debt settlement companies should be avoided if at all possible,” told Curtis Arnold, credit card expert, to GoBankRates.com. “The industry has many bad apples and the few good apples typically charge high fees,” he said.
Aside from the high fees, debt settlement services come with many well-documented risks. Serious issues include tax consequences, low success rates, dramatically increased debt, and worsened credit.
Hire a Debt Settlement Attorney Instead
Hiring a debt settlement attorney is very different than signing up with a debt settlement company. An experienced debt settlement attorney will negotiate the lowest possible settlement for you on a case-by-case basis. Debt settlement companies do not do this. Moreover, your lawyer will answer your questions and explain the process. Debt settlement companies are more geared toward customer volume, and their fees are non-refundable. So each month that passes without cancellation is pure profit for them.
Sending money to a debt settlement company to handle your debt may make you feel as if you’re addressing the problem. But you’re not. In most cases, you’re really just making it worse.