Debt settlement outfits are often scam artists

Herb Weisbaum • Profile • E-mail

Like many Americans, Judy Orlando, a nurse in LeRoy, N.Y., had racked up a mountain of credit card debt. Divorced and raising five children, she was carrying a total balance of about $30,000 on her five credit cards.

In 2006, she was contacted by Nationwide Asset Services, a debt settlement company based in Phoenix.

“They told me I’d be debt free in 18 to 24 months and my credit would be better than it was before I got into the program,” Orlando, 52, recalls.

Orlando agreed to pay a $1,300 enrollment fee and send the company $350 a month. They told her to stop paying her credit card bills, cut off all contact with her credit card companies and to change her phone number, which she did.

Orlando figures she paid Nationwide Asset Services about $10,000 (plus enrollment fee) during her two-and-a-half years as a client. In that time, she says, the company lowered her $30,000 balance by less than $3,000. "They don't tell you the interest and late charges keep compounding,"she says.

Since they weren’t getting paid, the credit card companies placed liens on her home. Fearing she had no other option, Orlando contacted a lawyer and is seeking bankruptcy protection.

Last month, New York State Attorney General Andrew Cuomo sued Nationwide Asset Services for false advertising and fraudulent business practices. According to the lawsuit, only one-third of 1 percent of the company’s customers got the promised 25 to 40 percent debt reduction.

“People think they’re reaching out for a helping hand, and it turns out to be a hand that pushes them further under,” Cuomo said at a news conference.

Nationwide Asset Services released this statement: "Right now our local attorney is currently reviewing a copy of the complaint and at this time we can not comment on the allegations contained in it."

Show me the money
Debt settlement companies are a risky way to go because they almost always require a sizeable payment upfront. Most promise a money-back guarantee, but getting a refund can be difficult, if not impossible.

Most importantly, they do what you can do on your own – contact your creditors to see if they will lower your interest rate or make some other money-saving concession.

Are you in financial trouble? “If you are losing sleep, if there are arguments in the home over money, if you’re not as good of an employee, those are some of the financial danger signals that you are in over your head,” says Gail Cunningham at the National Foundation for Credit Counseling. An hour or so spent with a certified and trained credit counselor is time well spent. “It will either validate that you are just fine or they will give you some concrete action steps to put in place to move you back to financial stability,” Cunningham says. Working with a credit counselor has no effect on your FICO score. So it won’t make your situation worse and can only make it better. To find a reputable non-profit credit counseling agency in your area, go to the NFCC website.

Not all debt settlement companies are crooks, but clearly there are many bad apples in this barrel. Washington State Attorney General Rob McKenna has sued several debt relief companies.

“They claim to have special relationships with the credit card companies or to know ‘secrets’ about how to reduce the amount you owe,” McKenna says. “But they consistently fail to deliver on those promises.”

Cuomo has started a nationwide investigation into what he calls a “rogue industry … offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation.”

Cuomo recently subpoenaed information from 15 companies that do this work to find out if they are really helping people.

You can do it yourself
“Why pay for something you can do for free?” asks Gail Cunningham, vice president for public relations at the National Foundation for Credit Counseling. “Creditors have told me repeatedly that they do not offer any deeper concessions to the consumer who works through a debt settlement company vs. a consumer who comes to them directly,” she says.

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