New York Investigates Debt Reduction / Settlement Firms

In a May 7, 2009 press release, the New York Attorney General announced that they were looking into various companies that market "debt reduction" or "debt settlement" services to consumers.

The following companies were subpoenaed by the NY AG: 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 New York Attorney General is looking to see if these firms made false and misleading statements to consumers, and if these firms performed any work for the fees charged, among other things.

As Wisniewski & Mensing, LLP has been telling people who ask about these types of "debt negotiation" companies, the New York Attorney General offers the same suggestions:

*Be wary of debt settlement companies which falsely promise to obtain substantial lump sum debt reduction settlements. Many advertise “reduce debt now,” and claim as much as 50% to 75% off credit card debt, but rarely obtain advertised reductions.

* Never agree to sign a contract with a debt settlement company that requires payment in advance prior to obtaining the promised debt reduction.

* Enrollment in debt settlement plans may not stop creditors from bringing collection law suits, or prevent enrolled accounts from growing larger by the addition of late fees, interest, and penalties. Also, credit reports will reflect derogatory information, including assessed late charges and non-payment of debt, and consequently credit scores will be adversely affected.

* Creditors are under no legal obligation to accept a settlement offer for less than the outstanding balance owed.

* Only a small number of consumers who enroll in debt settlement plans have the financial means to complete them. Usually, they drop out after having paid service fees to the companies with no settlements.

* Enrollment in a debt settlement plan premised on stopping payments to creditors will likely lead to more frequent and aggressive creditor collection efforts often resulting in judgments, wage garnishments, and freezing of bank accounts.

* Check with the Better Business Bureau to obtain a Reliability Report on a particular debt settlement company and its rating.

* A wise first step to help resolve an outstanding account is to speak directly to the credit card issuer. Alternatively, it may be helpful to speak to an attorney or an accredited credit counselor who can help develop a plan of action that best works for each consumer’s unique situation.