CHARLESTON — Attorney General Patrick Morrisey is urging consumers to be cautious when evaluating their options when it comes to paying down their personal debt.
Each year, thousands of consumers find themselves looking for ways to get a handle on their finances by paying off credit cards and loans. However, in some cases, the consumer finds the debt is too much to manage, and they seek help from third-party debt settlement companies.
“Although there are many legitimate credit counseling services out there, some are bad apples,” Morrisey said in a statement. “They often require already cash-strapped people to pay extraordinary up-front fees under the guise of negotiating on their behalf, but what ends up happening is the debt settlement company holds on to that money, and the consumer is no closer to any kind of help than they were before.”
Sometimes signing on to a debt settlement program may place you in an even worse position — interest and fees may pile up as you pay into the program instead of paying your creditors, collection calls will come requesting payment, and it’s even possible you can be sued for repayment.
“Before turning to one of these companies, it’s worth trying to work directly with your creditors, even if you’ve tried before and have not been successful,” Morrisey said. “If that fails, then be sure to do your homework before you enroll in any program that promises to help you settle your debt. Just because a company advertises itself as non-profit doesn’t mean that it’s free.”
Before signing on to any debt settlement program, there are certain terms and conditions that must be clearly disclosed to the consumer, according to the Federal Trade Commission:
* Price and terms: Fees and conditions on its services must be clearly explained.
* Results: The settlement company must tell you how long it will take before you can expect to see results, including how long it will take before settlement with each of your creditors is reached.
* Offers: The company is required to tell you how much money or what percentage of each debt must be saved before it’s offered as a settlement to your creditor.
* Non-payment: Perhaps the most critical one, the company is required to inform you what will happen if it asks you to stop paying your creditors (if the program relies on you to not make payments). It is required to tell you about accrued interest, late fees, negative credit score impacts, and the possibility of legal action against you by the creditors.
The companies also must let consumers know that all funds provided to them up front are the consumers and that the consumer is entitled to interest; the account administrator isn’t affiliated with the debt relief provider and doesn’t get referral fees; and that the consumer can withdraw his or her money at any time without penalty.
"Most of the time, the people who turn to these companies are hard-working people who found themselves in unfortunate situations and just want to make good on their debts by doing the right thing,” Morrisey said. “But we want consumers to be prepared when they encounter the few bad apples out there.”