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Debt negotiation scams mislead while diverting payments toward fees
By David Pilley on December 10, 2010

deception-(1).jpgIf you choose to negotiate your debt with a company, you must be aware of the possibility of debt negotiation scams. Some companies out there doing business for a profit will make unrealistic promises, which could lead to no change or even higher personal debt. I don’t want to put you in a state of constant trepidation, but be aware that some financial institutions are more worried about making money than helping you.
Luckily, the Federal Trade Commission is a watchdog group that monitors deceptive and unfair business practices. State governments too, especially attorneys general, are on the lookout for scams, and there have been quite a few notable cases within the past few years dealing with fraudulent debt negotiation companies.

The most prominent case in recent history was settled in 2008. In this case, four debt negotiation companies (National Support Services LLC, Homeland Financial Services LLC, Financial Liberty Services LLC, and United Debt Recovery LLC) settled charges that they violated federal law by falsely claiming they could reduce consumers’ debt by up to 60 percent, which led many of their customers into bankruptcy. The companies were also charged with “not adequately disclosing the likelihood that consumers would be sued if they took the defendants’ advice and stopped paying creditors”; “not disclosing that consumers’ account balances would grow from interest, interest rate increases, late fees, and other charges; and falsely advising consumers that negative information that appeared on their credit report as a result of participating in the defendants’ program would be removed upon completion of the program.” The companies were also closed by a court-appointed receiver. These companies did business nationwide, so people all across the country got scammed by some absolutely bogus information. I mean, not saying you could be sued if you stop paying your creditors is like not saying you’ll flunk out if you stop coming to class!

In a more recent case, the Attorney General of Alabama and the Alabama Securities Commission closed down Allegro Law LLC and Allegro Financial Services LLC in February for, surprise surprise, “providing misleading representations to customers.” Allegro told its customers to “stop paying their debts, in hopes of making the debt ‘uncollectible’ in the books of debtors, thus allowing for easier settlement.” Also, the monthly payments made to Allegro that were supposed to go toward customers’ debts were actually used to pay for the company’s fees. As the understatement in the lawsuit claimed, “this practice did not yield good results for customers.”

You must be careful when seeking the help of a company for debt negotiation. Always check with the Better Business Bureau, and never pay for anything until you have a final plan you can see and hold!
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