Settlement companies protest better business bureau rating system

03.12.09
By Gerri Detweiler

Consumers who are considering working with a debt settlement company may find little help checking out those firms with the Better Business Bureau. “Under the BBB’s new rating system, it is virtually impossible for a debt settlement company to be rated anything other than a ‘D’ or ‘F’,” warns The Association of Settlement Companies (TASC), the professional association for the debt settlement industry.

Debt settlement companies help consumers who cannot pay the full amount of their unsecured debts negotiate reduced payoffs or “settlements” with creditors. These companies are becoming a popular option for debt-strapped consumers who want to avoid bankruptcy but cannot pay back their full debts through credit counseling. With the economic downturn, the settlement industry is experiencing significant growth, while also attracting criticism from regulators concerned with high upfront fees and aggressive sales practices.

In a February letter TASC sent to the National Council of Better Business Bureaus, the organization alleged that “there are critical flaws in the BBB’s consumer grading system as it applies to settlement firms.” The letter expressed concern that all settlement companies will be given poor ratings, regardless of the number of consumer complaints, how those complaints have been resolved, or the business practices of the settlement firm under review.

TASC says the dispute stems from the fact that the BBB does not consider debt settlement a viable option for consumers who cannot afford to pay back their debts and want professional help to negotiate lower payments.

“We provide a valuable service for consumers and feel we have an obligation to regulate our members,” said Chris Kesterson, TASC president and chief executive of Debt Settlement America in Dallas. “We think the Better Business Bureau is promoting a position that shuts out an important option for certain consumers struggling to manage their debt and get back on their financial feet.”

In a written statement, the Council of Better Business Bureaus stated, “Debt negotiation/settlement businesses are downgraded in the BBB rating system based on BBB concerns with the debt negotiation/settlement industry. The FTC held a workshop on debt negotiation/settlement last fall, and similar concerns were expressed as to how the industry operates and the likelihood that debt negotiation/settlement benefits a significant number of consumers.” The organization has indicated a willingness to review its rating system upon receipt of further documentation by TASC.

Until the matter is resolved, consumers should be aware that a debt settlement company’s negative rating by the BBB may not reflect an individual agency’s record of complaints. Consumers who are considering hiring a debt settlement firm must use their own due diligence and review contracts carefully before signing. A list of questions to ask a debt settlement company can be found at Credit.com.

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