New York Attorney General Cuomo launches investigation on debt settlement firms

05.08.09
By Credit.com

Announcing an in investigation into the debt settlement industry, New York Attorney General Andrew M. Cuomo subpoenaed fourteen debt settlement companies and one law firm yesterday. In his press release, Cuomo said that debt settlement companies "often prey upon consumers who find themselves unable to keep up with credit card payments during these difficult economic times."

With credit card industry defaults and charge-offs mounting, many issuers are raising interest rates, which in turn makes it more difficult for financially strapped consumers to repay their debts. As a result, the debt settlement industry has grown significantly by offering to help consumers negotiate settlements to pay off debts for less than the full amount they owe. Attorney General Cuomo’s subpoena will force the companies in question to reveal their fee structures, how many people have benefited from their services, and what kind of relief they are actually providing.

Credit.com Credit Advisor Gerri Detweiler agrees that consumers should be very careful when choosing a debt settlement company but stops short of advising consumers to avoid settlement all together. “Settlement can be a viable option for someone who cannot afford the payment plan offered through a credit counseling organization, but either can’t or won’t file for bankruptcy,” she says. “But you have to realistically understand how these programs work, and make sure it is your best option.”

In her new book, Reduce Debt, Reduce Stress, Detweiler tells the story of one business owner who used the services of a settlement company to resolve $200,000 in credit card debt. “A credit counseling organization couldn’t help him,” she says, “he didn’t want to file for bankruptcy, and he found it impossible to try to negotiate directly with his creditors who were all demanding payment at once. Debt settlement allowed him to pay as much as he could afford, while continuing to run his business.”

Detweiler also points out that an explosive growth in the settlement industry has meant that some firms won’t have the experience or the capability to help consumers successfully resolve their debts. High upfront fees and heavy sales pressure are both signs that someone in debt should hang up the phone and look elsewhere, she advises. For consumers who are considering debt settlement, Credit.com offers a checklist of fourteen questions to ask a debt settlement company and offers free referrals to organizations that can help consumers who are struggling with debt.

The Attorney General’s investigation of the debt settlement industry is being spearheaded by the Bureau of Consumer Frauds and Protection in New York City and several of the Attorney General’s Regional Offices across the state, under the supervision of Consumer Frauds Bureau Chief Joy Feigenbaum and Deputy Attorney General for Regional Affairs David Sampson.

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Credit.com offers a checklist of fourteen questions to ask a debt settlement company.