Dear Consumer Ed:

I owe close to $30,000 in credit card debt. I contacted a company that said it could help me get out of debt.  The counselor I spoke to told me to stop making credit card payments for six months and that he would then contact my credit card company and offer to settle my account for $10,000.  Well, it's now six months later, and the credit card company has refused to accept the debt settlement offer.  Because I didn't pay anything for six months, I now have an even worse credit rating, not to mention my creditors have added late fees to my balance and have turned my account over to a collection agency.  What can I do?

Consumer Ed Says:

This company is engaged in an illegal practice known as "debt settlement." While services known as "debt adjustment" may legally be provided to Georgia residents, these are strictly regulated by Georgia's 2003 Debt Adjustment Act.  The reason such practices are stringently regulated is that people seeking these services are among the most vulnerable consumers:  those already in dire financial straits.

Before July 2003, debt adjustment, along with debt settlement, debt negotiation, and debt "counseling", were all illegal in this State.  When our legislature began to allow some of those services to be provided to Georgia consumers, it enacted tightly written laws that established clear and rigid standards through which such businesses could ply their trade.

If a debt adjuster is charging for its services, it cannot provide them to Georgia consumers using any business model or fee structure other than the one contemplated under the Act.  Under this model, the debtor sends money directly to the debt adjustment company, which places the funds in a trust account and then disburses the money to the debtor's creditors after taking a percentage of not more than 7.5 percent off the top as its fee. While up-front fees, which are fairly common, may be permitted (debt adjustment companies may charge you an up-front fee, monthly fee, or both), the combination of these fees may not exceed 7.5 percent of the amount paid monthly by the consumer to the debt adjustment company for distribution to his or her creditors.  In addition, the debt adjustment company must disburse all funds received from the debtor, less any fees, to creditors within 30 days of receiving them.

The company you contacted is using a model whereby the company tells consumers not to make payments to their creditors, then attempts to negotiate a lump-sum "settlement" with those creditors.  This practice is not permitted under the Debt Adjustment Act.

Companies that commit these types of violations can be subject to legal action on State and Federal levels. In fact, the Consumer Financial Protection Bureau recently took action against Meracord, LLC, a debt settlement payment processor that is alleged to have charged millions of dollars in illegal fees to over 11,000 consumers, nearly half of whose accounts were closed without ever being settled. The company must now pay $1.376 million in penalty fees and immediately cease all illegal activities.

If you believe the business you're working with may have violated the Debt Adjustment Act, you can file a complaint with the Governor's Office of Consumer Protection (www.consumer.ga.gov or 404-651-8600), and/or file a private a legal action of your own.  If the company is found to be in violation, it could be required to refund all of the fees you paid and, in a private action, you may request an additional $5,000 as restitution.

Because your debt has been turned over to a third-party debt collector, you are entitled to certain protections under the Federal Debt Collection Practices Act (FDCPA).  Among other things, the FDCPA prohibits a debt collector from contacting you at unreasonable times and places, using abusive tactics to collect the debt, or falsely representing themselves.  For more information about your rights under the FDCPA, visit: http://consumer.georgia.gov/consumer-topics/debt-collectors.

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