Rip-off alert: There’s no government program to relieve you of credit card debt, despite the hordes of Internet scammers who say there is
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Sinking in credit card debt? You’re in luck, according to a barrage of online, mail and broadcast ads. They say that special state and federal government “credit card bailout” programs have become available that can help you pay it all off at a deep discount.
|PHONY ‘BAILOUT’ PROMISES|
This montage shows some of the many ways that debt settlement companies’ websites are offering misleading or false promises of government bailout for individual credit card debt.
Even better, these credit card debt bailout programs appear government-sanctioned. Many of the websites and promotional materials feature images of the White House, President Obama, bald eagles, American flags and red, white and blue logos.
Just one problem. The ads are all bogus. The patriotic banter is just the latest fad marketing gimmick from the bad apples in the debt settlement industry.
“I clicked on one Facebook ad claiming there were Obama debt bailouts available,” said Ingrid Williams, chief communications officer for the Girl Scouts of Eastern Oklahoma. As a single mother struggling with divorce debt, it seemed a good opportunity. “Within minutes, I was getting numerous solicitation calls from a variety of companies,” says Williams. “I can’t tell you how many calls I received.”
When she asked about the Obama debt bailouts, they said the programs aren’t available yet, but they could help in the meantime. “And all were just programs that would involve hurting my credit even more to get to a place where the company could negotiate the payoff.” Though Williams declined, months have passed and the phone keeps ringing.
Where the bogus offers come from
Bottom-of-the-barrel debt settlement companies produce the vast majority of these advertisements, though some are substandard credit counseling agencies and bankruptcy firms.
Online, the fakery is aimed at people who search for terms such as “government debt relief” or “credit card bailout.”
For example, type in “government debt relief program” into a search engine. Out pours misleading information and outright falsehood.
“Obama’s Debt Relief Program Awards Government Grants to Help You Pay Off Annoying Personal Debt” reads the title of one article, which leads to a debt settlement company’s come-on.
Another article begins,
“… President Barack Obama, in his first few days as the newly elected US president, developed policies and programs to help consumers get back on track with their finances and stimulate the economy … This government debt relief program is actually intended for all Americans to avail. The only reason why people are not taking advantage of this is that not everyone is aware these programs exist …”
Embedded in the article are links to another debt settlement company. Like many using these false advertisements, its website omits a phone number and physical address — a bad sign, since that means you will have to provide your personal data before even speaking with a member of its organization.
Debt settlement complaints rising
Since the start of the recession, the Better Business Bureau has received more than 3,500 complaints against debt settlement companies. And, according to the Government Accountability Office (GAO), the audit, evaluation and investigative arm of Congress, hundreds of thousands of consumers have made allegations against these companies.
The GAO conducted a study on debt settlement companies and published the results in April 2010. Its title: “Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers.”
Posing as consumers, investigators phoned 20 companies and found 17 charged upfront fees. “GAO found the experiences of its fictitious consumers to be consistent with widespread complaints and charges made by federal and state investigators on behalf of real consumers against debt settlement companies engaged in fraudulent, abusive, or deceptive practices,” the report concluded.
Not all debt settlement companies are illegitimate, but, says Linda Sherry, spokeswoman for the consumer protection agency Consumer Action, a good portion are. “Half the industry is a bunch of scam artists,” says Sherry. “If people knew the truth about them, they would run away.”
How debt settlement works
Experts say the outcome usually just intensifies consumers’ debt woes.
According to Robert Manning, founder of the Responsible Debt Relief Institute, “about 60 percent of the people drop out of the debt program in six months and never get the benefits of the settlement. They imply that they will help you right away, but it doesn’t mean that.” Those who drop out still have a debt to pay, only it’s bigger because of the accumulated interest and fees. Furthermore, many creditors take legal action against people trying to settle with these types of companies, so they are also left with expensive and damaging judgments.
Even if some clients complete the program and settle their debts for less than the actual balance, unanticipated consequences often result. Forgiven debt is considered as taxable income by the IRS, and the credit score damage of multiple defaults is massive, making future borrowing expensive to impossible.
Debt-weary consumers at risk
Unfortunately, such red flags haven’t dissuaded many Americans from wanting to check them out. “On nearly a daily basis, we receive calls from consumers who ask about the government bailout program for credit card users,” says Bruce McClary, media relations coordinator ClearPoint Credit Counseling Solutions of Seattle. “The offer most-frequently cited is the advertisement that uses clips of President Obama.”
San Francisco bankruptcy attorney Jeena Cho says those most at risk of falling for the stimulus scams are those with a steady but slim source of income. “They are hardworking people living paycheck to paycheck,” says Cho. “They hear the ads and want to believe.”
|PHONY DEBT RELIEF VOUCHER|
|Official-looking, isn’t it? With its imitation presidential seal and references to government, a debtor could be fooled into thinking this document has meaning beyond what it is — a misleading ad for a debt settlement firm. CLICK IMAGE TO ENLARGE.|
Because the claims can seem so genuine, people who are desperate for an answer to their financial worries may not take the time to investigate the company properly. McClary cites the mail solicitations as being particularly appealing to indebted consumers. “They look like government vouchers, redeemable for a debt settlement in association with a federal stimulus program. Even the envelope is made to look like one commonly used by the government for rebate checks and correspondence,” says McClary.
Getting away with it
How can these businesses make such patently false promises? The reason is simple, contends Manning: because they can. “In the beginning, back in 2002 or so, there were fewer than 70 debt settlement companies. Today, there are over 2,000, and it’s not possible to control them all. There are just too many.”
Sherry agrees, saying, “It amazes me that legitimate programmers run these ads and that there aren’t enough enforcement cops on the beat.”
Manning himself was an unwitting participant in a consumer bailout scam. A debt settlement company found some of his TV interviews and, by taking his statements out of context and employing creative editing, produced a video where it looks like he’s endorsing an “Obama-approved” debt-relief program. They posted it on YouTube. “It took a long time to get it down — eight or nine months,” says Manning. “The threat of the lawyer didn’t faze them.”
Just finding and catching the frauds adds a layer of difficulty for those trying to put them out of business, says Cho, who helps people clean up the mess these companies leave behind. That mess can include more — rather than less — debt and a string of creditor lawsuits. “A lot of times I can’t even track the company down. They’ve closed down and rebranded themselves as something else.”
New FTC regulation
As a result of repeated complaints and enforcement actions against the industry, the Federal Trade Commission in July amended its telemarketing sales rules covering debt settlement firms. Beginning Sept. 27, 2010, debt relief companies will face new restrictions. Among the key changes: They will no longer be permitted to collect advance fees and will be prohibited from making false advertising claims.
In the meantime, some in the debt settlement industry are also trying to end the deceptive marketing practices. Jenna Keehnen, executive director for United States Organizations for Bankruptcy Alternatives (USOBA), a debt settlement and negotiation association, says that the USOBA has instituted a “zero tolerance policy” regarding these misleading companies and has reported more than 30 entities that make similar claims to the Texas Attorney General’s Office.
The USOBA supports fair regulation of the debt settlement industry, and they agree with the majority of the new FTC rules, says Keehnen. “It is our position that the industry, as a whole, would benefit greatly from widespread adoption of these consumer-focused standards for ethical behavior.”
As for the companies that advertise on Google, spokesman Aaron Stein says they are policing the misleading ones that pop up after a search for debt help. “Our AdWords Content Policy does not permit ads for sites that make false claims, and we investigate and remove any ads that violate our policies.” Shutting down the bad guys isn’t guaranteed, though, as it depends on the severity of the violation. Still, complaints count, and Google encourages people to file them by completing and submitting an online form. The most severe violations will result in the suspension of a Google AdWords account.
If you fall for it, complain
Consumers who take the bait and sign up with such shady companies would be wise to send the companies a letter telling them they do not want to work with them anymore, says Cho. Ending the relationship isn’t always easy, however, so she also recommends clients close their checking account immediately. “A lot of times, they have direct withdrawal, and the money is coming straight out of their account. They have to start fresh.”
Excellent options for debt relief do exist and are worth pursuing. Accredited credit counseling organizations provide honest and helpful guidance, as do reputable bankruptcy and credit attorneys. And if you really want to negotiate a lower balance with your creditors, do it yourself for free.
Clearly there are no debt settlement programs authorized or arranged by the government, and any business claiming it has the president’s seal of approval is one to not just avoid but report to the proper authorities. “The FTC has to hear from a lot of consumers to bring cases against the companies,” says Sherry.
To complain about debt collection practices, go to your local Better Business Bureau, and the Federal Trade Commission (FTC) takes consumer complaints online and through its toll-free number: (800) FTC-HELP.