Debt Settlers Promise Relief, Provide Little

Cash-strapped consumers claim companies charge fees without reducing debt
By Clay Dillow,  Newser Staff
Posted Apr 20, 2009 8:33 AM CDT
Debt-settlement companies offer consumers an escape from mounting bills, but often take large fees without providing any debt relief, complaints allege.   (Getty Images)
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(Newser) – State attorneys general are being overwhelmed with complaints about “debt settlement” companies that promise consumers relief from mounting bills but rarely deliver, the New York Times reports. The number of such companies, which often collect fees of 15% of the total debt to negotiate with creditors, has tripled in recent years as consumers who binged on credit now face a reduced capacity to pay.

Debt-settlement companies encourage consumers to stop making even minimum payments, and instead to deposit into an account through which a company attempts to cut a deal with creditors, promising reduced payment now rather than no payment later. Sometimes debt is reduced, but far more often than not—up to 80% of the time by one company’s admission—fees are collected and a deal is never struck.