Beware Of Debt Settlement Scams

* It is believed in good faith that the following content can be found in the Fall 2010 edition of the Tartan Tidings and is for general reference and/or research purposes only.  For further information regarding the information listed here, please contact The Village of Midlothian in Midlothian, Illinois. *

The Attorney General's office warns that debt settlement companies make tempting promises, but they seldom deliver.  A new Illinois law provides consumers with protections against debt settlement scams, including a prohibition on upfront payments; however, there are better solutions to your financial problems than signing a contract with a debt settlement company.

Consumers who rind themselves under a mountain of unsecured debt, particularly credit card debt, may be tempted to turn to companies that offer debt settlement.  Debt settlement firms claim to be able to arrange deals with creditors to satisfy consumer debts at reduced amounts.  Once hired, they typically will advise you to quit paying your monthly credit care bills and instead pay the money into an escrow account to accumulate a lump sum (ostensibly to make your final payment).  They tell you that they will negotiate with your creditors and convince them to accept partial payment in full satisfaction of the amount you owe.

What all too often happens is that these companies take your money and leave you even in deeper debt.  In the classic debt settlement scam, the first thing the company will do is charge you a wide variety of non-refundable fees.  These include a hefty up-front fee (often 10-15% of your total debt), fees to set up escrow accounts, and even monthly "maintenance" fees.

Meanwhile, if you do as advised and quit paying your creditors, late charges and finance charges will begin to accrue on your credit card balances.  To make matters worse, many credit card companies simply refuse to work with debt settlement firms and instead choose to sue the card holder for the balance due.

A new law went into effect in August that clamps down on the debt settlement industry's abusive practices and requires all debt settlers to provide common sense consumer protections if they want to do business in Illinois.  This tough new law:

1.  Prohibits all upfront and monthly fees, except for a one-time $50 application fee;
2.  Caps fees at 15% of the savings achieved from settling a debt, ensuring that a debt settlement company only gets paid when it does what it promised to do;
3.  Allows consumers to cancel a contract at any time, with a prompt refund of fees.

If you come across a debt settlement company that fails to offer one or more of these legally required protections, it's a sure sign you are dealing with a scam.  Stay Away! You would be better off considering one of these alternative sources of help instead:

1.  Contact your credit card companies directly to see if they offer repayment programs for struggling consumers.  Many do.
2.  Talk to a reputable, licensed and bonded credit counselor.  Contact the National Foundation for Credit Counseling at 1-800-388-2227 and the IL Department of Financial & Professional Regulation at.
3.  Check with the Better Business Bureau and/or the IL Attorney General's Consumer Fraud Bureau by calling 1-800-243-0618.