Credit Card Problems and Debt Relief Scams

You’ve probably seen ads that target people who have bad credit, high credit card balances or unaffordable loan payments. They offer quick-fixes for these problems and promise results that sound too good to be true. The catch? To sign-up, consumers are required to pay advance fees or agree to make recurring monthly payments before any work is done.

Companies that run these kinds of ads are preying on vulnerable consumers in difficult situations. They’re also violating federal and state laws that prohibit false and deceptive advertising. Specifically, these laws prohibit any business offering credit repair and debt relief services from charging advance fees and making deceptive or unsubstantiated claims about their services and the results they can achieve.

Not every company offering credit repair and debt relief services is engaged in fraud. But it isn’t easy to identify which companies are legitimate and which ones are not. According to the Federal Trade Commission (FTC), any company that engages in the following practices is probably a scam scam:

• demands payment in advance before doing any work
• tells you not to contact creditors, loan servicers or consumer reporting agencies directly
• claims it can remove negative but accurate information from your credit report (unless the information is obsolete and should no longer be included due to the passage of time)
• encourages you to provide false information when applying for a loan or credit card
• does not clearly explain your legal rights

The practices described above and below violate various federal and state consumer protection laws. You have a right to sue a company you paid for debt relief of credit repair services if that company engaged in these or any other unlawful activities.



The type of services that fraudulent companies advertise and sell to consumers are described in more detail below.

DEBT SETTLEMENT COMPANIES

Companies that offer debt settlement services promise to negotiate with your creditors and get them to settle your debts for less than the full amount owed. They typically ask that you pay them a certain amount each month and promise to set aside the money so that it can be used to pay off your debts in a lump sum after they negotiate settlement with your creditors. They may tell you to stop paying your debts during the negotiation process.

Debt settlement companies that engage in any of the following activities are very likely scams:

• require you to pay fees in advance before they have negotiated a settlement with your creditors
• promise or guarantee they can negotiate the balance of your debts down to a fraction of the full amount owed
• fail to explain possible risks and adverse consequences, such as damage to your credit score and having to pay tax on the amount of debt that is forgiven
• tell you to stop making payments on your credit cards and loans
• tell you not to communicate with your creditors and servicers
• fail to disclose how long the settlement process will take

DEBT RELIEF COMPANIES

Companies offering debt relief services promise they can convince your creditors to forgive some or all of your credit card or loan balances. They may also claim they can lower your monthly payments by consolidating your debts or by getting your creditors to reduce interest rates.

According to the FTC, ads similar to the ones below are signs of fraud:

• Consolidate your bills into one monthly payment without borrowing.
• STOP credit harassment, foreclosures, repossessions, tax levies, and garnishments.
• Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!

Consumer protection laws prohibit businesses providing debt relief services from misrepresenting any “material aspect” of their services. This includes any information that is likely to affect your decision to sign up for the service or choose it over another program, such as:

• the amount of money you might save by using the service
• how long it will take to get results
• how getting debt relief might affect your credit score
• whether the service will stop debt collectors from contacting you

CREDIT REPAIR COMPANIES

Our credit reports frequently contain inaccurate, incomplete or outdated information. Fortunately, there’s a remedy. Federal and state laws give us the right to dispute information on our credit reports that’s inaccurate, incomplete or outdated. These laws require consumer reporting agencies to delete or modify any information that’s shown to be inaccurate or that cannot be verified.

Some companies offering credit repair services claim they can get negative information removed from your credit report even though it’s accurate. That’s a lie. Consumer reporting agencies are not required to remove negative but accurate information from credit reports (unless it’s obsolete and outdated) no matter who makes the request.

A federal law – The Credit Repair Organization Act (CROA) – makes it illegal for credit repair companies to lie about what they can do for you and prohibits them from charging you before they perform any service.

 The law also requires credit repair companies to explain:

• your legal rights in a written contract that describes the services they will perform
• that you have three days to cancel your contract without be charged
• how long it will take for the company to get results
• the total cost you will pay



Another type of credit repair scam targets people who can’t get loans or credit cards because they have bad credit. These fraudulent companies may promise they can get you a new Social Security number or new identify that you can use to apply for credit. They tell unsuspecting consumers to apply to the IRS for an Employee Identification Number (EIN) and use it to apply for credit. In truth, anyone who gets an EIN under false pretenses or lies on a loan application is committing a crime.

STUDENT LOAN ASSISTANCE

Companies providing debt relief and credit repair services sometimes target consumers with specific types of problems; for example, people who are behind on their student loans.



Companies involved in this type of fraud falsely claim they can get student loan balances reduced or even forgiven. Or they tell people they are eligible for certain government programs that provide relief and benefits to a limited class of people (for example, students with certain types of federal loans may qualify for the public service loan forgiveness program). While there are government programs that can help eligible borrowers, these programs have strict requirements. Most borrowers don’t qualify.

MORTGAGE ASSISTANCE RELIEF SERVICES

Homeowners who are behind on their mortgage loan payments are often terrified and desperate for help. There are few things more threatening and disruptive than losing a home in foreclosure.

For this reason, Congress passed a federal law – the Mortgage Assistance Relief Services, or MARS Rule, that applies to any company that advertises, sells, or provides mortgage assistance relief services. This includes loan modification services, loan document audits, and services to stop or avoid foreclosure.

Not surprisingly, there are companies that prey on homeowners in financial distress and faced with losing their home. They make false promises and use partial truths to lure homeowners into signing contracts and promise results they can’t deliver. This may include promises to provide legal assistance from attorneys who can stop a foreclosure or get a mortgage loan modified to make payments more affordable. Homeowners who sign-up are frequently left in worse financial shape.

The FTC provides some examples of fraudulent ads for mortgage assistance relief services:

• Stop foreclosure now!
• Over 90% of our customers get results.
• We have special relationships with banks that can speed up the approval process.
• Keep Your Home. We know your home is scheduled to be sold. No Problem!

And here are some examples of fraudulent conduct:

• demanding payment before getting you mortgage lender to agree to a loan modification (the MARS Rule makes it illegal for companies to collect fees before a homeowner has received an offer of relief from their and accepted it)
• misrepresenting the chances of getting you mortgage loan modified or your monthly payments reduced
• misrepresenting their ability to help you avoid foreclosure
• falsely claiming to be affiliated with a federal or state government agency or program
• failing to disclose how long it will take to get a successful result or making false money-back guarantees
• rent-to-buy schemes that require you to deed the title to your home in return for letting you stay in your home and paying rent
• failing to make required disclosures

RESOURCES