Debt-Settlement Firms Misled Consumers, GAO Says

Washington Post
April 23, 2010
Mui, Ylan Q.
P. A16

At a recent hearing of the Senate Commerce Committee, a report by the Government Accountability Office was presented indicating that many debt-settlement firms have misrepresented themselves to consumers by claiming affiliations with federal stimulus programs or government agencies. Audio recordings of salesmen reveal that some recommend consumers stop making payments to creditors, despite standards set forth by the U.S. Organizations for Bankruptcy Alternatives and the Association of Settlement Companies prohibiting such a practice; only three of the 20 companies contacted by undercover investigators did not encourage borrowers to cease bill payments. Moreover, the Federal Trade Commission (FTC) pointed out that debt-settlement firms claim 85 percent to 100 percent success rates, when in actuality the success rate is under 10 percent. The FTC wants to make it illegal for these companies to charge fees in advance of negotiating with creditors, but the industry organizations insist that advance fees are necessary for companies to stay in business. In the meantime, Sen. Charles Schumer (D-N.Y.) plans to introduce legislation that would outlaw advance fees, restrict the total amount charged to the consumer, and allow consumers to cancel their participation and get a refund.
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