Debt Management Companies

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Q. What if a creditor doesn’t agree to participate?
A. Unfortunately it is the decision of a creditor whether or not to accept a debt management proposal. If the creditor will not accept a proposal, they may accept the full standard monthly payment through our program, but offer no benefits. If a creditor refuses to accept your payments through a debt management company, then that individual account must be removed. You will then need to send your regular monthly payments directly to the creditor.

Eleven Companies Settle With The State Under New Debt-Management And Credit Counseling Regulations

3/12/2009

(DENVER) " Colorado Attorney General John Suthers announced today that enforcement actions taken under debt management laws that came into effect last year have resulted in settlements from 11 companies.

“In this current economy, consumers need to be particularly careful about offers to eliminate debts and erase negative information from credit records,” Attorney General John Suthers said. “Consumers should avoid paying large amounts in money in return for promises that sound too good to be true.”

The debt laws apply to debt management companies that contract with Colorado consumers on or after Jan. 1, 2008. In addition, as of July 1, 2008, these companies must register with the Attorney General’s Office. Forty companies are now registered, consisting of seven that offer debt settlement services and 33 that offer credit counseling. Debt management companies generally work with unsecured debt such as credit cards and medical bills.

Since the new laws took effect, the Attorney General’s Office received 27 consumer complaints about debt management companies. In addition, it reached settlements with 11 companies that violated the law. The most common violations were failing to be registered, charging illegal fees and failing to allow consumers to cancel contracts. As a result of these investigations and settlements, debt management companies have refunded $923,370 in program fees to 912 Colorado consumers " an average of over $1,000 per consumer. In addition, some settlements required the companies to pay investigative costs and penalties. The Attorney General’s Office continues to investigate unregistered companies.

The 11 companies that settled investigations with the Attorney General’s Office are listed below. All monetary amounts have been paid or will be in paid during the next several months.

Century Negotiations, Inc., a Pennsylvania debt settlement company, refunded $53,796 to 51 Colorado consumers and paid $25,500 in investigation costs and penalties. It was not registered when it contracted with Colorado consumers. It is registered as of Dec. 3, 2008.

Clearone Advantage, LLC dba Clearone Debt Relief, a Maryland debt settlement company, refunded $5,535 to two Colorado consumers and paid $1,000 in investigation costs and penalties. It failed to comply with the law’s provisions on cancellation rights, cautionary disclosures and advertising. It also was not registered when it contracted with Colorado consumers. It is not registered.

Credit Answers, LLC, a Texas debt settlement company, refunded $82,809 to 27 Colorado consumers and paid $5,000 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights and cautionary disclosures. Its application for registration is pending.

Debt Relief of America, a Texas debt settlement company, refunded $20,201 to 22 Colorado consumers and paid $5,000 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights and cautionary disclosures. It also was not registered when it contracted with Colorado consumers. It is not registered.

Financial Freedom Resources, Inc., a Florida debt settlement company, refunded $7,858 to 10 Colorado consumers. It failed to comply with the law’s provisions on program fees, cancellation rights and cautionary disclosures. It also was not registered when it contracted with Colorado consumers. The company is no longer in business and is not registered.

Freedom Debt Relief, LLC, dba Freedom Debt, Freedom Debt Help, Freedom Debt Reduction, Freedom Debt Relief USA, Freedom Financial Network and Debt Resolution Partners, a California debt settlement company, refunded $509,582 to 558 Colorado consumers and paid $109,500 in investigation costs and penalties. It failed to comply with the law’s provisions on cancellation rights, cautionary disclosures and advertising, and was not registered when it contracted with Colorado consumers. It is registered as of Feb. 3, 2009.

National Foundation for Debt Management, Inc., a Florida credit counseling company, refunded $16,572 to 90 Colorado consumers and paid $10,500 in investigation costs and penalties. It failed to comply with the law’s provisions on cautionary disclosures and was not registered when it contracted with Colorado consumers. It was registered on Jan. 15, 2009.

New Beginnings Debt Settlement, LLC a Florida debt settlement company, refunded $110,000 to 86 Colorado consumers and paid $49,500 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights, cautionary disclosures and advertising, and was not registered when it contracted with Colorado consumers. It is not registered.

New Life Debt Relief Corp., a California debt settlement company, refunded $36,000 to 14 Colorado consumers and paid $5,000 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights and cautionary disclosures. It also was not registered when it contracted with Colorado consumers. It is registered as of Feb. 24, 2009.

PDL Assistance, Inc. dba PDL Eliminators, an Alabama debt settlement company, refunded $5,825 to 12 Colorado consumers and paid $17,000 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights, cautionary disclosures and advertising. It is not registered.

Pemper Companies, Inc. dba Curadebt, Curadebt Systems and Banks, Schwarz & Levitz, a California debt settlement company, refunded $4,075 to four Colorado consumers and paid $5,000 in investigation costs and penalties. It failed to comply with the law’s provisions on program fees, cancellation rights, cautionary disclosures and advertising. It also was not registered when it contracted with Colorado consumers. It is not registered.

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Credit counseling organizations work with creditors to establish plans that may include reducing or waiving interest rates and late fees, and lowering monthly debt payments. Plans usually require consumers to repay the entire principal amount owed. Consumers make monthly payments to the credit counseling organization that then disburses the funds to creditors. Credit counseling organizations may charge a one-time $50 enrollment fee and a monthly fee of no more than $50 per month. Both for-profit and non-profit organizations may offer credit counseling.

Debt settlement companies offer to settle debts with creditors for less than the full balance owed. Payments are not made to creditors on a periodic basis. Instead, consumers make payments into trust accounts or special purpose bank accounts. When sufficient funds have been deposited, usually at least 50 percent of the total debt, the debt settlement company attempts to negotiate with creditors to settle the debts owed. Debt settlement companies may charge a fee of up to 18 percent of the total debt owed to creditors. This fee may include a 4 percent enrollment fee. Typically, the consumer’s payments are first applied to program fees before funds are accumulated to offer any settlement to creditors. It may take months or several years before a settlement is offered.

Consumers have certain rights under the debt management laws. Contracts must be in writing. Providers must determine that plans are appropriate for the individual consumer. All fees must be disclosed in writing and consumers have a three-day right to cancel for a full refund and a right to cancel at anytime later for a partial refund. Providers must offer free financial education and prepare a budget and financial analysis.

Creditors are not required to participate in payment plans or accept settlement offers and, as a result, providers cannot guarantee a successful result. Enrolling in a debt management plan may negatively impact a consumer’s ability to obtain credit or lower a consumer’s credit score. A debt management plan cannot legally stop collection calls, lawsuits and wage garnishments.

Consumers with problems paying their debts should first contact creditors directly to try to work out payment arrangements. Colorado consumers should refuse to pay any money to a debt management company that is not registered. A list of registered companies and other consumer information is available at the Attorney General’s web site, www.ago.state.co.us/UCCC/debtmgmtmain.cfm.html. In addition, consumers in financial distress may want to consult an attorney about other options, including bankruptcy.

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Attorney General Suthers’ Office also enforces Colorado’s laws on credit services organizations. These “credit repair” companies offer to erase or remove derogatory information from credit reports. However, accurate credit information cannot be legally removed from a credit report except by the passage of time. Most adverse credit information may be reported for seven years and bankruptcies for 10 years.

Credit repair companies are prohibited from collecting advance fees for services, must provide written contracts, and must allow consumers a five-day right to cancel. They are required to disclose in writing the procedures for consumers to correct, at no cost, errors in credit reports directly with consumer reporting agencies. There is no licensing or registration requirement.

In the last year, the Attorney General’s Office resolved investigations with three Colorado credit repair companies. Each company charged fees prior to the completion of their services and failed to provide all required disclosures. Integrity Credit Fix, Inc. and My Purchase Power, LLC agreed to stop violating the law and My Purchase Power also paid a $2,500 penalty. In addition, the Attorney General’s Office obtained a favorable court ruling that its 2003 judgment against Credit Corrections, LLC, for more than $900,000 in consumer restitution and penalties could not be discharged in bankruptcy. The company ceased business several years ago.

Consumers are legally entitled to a free copy of their credit report each year by calling 1-877-322-8228 or at www.annualcreditreport.com. Consumers with complaints about debt management or credit repair companies should contact the Attorney General’s Office at 303-866-4494 or download a complaint form at www.ago.state.co.us/UCCC/PDF/uccccmpplform.pdf.

Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you.

Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.