“Debt relief” scams have become a problem for consumers recently, and the issue is getting attention from the federal government. These companies prey on people suffering through financial hardship by claiming that, in exchange for small payment, they can eliminate, consolidate, or lower credit card or other loan payments and improve your credit score. Consumers that pay for the service rarely, if at all, see any results and only fall further into debt.
Last week, the federal government filed suit against two especially egregious debt relief companies. The Federal Trade Commission sued American Bill Pay Organization and American Benefits Foundation, two companies that claimed to administer federal programs that would pay up to $25,000 to relieve individuals in debt. The problem with the scheme, of course, is that no such federal program exists. Instead, the defendants in this case collected substantial fees from consumers without paying any of their debt or improving their credit. The case is currently pending in the United States District Court for Washington, D.C.
There are a few, honest debt relief agencies in the United States. These agencies are required to comply with the Credit Repair Organizations Act which, among other things, prohibits a debt relief agency from charging or receiving money before any debt relief or credit repair service is actually performed. The lesson learned from the FTC’s new suit is that consumers must be wary of debt relief agencies, and never pay any such agency before they actually deliver results.