Phil Cannella senior advocate daily occurrence
It all sounds so easy, but Phil Cannella, originator of Crash Proof Retirement and the Philadelphia area’s leading retiree advocate, says debt-reduction companies seldom deliver on those lofty promises.”This is an industry where deception and abuse are part of everyday business.”“Thanks to the recession, millions of retirees are drowning in debt. These debt reduction profiteers look for ways to benefit from that vulnerability,” says Cannella. “Retirees can sometimes shell out thousands of dollars to these companies—with no guarantee that one cent of their debt will ever be settled.”
Since 2003, the Federal Trade Commission (FTC) has sued 200 defendants for deception and abuse in connection with debt-relief companies. The settlements in these cases have helped more than 600,000 victims get some of their money back. The FTC discovered that people who sign up with debt-relief companies often wind up with more debt than when they began. More investigations are underway, says Evan Zullow, an attorney with the FTC’s Division of Financial Practices.
Unlike traditional non-profit credit counseling services—which work with people to better manage their money and pay debts over time—debt-relief companies promise to dramatically reduce what you owe. With a non-profit counseling service, the monthly fee is based on your ability to pay. Until recently, debt-relief companies charged up-front fees that could be 14 to 18 percent of a person’s total debt. That practice is now illegal.
Debt-relief companies often tell their clients to stop paying their bills. Instead, the customer is told to pay a certain amount each month into a separate bank account set up by the company. The promise is that once there is enough in the account, they will negotiate a lump sum settlement with creditors.
“You will definitely wind up in worse shape if you are paying your bills and then stop paying them,” says the FTC’s Zullow. “Creditors get tired of waiting and they will give your account to a collection agency—or sue you.”
The FTC modified its rules to protect people who contact debt-relief services. The rules require salespeople to give customers more information and prohibit misrepresentations. Customers must be told how long it will take to get relief, how much the service will cost, and the company’s success rate. Since debt-relief services can no longer charge up-front fees, they only charge a fee once the debt is settled.
In a written statement, the American Fair Credit Council (AFCC) said the debt-relief industry opposes the ban on up-front fees, adding that the ban is unfair and hurts consumers. The AFCC stresses that its members save consumers $640 million annually and that customers are treated respectively and responsibly. The results our companies get for customers far outweigh the costs, the AFCC statement read. The AFCC did not return calls to Retirement Media.
Any way you look at it, getting out of debt is difficult. It takes dedication, sacrifice, and hard work. But you won’t see or hear that in any debt-relief ad campaigns. Until that changes, any list of Phil Cannella complaints is bound to include the debt-reduction industry.
FOR MORE INFORMATION FROM PHIL CANNELLA, TUNE IN TO THE CPR SHOW, EVERY SATURDAY 11AM-1PM. LISTEN LIVE
