Consumer Credit Center

Our experience with debt negotiating companies is that they attract customers with large credit card debt by claiming to be able to settle those debts for a fraction of their face value. They often claim that their services are more effective than those provided by credit counseling services and that they are a superior alternative to bankruptcy.

Complaints on these type of companies allege that creditors continue to harass clients, fees and interest continue to accumulate, and the creditors are not contacted. Usually, creditors turn the claims over to collection agencies, file suit and pursue collection of the money owed to them. Debts are seldom settled, customer's credit is ruined, and many people are sued forcing them to seek bankruptcy protection. Typically, it is difficult to obtain refunds.

These companies usually instruct their clients to stop paying their creditors. Some companies direct clients to make their payments to the debt negotiation company instead. They promise that when sufficient cash has been accumulated to offer a settlement to a creditor, they will do so. They go on to say that their program may take two or three years to complete. Most companies collect their fees upfront and generally the fees are based on some percentage of the promised savings.

Other companies simply collect their fee and advise debtors to save their money to pay their creditors themselves. California law limits the amount of fees debt negotiators can charge, but by not collecting the money and distributing it to your creditors, companies can remove themselves from the limiting statutes and charge whatever they wish. What they are supposed to do for you while you’re saving up your money is to contact your creditors and inform them that they’re working with you, negotiate the amount to settle your debt, and ask them stop contacting you. Debtors may not realize that if their creditors do accept a negotiated settlement, the amount forgiven constitutes taxable income.

For businesses outside of California, please check with the agency that regulates this industry.

Debt settlement/debt relief companies often claim they can renegotiate, settle, or in some way change the terms of a person’s debt to a creditor or debt collector. That includes reducing the balance, interest rates or fees a person owes.  These services can be expensive.

Business Consumer Alliance’s (“BCA”) has seen countless cases where debt settlement companies over promise and under deliver on their services.  Before entering an agreement with any debt settlement company do research on the business. Obtain a reliability report from BCA and verify how long the company has been in operation, if they are licensed and able to provide debt settlement services in your state. Check out any complaints, reviews, and regulatory actions that may have been filed against the company and/or its principals. Companies offering debt settlement services need to be compliant with Federal Trade Commission guidelines.

Obtain all terms, guarantees, fees, and details of the offer in writing and review it carefully. Make sure the information includes any cancellation, refund, and other policies that apply to the offer. Take into consideration that some creditors may refuse to work with debt settlement companies. It is advisable to check with your creditor before signing any agreement for debt settlement services.

Debt settlement companies may encourage you to stop paying your credit card bills. Be aware that doing so may cause late fees to incur, penalty interest and other charges to accumulate, and the creditors will more than likely boost their collection efforts. Also, using the services can have a negative impact on your credit score and the ability to obtain credit in the future. As several consumers have found out, debt settlement services can leave you deeper in dept than when you started.

BCA advises consumers to avoid doing business with any company that promises to settle your debt if the company:

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  Charges fees before it settles your debts


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  Claims there are new government programs to bail out personal credit card debt


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  Guarantees to make your debt go away


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  Advises you to stop communicating with your creditors


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  Promises it can stop all debt collection calls and lawsuits


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  Guarantees that your unsecured debts can be paid off

Before choosing to use any company’s debt settlement services contact your creditors to see if they will work with you to make payments more affordable or work out some alternative repayment plan. Contact a reputable credit counseling organization for assistance and advice on coping with debt.  Resources may also be available through your state Attorney General’s office. You can also seek advice from a bankruptcy attorney.

If you have a dispute with a debt settlement company or provider, file a complaint with BCA.