There's an article in The New York Times about the new debt management industry that's popped up to prey on poor people drowning in debt. When I read this article, it made me sad and wonder about human nature. How is it acceptable to lie to people, trick them into paying you when you don't tell them that if they don't pay credit card bills, that they'll have credit card collectors after them and be sued? These people in the debt management industry are nothing more than vultures feeding off poverty, trying to squeeze every last drop of green from the poor and their families.
State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry’s proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises. Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors.
Here's how the poor get taken advantage of when they're trying to become debt-free (since the bankruptcy law was rewritten by the Bush administration to make bankruptcy harder for American families), they think the advertising from these companies are true about getting rid of debt and preventing bankruptcy. There's a hidden caveat to the advertising--a lot of it is fraudulent and misleading.
In this process, the debt management companies tell their clients to set up accounts to deposit money into (for administrative fees) and to skip credit card payments. Once these accounts reach a stated goal, then the companies strike a deal with the credit card companies for a lump-sum to cut the debt in half. That sounds like a good deal, right?
Only these companies don't tell their customers that when they stop their credit card payments, their customers get slapped with lawsuits and face even more collection calls. The marketing practices are deceptive as the U.S. Government Accountability Office has found out in their investigation of this industry:
In April, the United States Government Accountability Office released a report drawing on undercover agents who posed as prospective customers at 20 debt settlement companies. According to the report, 17 of the 20 firms advised clients to stop paying their credit card bills. Some companies marketed their programs as if they had the imprimatur of the federal government, with one advertising itself as a "national debt relief stimulus plan." Several claimed that 85 to 100 percent of their customers completed their programs.
"The vast majority of companies provided fraudulent and deceptive information," said Gregory D. Kutz, managing director of forensic audits and special investigations at the G.A.O. in testimony before the Senate Commerce Committee during an April hearing.
And guess what? Many in the industry also sold subprime mortgages, so this is more of the cycle of preying on the poor and their families when you see this quote below:
Cody Krebs, a senior account executive from Southern California, manned a booth for LowerMyBills.com, whose Internet ads link customers to debt settlement companies. Like many who have entered the industry, he previously sold subprime mortgages. When that business collapsed, he found refuge selling new products to the same set of customers — people with poor credit. "It’s been tremendous," he said. "Business has tripled in the last year and a half."
There are some good news though--Senator McCaskill has joined with Senator Schumer to sponsor a bill to cap fees charged by these companies at 5%. I think that more should be done though regarding the marketing practices of these companies, and am hopeful there will be forthcoming legislation on that score.
And as an aside, here's also another important read--but about the oil spill situation, and BP's army of private contractors which I call "Disaster Capitalism"--and if you have time for reading today, I urge you to please read this article. I'd love to get Fishgrease's input on the private contractors being employed to do booming, and see what he knows about them.