Baltimore resident Gloria Snowden thought she had found a way out from under her $10,000 credit card bill when she signed up with a company that promised to negotiate with creditors to settle the debt for less than she owed.
It was 2003 and the nascent debt-settlement industry was just taking off. Traditional credit counseling and consolidation organizations devise payment plans and arrange lower interest rates and fees, but debt-settlement companies bargain with banks and collection agencies to forgive part of the amount due. They typically require customers to pay a hefty fee up front and make monthly deposits into an independent account.
Negotiations begin only after the balance reaches a level that they believe creditors will accept — a red flag for consumer advocates who say the firms are predatory, and in some cases, fraudulent.
Snowden gave the firm she signed up with access to her savings account and deposited at least $400 each month toward her settlement.
But when the collection calls kept coming, Snowden, 65, said she realized that the firm hadn’t contacted her creditors. For five years, she battled with the company to negotiate with those she owed, all the while putting money in her savings account. Snowden said she didn’t realize she had been swindled out of her deposits until the Maryland attorney general’s office called to tell her it had nailed the firm’s leaders, who received six months in jail and had to pay $2.5 million in restitution. Snowden said she has not gotten her money back and had to file for bankruptcy.
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