Here is a guide to help avoid being cheated or scammed by a business or company and check out or evaluate a company for free before you decide to pay them for services.
Since I am a consumer debt expert, this advice will center around that niche, but the core lessons apply to every consumer that wants to avoid being scammed.
Over the years, a common theme has emerged where people feel they are scammed by a company or taken advantage of, and it appears they have not checked them out before entering a contract for services and giving up their hard-earned money. So here is my guide on what to do to better protect yourself from being a victim.
Checking out a company or business before paying them a lot is wise and prudent. It can help keep you from being ripped off.
The most significant issue I see when people are in trouble and looking for help is they tend to run to the first company that claims they can help them. Then, they suspend commonsense or prudent measures and hope the company will perform the services they claim to be able to.
Understandably, when people are in emotional pain and stress and want the problem to be dealt with and go away, they often react impulsively.
It isn’t till later that people find out that the claims made may not have been valid, and then they are left in a worse spot and struggle to get their money back.
How to Check Out a Company or Business
There is no surefire way to check out a company, but here is what I suggest doing.
- What is the Company Address? Ask the company to provide the physical street address where they are located if you were to visit them. Many companies hide behind a maildrop or postal center address.
While it is true that some startup companies do legitimately use these mail centers to receive mail, it is also true that many fly-by-night outfits use them as well to shield themselves or to pose they are in a different state. Then, they will close the mailbox and move on to the next thing.
If a company is insufficient or can’t provide you with a physical street address, you may want to consider if they will be around if a problem occurs.
If they give you a physical street address with a suite number, do a Google search for that address and suite number. Many of those turn out to be virtual office spaces. They look like legitimate addresses, but a little checking will show you they are just a fancier version of the maildrop mask.
You might want to suggest you will be in the area and you’d like to drop in unannounced at their address. If they try to talk you out of that, that might make you wonder why.
You can use the street address to take a look at it from the street using Google Maps. That can be highly enlightening.
- Is the Company Registered? It’s easy to check to see if a company is licensed these days. A simple google search for ‘[state] corporation searches’ will typically get you the link for the State you are searching for, so you can quickly search the state records to see if they are registered as a business.
You will want to check the state where they say they are located and your State. It surprises the number of companies that are not licensed to conduct business in their State.
While a company may be operated as a sole-proprietorship and may not be a registered corporation or LLC with the State, that will at least give you a good idea of how big they are, if they claim to be a “corporation, nonprofit, or LLC,” they should be registered.
- Is the Company Licensed? If the company is selling you some financial service or debt help, the chances are that their State and your State require some licensing. This is true for both for-profit and nonprofit organizations.
If a company sells you debt help or a loan, they most likely should hold a state license or be exempt from licensing. Ask them for their licensing information to be able to provide a service.
- Recognize the Role of the Person You Are Talking To. Typically, the person you are talking to on the phone is either paid a commission or evaluated on one primary ability, making sales. The intentional or unintentional effort is to persuade you to use the services and enroll as a client with them. Don’t feel pushed. You must understand that the representative may say many things not supported in writing. They may engage in puffery or misrepresentation to get you to pay them money for services.
If a company is attempting to sell you services and using the telephone, they must comply with the FTC Telemarketing Sales Rule.
- Ask the Company to Put Their Performance Claims in Writing. If a representative is willing to tell you they have a great success rate for the services they sell, they should not hesitate to share that data with you. The Federal Trade Commission has specific guidance about how a company should do that. Here is what the FTC says.
May I base my advertising claims on the experiences of some previous customers?
Yes, but your sample must represent the entire relevant population of your past customers. To accomplish this, you must, among other things, use appropriate sampling techniques, proper statistical analysis, and safeguards for reducing bias and random error. For example, you can’t cherry-pick the most successful examples to inflate your results.
If you advertise or represent that your customers will save a certain amount of money or reduce their debt by a certain percentage – for example, “We can settle your debts for 40% to 60%” – your statements must be truthful. You must have objective proof to back them up. Your claims must accurately reflect the results you’ve achieved for previous customers. It’s essential to consider the message your claims convey. Under the law, the FTC looks at claims from the point of view of reasonable consumers. Therefore, what matters isn’t the literal accuracy of the words you use but rather your proof to support the “net impression” your message conveys. For example, claiming that your past customers have achieved “up to 60% savings” is likely to convey to new customers that they, too, will get savings of around 60%. The claim is deceptive if you don’t have solid proof to back that up.
Here are several important requirements for making sure your savings claims are truthful and not deceptive:
- State the savings based on the customer’s debt when they sign up for the program. You may not inflate savings figures or percentages by including interest and fees the credit card company adds after a customer signs up for your program.
Example 8: Andy signs up with a debt relief service offered by Company H, owing $10,000 on his credit card. One year later, following negotiations with the credit card company, Company H negotiates a settlement allowing Andy to pay $6,000 to resolve the debt. However, since Andy enrolled, the credit card company has charged him interest and late fees totaling $2,000, so Andy now owes $12,000. By getting a settlement for $6,000, Company H has saved Andy $4,000 ($10,000 minus $6,000) or 40% of the debt at the time of enrollment. It would be deceptive for Company H to claim to have saved Andy $6,000 ($12,000 minus $6,000) or 50% of his debt.
- Include the impact of your fees on the claimed savings. You may not inflate your savings claims by excluding the fees your customers paid you.
Example 9: Betty owes $10,000 on her credit card and signs up with Company J’s debt relief service. Company J gets a settlement allowing Betty to pay $5,000 to resolve the debt. However, at the time of settlement, Company J charges Betty a $1,000 fee for its work. It would be deceptive for Company J to claim to have saved Betty $5,000 – or 50% of her debt – because Betty also had to pay $1,000 in fees. Instead, Company J may truthfully state Betty’s savings as $4,000 ($5,000 minus $1,000) or 40% of Betty’s debt.
- In calculating the results you’ve achieved over time, you must include customers who dropped out or otherwise failed to complete the program. Don’t base your savings claims only on customers who successfully completed your program.
Example 10: Company K had ten customers signed up for its service. Each one had $10,000 in unpaid credit card debt for a total of $100,000. Five of the customers completed the program, and each saved $5,000 – for a total savings of $25,000. The remaining five customers dropped out of the program, each one still owing the $10,000 they owed when they signed up with the program. Taken together, Company K had saved its customers $25,000 – or 25% – of the total $100,000 debt they had when they signed up with the program. It would be deceptive for Company K to exclude the drop-outs and claim that it saved its customers 50% of their debt.
- Include all debts enrolled by your customers, not only those that have been settled successfully. In calculating your savings claim, you may not exclude accounts you failed to settle, even if the failure was due to customers dropping out of your service.
Example 11: Company L has ten customers, and each of them enrolls two $1,000 debts in the program – totaling 20 debts or $20,000. Company L is able to settle 10 of the 20 debts, each for $500. However, it was unable to settle the remaining 10 debts before those customers either completed or dropped out of the program. Thus, Company L has saved its 10 customers $5,000 or 25% of their debts in the program. It would be deceptive for Company L to exclude the 10 accounts that weren’t settled and claim a savings rate of 50%.
While the FTC examples apply specifically to debt settlement companies, the examples can also be used as guidance for other debt help. For example, the success rate of a mortgage modification or credit counseling program.
Nearly all credit counseling programs will not put their performance numbers or success rates in writing. That should certainly make you wonder why.
For example, suppose a company is trying to sell you mortgage modification help for thousands of dollars. In that case, they should be willing to provide you with documentation to show how successful they have been. And even supply performance data with your specific large lender should be on file. If they are unwilling or unable to provide you with such data, that should make you hesitant.
Remember, their data must show the performance of all clients enrolled, not just successful clients.
- State the savings based on the customer’s debt when they sign up for the program. You may not inflate savings figures or percentages by including interest and fees the credit card company adds after a customer signs up for your program.
- Check With the Attorney General Office. You can find the current Attorney Generals’ listed here. The links to their websites will be there as well. You can contact the Attorney General’s office in your State and the State, the company, is located in to inquire if there are any complaints on file. The Attorney General’s office may also help you determine if the company should be licensed to provide the services they are selling you and check if the company is licensed.
- Check With the BBB. Don’t even get me started on the BBB. While there have been some valid criticisms of the BBB, they remain a well-recognized repository of complaints and company information. You can search a company here.
A BBB rating is not in and of itself the only clue you should check. I think the company’s response to previous complaints is more important. Check to see if previous complaints were resolved satisfactorily? Does the company have complaints they’ve never responded to? For me, that’s more disturbing.
Also, look for how many recent complaints the company may have and the type of complaints if they are complaints about the product or service; that should be a big red flag for you.
- Search GetOutOfDebt.org. If the company is going to sell you debt relief assistance and people have had a problem with them in the past, they may have already appeared on the GetOutOfDebt.org website in either an article, reader question, or a consumer complaint. The search box for the site should be somewhere up near the top right.
- Is a Lawyer Selling You Financial Help Services? If you are being asked to pay a large amount of money for financial help services like a mortgage modification or debt help by a lawyer, it is only prudent to find another attorney licensed in your state and pay for a second opinion first.
A second opinion will give you a better idea if the claims made to you are realistic and reasonable. When reviewed by another attorney licensed in their State, there should be no problem with an attorney being comfortable with their claims. Think about it like this, do doctors complain when you have a second opinion about a medical condition? No.
You can also check to see if the attorney is licensed to provide legal service by going to the website for the state’s Bar association.
- You MUST Read and Understand the Contract Before You Sign It. Long legal agreements are boring to read. That’s a fact. The average person easily gets lost in all the tiny print and legalese. That’s normal. But you need to understand that the contract you are signing is what you agree to, not what the representative told you on the phone.
I’ve seen plenty of contracts that say No Refund even though the representative told them there was. I’ve also seen plenty of arrangements that make you agree that there are no guarantees or ask you to waive some of your rights. But, then, there are the contracts that say that everything you were told on the phone is not valid.
If you are being asked to agree to pages and pages of text, you must understand the agreement is written to protect the person selling you the services, not you. You absolutely must understand what you agree to before you sign the document. If you don’t understand, ask for clarification in writing or take the contract to a lawyer licensed in your state and ask for a second opinion. Consumer advocacy lawyers can be located through ConsumerAdvocates.org.
- Print Out The Company Web Pages. If you feel you are going to use the services of a particular company and you have relied on statements on their website or their website as a whole, print out those pages and keep them safe. They will come in handy if you have a problem with them in the future. Also, save every email the company sends you, print all documents they send you, and keep all that information in a safe place you can get to it if a problem arises.
- Do a Web Search. Search the web for consumer complaints before you do anything. You can search by company name and address and also search for their phone number.
Individual consumer complaints may not be genuine, valid, or accurate, but it won’t take long for you to recognize a pattern of complaints. It’s the overall pattern that creates a red flag for me.
Here is one post of mine that raised concerns over positive comments listed for one company. They certainly appear suspect.
For example, not every customer is going to be happy. That’s a fact. But it’s how the company handles those customers that are more important. I even wrote a guide on companies can take upset customers, and it’s a good guide on what you should look for and expect from a good company. Read How to Handle a Consumer Complaint Like a Pro And Come Out Smelling Like a Rose.
What I have observed are online consumer complaints that are then followed by glowing comments. Unhappy people complain and shout. Happy people may post a few remarks on review sites, but they don’t typically run around responding to every unhappy complaint. That’s the mark of someone trying to neutralize criticisms, not react to them.
Ideally, you want a company that will work hard to resolve any issue that might arise, not get upset over it and attack.
Use the complaints you may find online and the responses as an example of their integrity and professionalism.
You Will Be a Top Consumer
This advice will be an excellent start for you to check out a company or business before hiring them. If you follow my advice above, you will have done more than 99% of people do before hiring a company.
The information you learn will help you to make a well-informed decision if the company is right for you.
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IF YOU GET A ROBOCALL, IT’S A SCAM!!!!!!!
Great Post! Super helpful and very detailed.
@GetOutOfDebtGuy
One way to make sure your payments are more secure over the internet. Is to use company websites that have “https”. Encryption is just another safeguard. After all, you don’t want your credit card being stolen from the false companies.
Let’s talk about this, to me it defies logic if an agent provides full disclosure.
Just a quick note, I know how the law reads, I just can’t see someone get pinched for what you’re about read from me. I’m not shooting the messenger here….
Steve wrote:
A. State the savings based on the customer’s debt when he or she signs up for the program. You may not inflate savings figures or percentages by including interest and fees the credit card company adds after a customer signs up for your program.
Example 8: Andy signs up with a debt relief service offered by Company H, owing $10,000 on his credit card. One year later, following negotiations with the credit card company, Company H negotiates a settlement allowing Andy to pay $6,000 to resolve the debt. However, since Andy enrolled, the credit card company has charged him interest and late fees totaling $2,000, so that Andy now owes $12,000. By getting a settlement for $6,000, Company H has saved Andy $4,000 ($10,000 minus $6,000) or 40% of the debt at the time of enrollment. It would be deceptive for Company H to claim to have saved Andy $6,000 ($12,000 minus $6,000) or 50% of his debt.
How about this scenario:
Mary has 5 credit cards totaling 20,000 in unpaid balances with an average interest rate of 20%. Mary is suffering from a financial hardship and is juggling her net income, she is late and/or missing monthly payments to her unsecured creditors, hence, late fees and interest are accruing. She learns about the opportunity to join with a debt settlement provider that specializes in negotiating with her creditors, she makes or receives a call.
After careful analysis of her financial condition it is confirmed by the debt specialist (and Mary) that she is a good candidate and can only afford $400 per month. It will take approximately 30 months to settle the debts.
After full and fair disclosure Mary knows among other things that fees and interest will continue to accrue and compound (a required disclosure) on all debts not paid (based on the original agreement she executed with her creditors, whether in a settlement program or not) or settled during the course of the program.
At the end of the day, the debt settlement firm was able to negotiate 2 long term settlements early in year one, Mary was able to contribute additional funds due to a surprise tax return and a new part-time job in year 2 leading to two additional settlements. In month 24 the settlement firm was able to achieve the final settlement over 4 payments to complete the program.
Results: Average settlement (for the sake of this example) 50% of “active balances”
Over the course of the 30 month program the total of all “active balances” settled (at the time of settlement) was $24,500
Settlement Fee (SF) = 15% of the total debt amount recorded at time of enrollment $20,000 x 15% = $3,000
Trust Account Fee (TAF) = $9.00 set-up + $10.85 x 30 mthly = $334.50
What was Mary’s real savings?
Active balances at time of settlement $24,500 x 50% = $12,250 + SF $3,000 + TAF $334.50 = Total cost $15,584.50 a savings of $8,915.50 …. Or
Enrollment balances of $20,000 – Total cost $15,584.50 = a savings of $4,415.50 …. ???
Are creditors contracted interest rates, default rates and fees not real money that we as settlement providers have to deal with and disclose to consumers?