A reader brought to my attention today a post by the Department of Justice about debt relief. While I think the intention was to help protect consumers from debt relief scams, in this case they missed the mark entirely.
The beginning of their blog post is reasonable and factual when they say, “These companies generally offer to settle a consumer’s debt with creditors for substantially less than the debt’s principal through monthly payments that the company holds in escrow. Unfortunately, many of these companies not only fail to fulfill their promises to consumers, but fail to offer any services at all. Companies charge large upfront fees, or multiple hidden fees. Often, a substantial portion of a consumer’s monthly payment goes to the company’s fees, with little to nothing offered toward reducing the debt’s principal.” – Source
Those types of behaviors are bad and the only real entities doing that today are attorney model debt settlement firms.
But here is where the DOJ runs off the rails. They say:
Fraudulent debt relief companies will often make claims of being able to negotiate a one-time settlement with creditors that will reduce a consumer’s principal by fifty percent or more. The Consumer Federation of America, an association of non-profit consumer organizations, warns that such a promise is a virtual impossibility.
One-time lump-sum debt settlements are done every single day. Rather than an impossibility they are in fact an actuality.
But it gets worse, as if you thought it could.
The DOJ article then says:
If that is unsuccessful, a non-profit credit counseling service may be able to help you. These services may charge a small fee, but the cost will be substantially less than using a debt relief company. An excellent resource for locating a local credit counseling service is the National Foundation for Credit Counseling, at www.nfcc.org.
If a company offers a “one size fits all” solution, what they are really offering is a “no size fits anyone” problem. Legitimate credit counseling services tailor a consolidation plan to each consumer’s individual needs.
Apparently the DOJ has no idea that credit counseling programs are all a one-size fits all solution and that’s because the terms are dictated by the creditor. I guess they think credit counseling agencies actually negotiate with creditors.
Thumbs down on the Department of Justice for just being so plain wrong.
I did call their public affairs department and reported the errors.
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