Published: October 31. 2010 12:01AM
So you have piled up some bills. And then a letter arrives saying you're among certain people who qualify for an "exclusive debt mediation program" or words to that effect. The correspondence looks like it's from a bank or a credit card company. It offers what appears to be a pretty good deal to get out of debt.
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Well, don't fool yourself into thinking you're special.
Read the fine print and hang onto what's left in your wallet. Debt settlement programs are a costly -- and sometimes crooked -- way to go. And you may not be able to reduce as much of your debt as those letters promise.
Every time he turns around, Mark Mandel says, it seems like somebody else is telling him that he's been "approved" for a "Consumer Debt Relief" stimulus program or a "U.S. Homeowner Affordability and Stability Package."
But each time, he knows something isn't quite right. One letter tells him that he can be debt free in two years; another offers a before and after chart showing how he can legally reduce his debt and pay an average of only 45% of what he owes. The small print notes: Individual results vary.
"I keep hearing my father say 'If it sounds too good to be true, it probably is,'" said Mandel, 57, who is single with no children, works at the Mt. Clemens DuPont plant that supplies paint to automakers, and says he is able to pay his bills.
"Of course, my father would be very upset with me for being in debt at all."
Mandel should be wary of such offers. Any guarantee that you can cut your $50,000 credit card debt in half and get it paid off in a year or less is too good to be true. And if you really believe these deals are government programs, you're in trouble. No such programs exist.
Actually, a consumer who bites on one of these offiers could end up paying $800 to $2,000 in fees for little or no debt relief. Some consumers have complained that they ended up in worse financial shape after working with a debt-settlement company, according to a report issued in April by the Government Accountability Office.
And, like the aggressive brokers who helped get homeowners in trouble with bad mortgage deals, some salespeople have a big incentive to sign up people. The GAO report noted that some firms pay a $200 commission for each client enrolled in a debt-relief program.
But consumers should benefit from new rules now in effect for companies offering debt-relief services, including a ban on up-front fees.
Evan Zullow, attorney for the Federal Trade Commission's Division of Financial Practices in Washington, said the new rules apply to companies marketing through cold calls as well as those advertising an 800 number on TV or the Internet.
The Federal Trade Commission rules specify that fees for debt-relief services may not be collected until the company has been able to change terms on at least one of the consumer's debts. Even then, if the consumer has more than one debt, the full fee cannot be charged all at once.
"They can't request or receive any fee from you until first they've delivered the result," Zullow said.
Consumers need to realize that new rules do not limit total fees. But overall, they will be helpful, said Ruth Susswein, deputy director for national priorities for Consumer Action, an advocacy group.
SUSAN TOMPOR is a columnist with the Detroit Free Press.
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