Legal Guide

Home > Legal Guide

The Law Strictly Forbids Deceptive Marketing Practices In Debt Settlement Industry

The debt settlement industry is constantly under the scanner by the FTC for the violations of FCRA rules and regulations. This is because most of the debt settlement companies are used to follow processes that are strictly prohibited by the law. Over the years, the debt settlement industry has been criticized by many for such unfair practices and putting the financial condition of innocent debtors in further jeopardy.

It is all due to their cunning and alluring marketing strategies followed which is also very questionable and a serious concern of the federal government. Therefore, apart from the fees and dos and don’ts list, the law also considers the nature of the marketing techniques followed by the debt settlement companies and has found several worrying scenarios. In such a situation the powers that be found that there is an immediate requirement for a few compulsory amendments to be made in the FTC rule that also includes the TSR.

These amendments they thought will prevent the debtors from being misled and also prevent the debt settlement practices from being questionable.

The false representations

A lot of common representations by the debt settlement companies are found to be downright false and deceptive. A list of such misleading or false statements commonly made by debt settlement companies as a marketing strategy that is by no means exhaustive includes:

  • Too small a debt: The debt settlement companies will often say that your debts are too small and therefore the creditor will not sue you as it will not be worthy as far as time and money is concerned. This is downright false because a creditor may bring an action to recover even the smallest sums of money. It all depends on the wish, situation and business policy of the creditor, private or otherwise. To any creditor a debt is always a debt no matter how small it is especially if it is long outstanding. The interest accrued on your debt will make even the smallest debt look considerably large in amount.
  • Engaging the company: The debt settlement company will also say that you will not be sued by your creditor or creditors if and since you engaged them and their service for your debts. There mere presence will eliminate such chances of being sued. On the contrary of such blatant lie, reliable and reputable debt settlement companies will specifically mention in their disclosure that the chances of such lawsuits filed by your creditor are never eliminated. This is because you may be asked by the debt settlement company to stop making your monthly payments for your debts to your creditor for a period of 36 to 48 months which is very typical for such programs. It is then you are likely to be sued by your creditor though it is possible that the creditor may not bring an action against you, which once again is highly unlikely.
  • Settlement is better than bankruptcy: The debt settlement companies will often portray that debt settlement is always and by far a better option than filing bankruptcy. They will tell you the pros of debt settlement and cunningly hide the cons and vice versa when you ask them about bankruptcy. Made on a general basis this once again is a false statement and FCRA ensures that the debt settlement company mentions everything regarding a debt settlement program along with its cons in the disclosure. It all depends on your case specific financial circumstances as to which option you will choose and deem to be better. Since debt settlement allows most of the companies to earn high income in fees they will try to pigeon hole you into their services. Most debt settlement companies will often propose a plan on 30% or 40% fees that oftentimes excludes the company’s fees. This percentage is just an arbitrary number as it is found by the law officials in a vast majority of the times and has nothing to do with the track record of the company itself. You can click here to know more about debt settlement companies as well as explore all available options to you in order to make an informed decision.
  • Length of the program: You will also be misled regarding the length of time your debt settlement program is likely to take. Usually, most of the debt settlement companies will propose a 36 or 48 month plan in most of the debts even though it may need more time than that. This is done purposely by the company being fully aware that you are highly likely to be sued by your creditor or creditors by that time if they are more aggressive. In such a situation your program will be necessarily extended sometimes by years.
  • Effect on credit score: Debt settlement companies will seldom tell you about the effect a debt settlement program will have on your credit score and even if they do rest assured they will misrepresent facts with arbitrary figures that will seem too good to be true, which is their whole idea. If you think it deeply you will almost always require ceasing making payments to your creditor. After a couple of months or so your account will be handed over to the debt collection agencies and your defaults will be reported to the credit reporting agencies. This means that there is no way in which you can prevent your loan accounts from showing up in your credit report as delinquent accounts. This will bring your credit score down fast and accordingly and will cause a devastating effect on your credit as well as your future.

All these common practices are prohibited by the law which is why the debt settlement companies must make an honest and full disclosure. This will help you to take an informed decision even with the negative effects of debt settlement since there are potential benefits of it as well.

However, misrepresentation of facts by the debts settlement companies is an extremely common scenario and there are number of lawsuits filed against these companies due to this. Therefore, make sure you work with a reputed debt settlement company only.

comments powered by Disqus