Have you received a telephone call, email, or physical mail solicitation from a debt relief or credit repair agency? When you have a mound of debt that you feel you will never get out from under, that solicitation promising to settle your debt for pennies on the dollar can be very tempting. But have you also thought to yourself this may be too good to be true? Maybe you’re thinking that because it is true.
While there are some reputable companies that can help you, debt relief service and credit repair scams frequently target financially distressed consumers who are having credit problems by falsely claiming to get you out of debt quickly and cleanly or remove negative information from your credit reports even if that information is accurate.
They ask you to pay them before they do anything for you. That is illegal and a big red flag. (Legitimate debt relief firms do charge for their services but can collect only when they get results.)
Warning Signs of Credit Repair Scams
Here are some warning signs that your debt relief or credit repair agency is not credible:
- The debt relief company asks for fees in advance before it settles any debts.
- The company guarantees it can eliminate your debt or reduce it by a particular amount in a set period.
- The company advises you to cut off communication with creditors.
- The company won’t send you information about its services unless you provide financial information such as credit card account numbers and balances.
These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts or remove the negative credit information – if they provide any service at all. Many firms instruct clients to stop paying their debts, on the premise that this will compel creditors to negotiate a reduction. It might — but creditors are under no obligation to settle your debt, and instead they may file a lawsuit against you to enforce the debt. All the while, you could accrue interest and penalties and damage your credit score. Some firms don’t fully explain the potential consequences, according to the Federal Trade Commission (FTC).
Watchdog Organizations for Debt Relief Scams
The FTC has brought scores of law enforcement actions against these bogus credit-related services, and the agency has partnered with the states to bring hundreds of additional lawsuits.
The FTC has a list of cases and articles about enforcement actions brought against these scammers.
Just recently, the FTC filed a lawsuit against an alleged credit card debt relief scheme based in Tennessee. The defendant was charged with taking tens of millions of dollars from people by falsely promising to eliminate or substantially reduce their credit card debt.
The FTC maintains a list of companies or people banned from participating in all or specific types of debt relief businesses.
It’s not just the FTC. The Consumer Financial Protection Bureau (CFPB) has also cracked down on these types of scams. In May 2023, the CFPB distributed more than $22 million to consumers who were harmed by a debt relief agency that promised it would eliminate their credit card debts and improve their credit scores. The company advertised to potential customers, through direct mailers and third-party lead generators, that its so-called “debt validation” program used a legally vetted process to eliminate debt. The CFPB’s investigation found that the company failed to produce any evidence that it had invalidated, eliminated, or lowered any of its customers’ debts. It also told its customers that it could restore their credit scores, but the CFPB’s investigation found that these claims were false or unsubstantiated.