Credit Card Debt Settlement Scams!
You’ve probably noticed that many companies advertise services to settle your credit card debt. These companies are hard to miss if you’re watching TV or reading a newspaper. While the idea of debt settlement sounds great, in reality many of these companies are scams.
Washington has a law that regulates credit card debt settlement companies. That law defines “debt adjustment” as “managing, consulting, settling, adjusting, prorating, or liquidating a debtor’s debt or obtaining funds for the purpose of distributing said funds among creditors in payment or partial payment of a debtor’s obligations.” Adjuster debt collector is any person or business that engages in credit card or home loan settlement for compensation. The Office of the Attorney General for Consumer Fraud and the Department of Financial Institutions enforce this statute. A violation of the Statute is also itself a violation of The Consumer Protection Act, which entitles the debtor to triple compensation for damages in civil proceedings.
Washington regulations limit the fees that can be charged for credit card settlements. The fee withheld by the company from any one payment made by or on behalf of the debtor may not exceed fifteen percent of the total amount of such payment. In addition, the law requires the company to distribute at least 85% of any payment received from the debtor to creditors no later than forty days after receiving it. If the debt adjuster contracts for, receives or makes any fees in excess of the permitted maximums, the debt adjuster’s contract with the debtor “shall be void” and the adjuster “shall” return all payments received from the debtor and not distributed to creditors. Finally, any money received from debtors must be placed in a trust account by the debt adjuster and charged.
This is a powerful law. This means that 85% of every payment you make to a debt settlement company must be applied to your debt. If the company fails to implement even one payment, you are entitled to a refund of everything you paid them. However, Washington State does little or nothing to prevent debt settlement scams. A review of the DFI’s Consumer Alert webpage found no warning against debt settlement companies. DFI’s focus is on home loan modification fraud, but even there it does relatively little. The Attorney General’s Office doesn’t do much more.
What does that leave you with if you’ve been ripped off by a debt settlement company? The Debt Regulators Act is still a powerful tool, but it’s up to you to use it.
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