The lead article in the Economy section of the
June 18, 2010 New York Times offers revealing insight into the practices of "debt settlement" companies. Debt settlement companies position themselves as alternatives to bankruptcy, suggesting that they have insight into "secrets that the credit card companies don't want you to know." In fact, the business models used by debt settlement vendors is fairly simple. As the
Times article explains:
In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.
The problem, however is this:
What they don’t tell their customers is when you stop sending the money, creditors get angry,†said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. “Collection agents call. Sometimes they sue. People think they’re settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit.
Further, "the industry’s own figures show that clients typically fail to secure relief. In a survey of its members, the Association of Settlement Companies found that three years after enrolling, only 34 percent of customers had either completed programs or were still saving for settlements. According to one debt settlement executive quoted by the Times, the entire industry is like a "Ponzi scheme."
The average consumer debt collector employee places 200 collection calls per day or 50,000 calls per year! How do they make so many calls? Most use a technology known as autodialing, even though the use of an autodialer by a collector often violates the Telephone Consumer Protection Act (TCPA).