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FTC Lawsuits Remind to Be Leery of Debt Consolidation Companies

December 6th, 2010 · No Comments · Debt Consolidation

by Kristy Welsh

(Last Updated On: April 11, 2017)

In yet another reminder to be leery of debt consolidation companies, the Federal Trade Commission (FTC) has filed suit against three such firms in Dallas, Texas. According to the FTC, these debt negotiation companies “rarely negotiate settlements for all accounts entered into the debt relief service by consumers.”

As reported by The Dallas Morning News, these firms told clients they could eliminate 30 to 60 percent of their debt and be debt-free within 18 to 36 months. Named in the lawsuits are 1) Debt Consultants of America Inc., 2) Debt Professionals of America Inc., and 3) Financial Freedom Processing Inc., formerly known as Financial Freedom of America Inc. Executives from all three companies have also been named in the suits.

It is precisely for reasons like this that the FTC is enforcing a new rule of debt negotiation companies: They cannot legally collect fees until they have proven their ability to negotiate debt consolidation deals on their clients’ behalf.

On the contrary, the firms named in these lawsuits collected upfront administrative fees, as well as monthly maintenance fees, negotiation fees and, if applicable, cancellation fees.

In fact, the fees collected were so exorbitant that, in many cases, clients whose debt was successfully negotiated actually ended up paying more than their original balance owed to creditors.

Here at Credit Info Center, we strongly advise against debt consolidation companies, particularly those that advertise themselves as “non-profit.” Not only do many have shady practices, such as those described above, but what they do for you (or say they’ll do for you) are things you can more effectively do for yourself. Just do your homework first. The following articles are a good place to start:

What’s the difference between debt settlement and debt negotiation?

In credit card debt and don’t qualify for bankruptcy.

One reader’s firsthand account of dealing with a debt consolidation company.

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