Credit card debt relief scams

The Federal Trade Commission (FTC) knows just how predatory some for-profit credit card debt relief services can be. Back in July, its chairman, Jon Leibowitz, issued a statement alongside a new regulatory framework that comes into force later this month, which said:

This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees. Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy.

The new rules prevent for-profit companies, when they use telemarketing (including inbound calls from consumers who are responding to an advertisement), from:

• Charging an upfront fee before they’ve settled or renegotiated a repayment deal or reduced the balance on one or more of a consumer’s credit cards and/or other debts
• Charging the full fee even if they’ve reached an agreement on only a proportion of the debtor’s debts
• Failing to disclose key facts
• Making unsubstantiated or exaggerated claims about the likely outcomes of their services
• Putting their clients’ money into their own operating accounts

Some consumer advocates criticize the new rules because they don’t cap fees at a reasonable level. But, to be fair, that’s not the FTC’s fault; it doesn’t have the power to impose a cap.

Credit card companies to benefit

Credit card companies should be celebrating on October 27 when the new rules are implemented. Although card issuers generally dislike debt settlement services because they often tell consumers to stop making even minimum payments while a deal is being negotiated, they must hate even more the fact that, until now, money that is owed to them often ends up being taken in upfront fees by services that fail to do their customers any good at all.

Secured credit cards help… and help improve your credit score

One of the traumas facing people who find themselves with unmanageable debt is the prospect of life without the convenience of credit cards. It’s hard in today’s world to exist without a card, and those who need to save money can find themselves denied access to online bargains because they lack basic payment facilities.

One way around this is to check out secured credit cards. With these, you have to deposit a lump sum upfront (think of it as a security deposit on an apartment rental; you get it back), which effectively becomes your credit limit. But you can continue to enjoy most of the advantages that a card brings. Pick the right product and you could begin to rebuild your credit score.

Published 10/14/10 (Modified 03/24/13)