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Debt settlement scam costs millions

By Marcie Geffner · Bankrate.com
Tuesday, July 9, 2013
Posted: 5 pm ET

A federal government investigation of a debt settlement services company offers some important fraud-avoidance insights for consumers struggling to pay burdensome debts.

The case led to indictments in May of four people, with two others pleading guilty in a multimillion-dollar scheme, according to a statement issued by the U.S. Attorney for the Southern District of New York and the New York Office of the U.S. Postal Inspection Service.

The company involved in the case, New York-based Mission Settlement Services, had approximately 2,200 customers who paid nearly $14 million in connection with debt settlement services. For more than 1,200 of those customers, the company allegedly collected nearly $2.2 million in fees but paid nothing to any of their creditors. Instead, one of the defendants allegedly used the money to operate a restaurant/nightclub he controlled, lease two luxury Mercedes-Benz cars and pay his mother's credit card bills.

The company targeted people known to be struggling with debts and promised them the company would negotiate lower amounts than they owed.

Sales representatives typically spoke to prospective customers on the phone, describing the company's ability to renegotiate debts and allegedly making materially false and misleading statements about services and fees.

Here's a summary of the alleged practices.

  • Customers were told the company would charge $49 per month and no upfront fees, when in fact thousands of dollars customers had set aside in accounts to pay creditors were tapped by the company.
  • Customers were told they would make affordable monthly payments that would be used once debt reductions had been negotiated, when in fact the company deducted its own fees from those set-aside sums.
  • Customers were told they would have to pay only 55 percent of the debts, when in fact such promises were substantially more favorable than results the company had achieved for previous customers.
  • Customers were told the company could slash up to 45 percent of their debt, when in fact the company did little or no work to that end and failed to achieve any reduction in debt for many of its customers.
  • Customers were led to believe the company was affiliated with the federal government and one of the largest U.S. credit reporting bureaus, when in fact no such affiliations existed.
  • Customers were told their credit scores would go up, when in fact this claim wasn't true.

Have you ever sought debt relief and counseling from a private firm?

Follow me on Twitter: @marciegeff.

 

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