FCAC Issues Consumer Alert on Debt Reduction Companies
Filed under: Buyer Beware, Consumer Complaints, Credit Cards, Debt, Family Finances, Fraud
Maybe you've picked up the phone recently to hear the following recording or something like it:
"Are you more than $10,000 in debt? We can help! Press #1 now to get connected with one of our agents and they can help cut you're debt in half for only a quarter of the cost."
Well, unfortunately a lot of these debt reduction agencies are nowhere near who they claim to be and most end up costing you money instead of waiving your debts. This is why The Financial Consumer Agency of Canada
has issued a consumer warning against those telemarketing calls and advertisements claiming to come from debt reduction agencies or anyone who claims to provide "debt reduction," "debt relief," "debt settlement" or "debt renegotiation."
"Unfortunately, people do not always see the benefits that debt reduction companies lead them to expect-and some people wind up even deeper in debt than they were before," says FCAC Commissioner Ursula Menke. "If an offer to reduce your debts seems too good to be true, it probably is."
The usual setup promises that the company can work out a deal with your creditors so that you're able to pay back only a small percentage of what you actually owe for "pennies on the dollar." It's quite the offer, but it may actually turn into a Faustian bargain.
Related Links:
What makes it more confusing is that credit and bankruptcy counselors can actually help you organize methods to pay your debts, from a consumer proposal and bankruptcy to a debt management program and a debt consolidation loan. The one crucial difference is, you have to call them, they won't call you. Yet, if you do get a call from one of these debt reduction services, the Financial Consumer Agency of Canada has some pretty good indicators that may tell you when you're knee deep in a scam.
The Hard Sell
You've probably heard this one before. As soon as they have you on the phone, you almost have to tear the receiver from your ear before any telemarketer will let you go and these debt reduction services are no different. From the moment you hear those high pressure sales tactics, run in the opposite direction and never agree to anything from these guys right away.
Unrealistic Claims About Reducing Your Debt
Every one of these companies claims they can reduce your debt by as much as 60%. What they don't tell you is, there's no guarantee that your creditors will agree to such an arrangement. They may not want to forgive such a high percentage of your debt, if any at all. They may not even agree to participate in debt negotiations with the service in question and there's absolutely no guarantee the debt reduction service will even make contact with your creditors. They may just pocket the fee and disappear.
Misleading Information About Protecting Your Credit Rating
A lot of these companies claim that working with them will have no effect on your credit rating or score. This is not necessarily true because a lot of these companies delay making payents on your behalf in hopes they'll be able to negotiate a better deal for paying your debts. In absence of payment, your credit will suffer regardless of whether your debt situation is being negotiated in lieu of payment. As a result, your credit could be damaged and you may face payment and interest charges.
False Claims of Involvement by the Government or Government Approval
Some debt reduction companies may try to claim that they are approved by the Canadian government or that they are part of some sort of government initiative or program. If you are fed this line, don't believe it because it isn't true. Instead, the truths these companies are telling are only half. Sure, it's true that usually a business has to register or be licensed by its provincial or territorial government to operate as business, but that does not mean that business has government approval or endorsement.
Four Ways to Protect Yourself
Knowing what companies are doing to take advantage of the vulnerable these days, doesn't exactly protect you from them and at the end of the day. your still in the same amount of debt you were in before you received the phone call from them. So, what can you do to fortify your defenses from those who may pray on your vulnerabilities, while still taking steps to reduce your debt?
A Background Check is in Order
If you've never heard of the company in question, don't do business with them. If you want to take it further than that, do your research. It's not enough just to see the Better Business Bureau logo on their website, anyone can just copy the logo and stick it on, you actually have to go to the Better Business Bureau's website and look up the company's grade. Don't be afraid to ask questions of the person on the other end of the phone. If you didn't hear the company name the first time, get the representative to repeat it. You can also contact the consumer affairs office in your province or territory and get the skinny on the company in question.
Watch Out for Upfront Fees
The alarm bells should ring in your head the moment the company starts demanding hundreds or even thousands of dollars in upfront fees before you ever see a reduction in your debt.You can't count on a refund if debt renegotiation is unsuccessful either. Add to that, a possible monthly withdrawal, or fees if cheques are sent to your creditors by the company and you could be in worse debt than when you started. Plus, there's no guarantee that those fees will be refunded if debt negotiations prove to be unsuccessful. Do not pay any fees upfront and don't hand over any money whatsoever until you've received written confirmation that your debts have been settled with your creditors.
Keep Control of Your Affairs
These companies may inform you that they will be taking over communication with your creditors as soon as you agree to their help with the negotiations. They will probably say that they will be sending cheques or payments as well. Don't fall for it. As soon as you defer to someone else to pay your bills, you lose control and knowledge of what's going on. Without your intervention, the company may be sending in cheques late, or worse, not sending them in at all. Keep in contact with your creditors and make sure payments are being received on time.
Consider Other Options
There are a myriad of ways to handle your debts without turning to the murky world of debt reduction. First, contact your creditors yourself and see if you can get an interest rate reduction or if they will help you out with another arrangement. There are also credit counseling and debt counseling services within your community that you may attend. They may help draft a consumer proposal, a debt consolidation loan or a debt management program. If it needs to go there, they may also recommend bankruptcy.
"Are you more than $10,000 in debt? We can help! Press #1 now to get connected with one of our agents and they can help cut you're debt in half for only a quarter of the cost."
Well, unfortunately a lot of these debt reduction agencies are nowhere near who they claim to be and most end up costing you money instead of waiving your debts. This is why The Financial Consumer Agency of Canada
has issued a consumer warning against those telemarketing calls and advertisements claiming to come from debt reduction agencies or anyone who claims to provide "debt reduction," "debt relief," "debt settlement" or "debt renegotiation.""Unfortunately, people do not always see the benefits that debt reduction companies lead them to expect-and some people wind up even deeper in debt than they were before," says FCAC Commissioner Ursula Menke. "If an offer to reduce your debts seems too good to be true, it probably is."
The usual setup promises that the company can work out a deal with your creditors so that you're able to pay back only a small percentage of what you actually owe for "pennies on the dollar." It's quite the offer, but it may actually turn into a Faustian bargain.
Related Links:
- Debt Settlement or Credit Counseling?
- What is Debt Settlement?
- It's Never Too Late to Get On Top of Your Debt
- Debt Reduction: Five Steps to Freedom
What makes it more confusing is that credit and bankruptcy counselors can actually help you organize methods to pay your debts, from a consumer proposal and bankruptcy to a debt management program and a debt consolidation loan. The one crucial difference is, you have to call them, they won't call you. Yet, if you do get a call from one of these debt reduction services, the Financial Consumer Agency of Canada has some pretty good indicators that may tell you when you're knee deep in a scam.
The Hard Sell
You've probably heard this one before. As soon as they have you on the phone, you almost have to tear the receiver from your ear before any telemarketer will let you go and these debt reduction services are no different. From the moment you hear those high pressure sales tactics, run in the opposite direction and never agree to anything from these guys right away.
Unrealistic Claims About Reducing Your Debt
Every one of these companies claims they can reduce your debt by as much as 60%. What they don't tell you is, there's no guarantee that your creditors will agree to such an arrangement. They may not want to forgive such a high percentage of your debt, if any at all. They may not even agree to participate in debt negotiations with the service in question and there's absolutely no guarantee the debt reduction service will even make contact with your creditors. They may just pocket the fee and disappear.
Misleading Information About Protecting Your Credit Rating
A lot of these companies claim that working with them will have no effect on your credit rating or score. This is not necessarily true because a lot of these companies delay making payents on your behalf in hopes they'll be able to negotiate a better deal for paying your debts. In absence of payment, your credit will suffer regardless of whether your debt situation is being negotiated in lieu of payment. As a result, your credit could be damaged and you may face payment and interest charges.
False Claims of Involvement by the Government or Government Approval
Some debt reduction companies may try to claim that they are approved by the Canadian government or that they are part of some sort of government initiative or program. If you are fed this line, don't believe it because it isn't true. Instead, the truths these companies are telling are only half. Sure, it's true that usually a business has to register or be licensed by its provincial or territorial government to operate as business, but that does not mean that business has government approval or endorsement.
Four Ways to Protect Yourself
Knowing what companies are doing to take advantage of the vulnerable these days, doesn't exactly protect you from them and at the end of the day. your still in the same amount of debt you were in before you received the phone call from them. So, what can you do to fortify your defenses from those who may pray on your vulnerabilities, while still taking steps to reduce your debt?
A Background Check is in Order
If you've never heard of the company in question, don't do business with them. If you want to take it further than that, do your research. It's not enough just to see the Better Business Bureau logo on their website, anyone can just copy the logo and stick it on, you actually have to go to the Better Business Bureau's website and look up the company's grade. Don't be afraid to ask questions of the person on the other end of the phone. If you didn't hear the company name the first time, get the representative to repeat it. You can also contact the consumer affairs office in your province or territory and get the skinny on the company in question.
Watch Out for Upfront Fees
The alarm bells should ring in your head the moment the company starts demanding hundreds or even thousands of dollars in upfront fees before you ever see a reduction in your debt.You can't count on a refund if debt renegotiation is unsuccessful either. Add to that, a possible monthly withdrawal, or fees if cheques are sent to your creditors by the company and you could be in worse debt than when you started. Plus, there's no guarantee that those fees will be refunded if debt negotiations prove to be unsuccessful. Do not pay any fees upfront and don't hand over any money whatsoever until you've received written confirmation that your debts have been settled with your creditors.
Keep Control of Your Affairs
These companies may inform you that they will be taking over communication with your creditors as soon as you agree to their help with the negotiations. They will probably say that they will be sending cheques or payments as well. Don't fall for it. As soon as you defer to someone else to pay your bills, you lose control and knowledge of what's going on. Without your intervention, the company may be sending in cheques late, or worse, not sending them in at all. Keep in contact with your creditors and make sure payments are being received on time.
Consider Other Options
There are a myriad of ways to handle your debts without turning to the murky world of debt reduction. First, contact your creditors yourself and see if you can get an interest rate reduction or if they will help you out with another arrangement. There are also credit counseling and debt counseling services within your community that you may attend. They may help draft a consumer proposal, a debt consolidation loan or a debt management program. If it needs to go there, they may also recommend bankruptcy.
RSS Feed
Contact Us
