Consumers who are facing a cash crunch are once again warned to avoid paying upfront fees and falling for sure-fire guarantees when it comes to fixing their credit problems.
The Federal Trade Commission announced a string of actions in the past few months connected to student loan debt relief schemes, mortgage debt relief schemes and credit card repair scams.
In late July, for example, the FTC said it would be mailing 7,786 refund checks averaging about $293 each out of a settlement relating to robocalls and phony credit card rate reduction services. The refund checks will total nearly $2.3 million nationwide.
While the refund money is welcome, it just amounts to recouping 39% of the money that consumers lost to that one scheme, according to FTC data.
The refund checks should be deposited or cashed within 90 days. The FTC refund line can be contacted at 833-916-3597. The FTC noted that it never requires people to pay money or provide account information to cash a refund check.
How were consumers tricked?
The consumers often received a pitch via a robocall. The FTC warned in March 2020 that many of the robocalls preyed upon financial fears during the pandemic to “perpetrate scams or disseminate disinformation.”
The FTC and the Ohio Attorney General alleged that Educare Centre and Tripletel Inc. made false and unfounded promises that they would significantly reduce the interest rates on credit cards.
On top of that, the pitch included a 100% money-back guarantee if the promised rate reduction failed to materialize or if consumers were unhappy with results.
Two companies worked in tandem. The Canadian telecom provider Globex Telecom Inc., according to the complaint, made illegal robocalls to U.S. consumers to promote Educare’s phony rate reduction services. Both companies, according to the FTC, were run by Mohammed Souheil, a Canadian citizen.
In 2010, the FTC amended its Telemarketing Sales Rule to protect consumers seeking debt relief services, like debt settlement or credit counseling.
For-profit companies that sell these services over the telephone are prohibited from charging a fee before they actually settle or reduce a consumer’s debt. It also prohibits debt relief providers from making misrepresentations and requires that they disclose key information that consumers need in evaluating these services.
Economy recovered but budgets didn’t
The U.S. economy officially recovered from the shortest recession on record, which ran from March 2020 through April 2020, according to the National Bureau of Economic Research’s Business Cycle Dating Committee.
But many people haven’t seen their finances recover after losing jobs and trying to deal with debt. When people don’t have much in emergency savings, they’re more likely to take on extra debt when unexpected expenses hit, such as needing new tires for a car.
If you’re stressed out by too much debt, though, it can be too tempting to jump at the first cold call or TV commercial suggesting a way out.
Complaints about debt relief services and credit repair programs ranked No. 4 out of the top 10 pandemic-related problems disclosed to state and local consumer agencies in 2020, according to an annual survey by Consumer Federation of America. That category also included issues relating to mortgages, debt collection tactics and predatory lending.
Consumer watchdogs suggest that you first contact your creditor directly, if you’re having financial troubles. You may be able to arrange a payment plan yourself at no cost.
Or you can contact a nonprofit credit counseling service by going through the National Foundation for Credit Counseling at www.nfcc.org or by calling 800-388-2227.
In general, consumer watchdogs say you should avoid any debt relief company that charges an upfront fee before it settles your debt or has you enter into a debt management plan.
You also should avoid a debt relief organization — whether it’s credit counseling, debt settlement or any other service — that pressures you to make “voluntary contributions,” which can really be a way to cover up real fees, according to the FTC.
Red flags include talk of a so-called “new government program” that can bail you out of personal credit card debt or guarantees to make your unsecured debt simply go away.
You should not follow the advice of someone who says you must stop communicating with your creditors but doesn’t explain the serious consequences.
No one should, according to the FTC, promise that they can stop all debt collection calls and lawsuits.
Those burdened by student loans need to watch out
The FTC also warns that con artists target people who are overburdened by student loans, as well as credit cards.
“There’s nothing a student loan debt relief company can do for you that you can’t do for yourself for free. And some of the companies that promise relief are scams,” according to an FTC alert.
Scammers use official-looking names, seals and logos to impersonate the Department of Education. Some even go so far as to promise special access to repayment plans, new federal loan consolidations, or loan forgiveness programs. But, again, the FTC warns it’s a lie. If you have federal loans, go to the Department of Education directly at StudentAid.gov.
Before you consolidate your student loans, find out what consolidating could mean for your situation. If you have private loans, the FTC says, talk to your lender. For federal loans, call the Department of Education student loan support center at 800-557-7394.
Another word of warning: Don’t give away important information about yourself, such as sharing your Federal Student Aid ID with anyone. Dishonest people could use that information to get into your account and steal your identity.
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