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How to Settle Your Debt Without Being Scammed

Guest contributor Seth Rosenberg is a Rocket Lawyer On Call attorney practicing in Seattle, Washington. He explains the statutes that protect debtors in Washington from unlawful credit card settlement and mortgage loan modification practices. Read on to learn your rights, avoid becoming a victim, or get help if you’ve been scammed.

The phenomenon of increased indebtedness among Americans has occurred despite the belief that we are adverse to debt.  A number of factors, including predatory lending practices, increases in the cost of living, shrinking incomes, and the erosion of the safety net for Americans, have all led to an increase in poverty and indebtedness among us.  For many people their work income or retirement income are not sufficient to meet their expenses.  Americans have increasingly been using credit cards to pay for basic necessities like food, essential home repairs, and medication.  Many even use the equity in their houses to pay these bills, further impoverishing them.

When their debt becomes unmanageable, Americans increasingly fall victim to credit card debt settlement and home loan modification companies offering to solve their debt problems. In reality these companies often intend to take whatever money the debtor has left and do nothing to alleviate their financial crisis.

Fortunately, debtors aren’t without legal protection. There are multiple statutes that regulate debt collection agencies, in order to protect debtors from being scammed.  Still, people continue to be taken advantage of because most victims don’t understand their rights under the law.  Here are some of the most powerful statutes in Washington and federally which attempt to regulate these debt settlement companies, and what debtors can do if they’re already a victim.

Credit Card Debt Settlement Scam Protection

Although credit card debt settlement scams are common, the State of Washington does nothing to prevent credit card debt settlement scams.  A review of DFI’s “Consumer Alert” webpage found no warning against debt settlement companies.  DFI’s focus is on home loan modification scams, but even there it does relatively little.  The Attorney General’s Office does not do much more.

However, there is a law in Washington that regulates individuals and companies offering to settle credit card debt.  The statute, the Debt Adjusting Act, defines a debt adjuster or debt adjusting agency as any person or business that engages in the business of debt adjusting for money.  The Attorney General’s Office and the Department of Financial Institutions purport to enforce this statute.  Those departments even have a joint task force charged with investigating and fashioning solutions to prevent predatory business practices.  If a debt adjuster violates the Statute, they also violate the Consumer Protection Act, entitling the debtor to treble damages in civil litigation.

Washington’s Debt Adjusting Act limits what companies can charge.  A debt adjuster or debt adjusting company can retain no more than 15 percent of the total amount of any payment made by a debtor.  The statute also requires that debt adjusters pay at least 85 percent of each payment received by a debtor to their creditors.  If a debt adjuster contracts for, receives, or makes any charges beyond the maximums permitted, the debt adjuster’s contract with the debtor is void.  The debt adjuster is then required to return all money it received from the debtor and not distributed to creditors.  Finally, any payments received by debtors must be placed in a trust account by the debt adjuster and their services billed against the trust account.

This is a powerful statute.  It means that 85 percent of each payment a debtor makes to a credit card debt settlement company must be applied to the debt.  If the company fails to so apply even one payment, the debtor is entitled to the return of all of the money that has been paid to the credit card debt settlement company.

Home Mortgage Modification Scam Protection

There are also protections to prevent home mortgage modification scams.  The Federal Trade Commission (FTC), the nation’s consumer protection agency, has a Rule in place to protect homeowners. The Mortgage Assistance Relief Services (MARS) rule makes it illegal for companies to collect any fees until a homeowner has actually received an offer of relief from his or her lender and accepted it. That means even if you agree to have a company help you, you don’t have to pay until it gets you the result you want.

The FTC has a second arrow in its quiver: the Telemarketing Sales Rule.  That rule prohibits home loan modification companies from making misrepresentations about any product or service, including claims about financial products or services, their government affiliation, or implementation of their data security measures. The statute also requires that the companies have competent and reliable evidence to back up key claims about their financial products or services, according to a recent U.S. District Court decision.

What to Do if You’re a Debt Settlement Scam Victim

Where does this leave you if you have already been ripped off by a credit card debt settlement or home loan modification company?  Statutory Regulations are powerful, but it is left to the debtor to use them.  A good lawyer who specializes in debt settlement is your best bet for recovering your money. Act today to enforce your rights!

About the Author

Seth Rosenberg of Smith & Rosenberg, PLLC practices in Seattle, Washington.  He is an experienced and compassionate attorney dedicated to helping Washington State residents take on the credit card debt settlement and home loan modification companies. You can reach Seth at seth@smithrosenberglaw.com or visit Seth’s Rocket Lawyer profile.

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