Wolves in Sheep's Clothing

At the best of times, I'm not a great fan of con artists. When they target the merely greedy, I can sometimes pause to admire the artistry of a con. But when they target the desperate, I go crazy.

Which is why I was so happy today, listening to Leonard Lopate's show on WNYC, to hear that the New York City Department of Consumer Affairs has issued subpoenas to 15 debt settlement companies (all chosen as a result of complaints by New Yorkers).

You know the companies I mean -- their advertisements are everywhere, promising to "cut your debt in half", and "negotiate" so that you end up paying pennies on the dollar.

It's easy for those of us who are fortunate enough not to be sinking under a rising tide of debt to wag a metaphoric finger, and say, "If it sounds too good to be true...." But when you're in that situation, and panicking, it's virtually impossible to think clearly. Someone offers to throw you a rope, you'll grab for it. Only to find out later that it's a noose.

“These so-called ‘debt settlement’ companies bombard New Yorkers with ads that fraudulently offer false hope, but instead deliver nothing but added fees and long-lasting financial ruin,” said [DCA] Commissioner Jonathan Mintz, in a press release issued today.

Speaking on the Lopate show, the commissioner went on to say that the best these companies do is take more of the indebted person's money, demanding an upfront fee, usually in the hundreds of dollars. The worst they do? Crater credit ratings, vastly increase penalties and fees, and push someone teetering on the edge right over the financial cliff.

The companies' "advice" is generally: Stop paying your debts. Wait 'em out. Eventually they'll be so exhausted, they'll let you off the hook, or nearly so. We'll talk to you for them.

That's not just bad advice; it's almost criminally bad. The creditor will sell the debt to a collection agency, and add fees and penalties. Monies that an indebted person puts into escrow with the settlement company are nearly impossible to retrieve, in part because the companies change names frequently. And there's little indication that these companies actually do contact the creditors.

This isn't a new story. The New York Times, as part of its "New Poor" series, ran an article by Peter Goodman more than a year ago about this nationwide scourge, preying on the vulnerable:

In the Kansas City area, Linda Robertson, 58, rues the day she bought the pitch from a debt settlement company advertising on the radio, promising to spare her from bankruptcy and eliminate her debts. She wound up sending nearly $4,000 into a special account established under the company’s guidance before a credit card company sued her, prompting her to drop out of the program.

By then, her account had only $1,470 remaining: The debt settlement company had collected the rest in fees. She is now filing for bankruptcy.

A number of state attorneys general have been investigating these companies (now represented by their own trade association, the genteelly-named United States Organizations for Bankruptcy Alternatives), but I have yet to hear of significant criminal proceedings.

Commissioner Mintz said that about 18% of New York City households are carrying credit-card balances in excess of $10,000 (compared to about 13% nationwide). With an economy that continues to sputter, and jobs few and far between, it's easy to understand how that kind of debt could lead someone to jump for a proffered out. It's much harder to understand how people could choose to defraud the desperate.