Consumer Law

The Questionable "Services" of Debt Settlement Firms

By Greg Beck

by Greg Beck

David Giacalone has an eye-opening post on debt solutions services, which, for a fee, offer to negotiate with creditors to reduce a consumer's debt. One such service is NetDebt, a for-profit company that promises to reduce consumers' debt by ("in some cases") as much as 50%. In return, NetDebt charges a fee of 15% of the total debt turned over to the company, plus a "small" $50 monthly fee.

Consumers who sign up for the service are referred to a law firm, Contego Law, which claims to be "nationally recognized for its consumer protection practices" (the firm considers debt settlement to be one of these practices). NetDebt's website describes the process that follows:

Once you enroll in the program, you will immediately stop paying your creditors, and instead deposit your monthly payments into a trust account that's established by the law firm. From that point on, the attorneys take over everything. Since your creditors will not be receiving monthly payments, your accounts will become past due, but in a controlled environment. When your accounts are past due, your creditors become very willing to accept significantly less than the balance owed and will settle the account. Once there is sufficient money in your trust account, the attorney will settle with the first creditor, and that process will continue until all of your accounts are paid off and reflect a zero balance.

David asks the question: Is 15% plus $50 per month an excessive fee for a firm to charge for this service?

Full post as published by CL&P Blog on July 24, 2008 (boomark / email).