The debt-settlement industry is about to get a much-needed spotlight on it.
The Federal Trade Commission is holding a conference this month to learn more about this fast-growing industry.
Debt settlers advertise heavily online, promising to settle your debt for as little as 50 cents on the dollar. But there's a lot they don't tell you - such as that you can end up worse off than before.
A few years ago, there were about 300 companies offering debt settlement; now there are at least 1,000, said Peggy Twohig of the FTC's division of financial practices.
Calling them all companies might be generous. Twohig said a "telephone and Internet site is all you need in this industry."
Twohig was in Baltimore this week to speak at the National Foundation for Credit Counseling conference.
Twohig said she's not suggesting that all debt settlers are bad players. But she said enforcement actions the FTC has taken against debt settlers reveal some disturbing practices.
For instance, she said, some debt settlers tell consumers to stop repaying debts and ignore their creditors. That doesn't stop interest and late fees from piling up, nor does it keep creditors at bay. There's "no mention of fees or the negative consequences of stopping to pay creditors," she said.
Many times consumers get frustrated and drop out of the program, yet they still owe the ballooning debt, Twohig said.
NFCC members are credit counselors who offer debt management programs, where counselors work with creditors and consumers on a repayment plan. Consumers end up repaying their debt, but usually get a break on interest and late fees.
Credit counselors are no fans of debt settlers. One complained to Twohig that debt settlers from across the country call consumers in her state in violation of state law.
"There's no regulation of these groups," she said.
Another asked if the FTC would be interested in receiving case studies of consumers' experiences with debt settlers. "Everyone in this room could just swamp you," he said.
David Leuthold, vice president of the Association of Settlement Companies, acknowledged that abuses go on in any industry. But his trade association was formed to establish marketing and disclosure standards for debt settlers. "That's why we push for fair and effective legislation in states," he said. He added that he's looking forward to a "nice, open discussion" with the FTC this month.
