You probably have noticed that many companies are advertising services to settle your credit card debt. These companies are hard to miss if you watch television or read the newspaper. While the idea of debt settlement sounds great, in reality many of those companies are scam artists.
There is a law in Washington that regulates credit card debt settlement companies. That statute defines “debt adjusting” as “the managing, counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, or receiving funds for the purpose of distributing said funds among creditors in payment or partial payment of obligations of a debtor.” A debt adjuster is any person or business that engages in the business of credit card or home loan settlements for compensation. The Attorney General’s Office on Consumer Fraud and the Department of Financial Institutions enforce this statute. Violation of the Statute is also a per se violation of the Consumer Protection Act, entitling the debtor to treble damages in civil litigation.
Washington regulations limit the fees that can be charged for credit card settlements. The fee retained by the company from any one payment made by or on behalf of the debtor may not exceed fifteen percent of the total amount of that payment. Further, the Act requires that companies distribute at least 85% of each payment received by a debtor to creditors not more than forty days after it is received. If a debt adjuster contracts for, receives, or makes any charges in excess of the maximums permitted, the debt adjuster’s contract with the debtor “shall be void” and the debt adjuster “shall” return all payments received from the debtor and not distributed to creditors. Finally, all monies received by debtors must be placed in a trust account by the debt adjuster and billed against.
This is a powerful statute. It means that 85% of each and every payment you make to a debt settlement company must be applied to your debt. If the company fails to apply even one payment, you are entitled to the return of everything you have paid them. However, the State of Washington does little or nothing to prevent 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.
Where does this leave you if you have been ripped off by a debt settlement company? The Debt Adjusters Act is still a powerful tool, but it is left to you to use it.