Due to the publication of abuses like this, consumers are not blindly trusting debt settlement attorneys or other so-called credible entities that offer credit card debt settlement services. This was reported in Legal Times.
[Consumer Finance Protection Bureau] CFPB Charges Two Lawyers in Debt Relief Scam
The Consumer Financial Protection Bureau today filed suit against two lawyers and two debt settlement companies, alleging they charged thousands of consumers illegal advance fees and left some worse off financially.
One of the lawyers, Michael Levitis, also faces mail and wire fraud charges brought by the Manhattan U.S. Attorney’s office – the first-ever criminal charges stemming from a CFPB referral.
Brooklyn-based Levitis and his company, Mission Settlement Agency, as well as New Jersey lawyer Michael Lupolover and Premier Consulting Group, allegedly sold debt settlement service to consumers, promising to renegotiate or settle their debts, according to the complaint filed in U.S. District Court for the Southern District of New York.
But the CFPB said the defendants illegally paid themselves first, with Mission and Levitis collecting $1.1 million up-front fees; Lupolover allegedly taking in $112,000 and Premier collecting $188,000. The Federal Trade Commission’s Telemarketing Sales Rule makes it illegal for debt settlement service to collect fees until at least one successful result has been achieved for the consumer.
The Manhattan U.S. Attorney’s Office provided additional details, reporting that Mission had approximately 2,200 customers who paid a total of nearly $14 million to debt settlement companies. Of these funds, Mission allegedly took more than $6.6 million in fees, while paying just $4.4 million to customers’ creditors.
These numbers are so blatantly egregious, I can see why the CFBP made a public example of this case. Reputable debt settlement attorneys will negotiate a lump-sum settlement and then take their fee from the proceeds paid by the indebted consumer. Making payments to a credit card debt settlement “expert” while not paying credit card debt is usually ill advised. As a general rule of thumb lump-sum settlements work while payment-plan settlements rarely get paid in full. Instead what happens is the consumer must eventually forgo a monthly payment for other necessities only to have fees and penalties kick that eat up most of the principal already paid in. But even more basic than that, is whether or not a consumer should even be thinking about negotiating with debt settlement attorneys. If they cannot afford to pay their monthly bills, they probably cannot afford to settle. Unfortunately, they think debt settlement is the only option. With the caveat that debt settlement only works if you can afford to pay something, here is a sensible sounding debt settlement attorney.
On the other hand, with the right information you can learn that non-payment without bankruptcy is a viable option for credit card debt you cannot afford to pay. Take a look at my other nonpayment of credit card debt posts.