Exercise caution when dealing with debt settlement companies

  • Feb. 21, 2011 7:00 p.m.

Canadians are becoming more aware of the importance of lowering their personal debt, but here in B.C. consumers are still struggling to keep their credit in check. As a result, many are turning to debt settlement services for help?without taking the necessary steps to check out the company they’re dealing with first.

“Offers to help reduce monthly payments and settle your debts can be very enticing,” says Lynda Pasacreta, BBB President and CEO. “But it’s important to understand what the implications are and the track record of the company before entering into any agreement to negotiate your debt.”

In the last two months, numerous companies identifying themselves as debt settlement experts or credit counsellors have begun advertising in the Lower Mainland, prompting hundreds of inquiries to BBB.

 One of those companies, a Florida-based organization called the Vortex Debt Group Inc., has been aggressively promoting their debt negotiation services. However, they have a D rating with the BBB, based on 35 complaints filed against them. Another California-based company, called Cambridge Life Solutions Inc., has established a mailing address in Vancouver and already generated over 300 inquiries from consumers in just over a month. Both companies offer debt settlement services and require the majority of their fees to be paid in advance of negotiating consumers’ personal debt with creditors. 

Scott Hannah, President and CEO of Credit Counselling Society, a non-profit organization, advises that “consumers need to carefully consider all viable options to resolve their financial difficulties and the long term impact of these options before choosing a course of action.”

“Debt settlement is not always in the best interest of the consumer,” says Hannah. “The financial fallout—in the form of damaged credit ratings that take years to rebuild or recourse by creditors—can be devastating.”

Before agreeing to allow a third-party to negotiate your debt with creditors, BBB and the Credit Counselling Society recommend consumers ask the following questions to ensure that they’re dealing with the right company and getting the best guidance:

Is the company licensed and regulated by a government body in B.C.?

In British Columbia, Consumer Protection BC licenses and regulates all credit counselling and debt settlement organizations by issuing debt collection and debt pooler licenses. Consumers can find out if an organization has a good reputation by checking with BBB or Consumer Protection BC. If a company is not regulated, consumers have little recourse if something goes wrong.

 How does the company and their representative get paid, and do they still get paid if they are unsuccessful at negotiating a debt settlement for you?

If a for-profit company insists on payment upfront before reviewing your finances, or pays its representatives on commission, you may not be receiving the best advice on dealing with your debt. Keep in mind that debt negotiating companies cannot guarantee that creditors will accept their proposal to settle your debt for less than half of what you owe. If they are unsuccessful at negotiating on your behalf, find out if they will give you your money back.

 What percentage of their clients successfully settle their debts with creditors?

Some companies will make claims about the number of clients that they’ve successfully helped negotiate their debt. It’s important to ask the debt negotiating company to provide proof to validate their claims.

 Will your creditors work with the company?

While some companies may claim numerous success stories and assure you that creditors will work with them, there is no guarantee. If you are maintaining your payments, have a regular income or assets like real estate, your creditors may not accept a proposal to settle your debt.

Will the company help you to evaluate all options to resolve your financial difficulties?

If the company only offers debt settlement services it may be in your best interests to obtain a second opinion from an organization with professionally trained and accredited credit counsellors.

For more information, visit Credit Counselling Society at www.nomoredebts.org, or check out a business with BBB at www.mbc.bbb.org.