We are facing historically difficult economic times. According to the U.S. Department of
Labor, the unemployment rate across the United States continues to rise, and New York State
faces the same bleak picture.
The current fiscal crisis has put many New Yorkers in debt. People who never struggled
to pay their bills are now being forced to consider defaulting on their debt. In this precarious
economic climate, there are reports about deceptive debt settlement companies that have seized
the opportunity to squeeze the last penny out of those who are desperately trying to pay their
bills. Some of these companies promise relief by being the buffer between the credit card company
and the debtor, but sometimes a debt settlement plan fails to solve the debtor’s
financial problems and even makes them worse.
Over the last few years, the number of debt settlement companies has tripled to 2,000.
At the same time, complaints to state attorneys general offices about how these companies
conduct business have increased.
This brochure will outline how you can avoid being deceived and what you can do to help
put yourself on firmer financial ground. If you have any questions or comments about this or any
other subject, please don’t hesitate to contact my office.
Member of Assembly
Take control by:
Managing your debt
- Contact creditors directly to try to develop a debt repayment plan before enlisting
- Consider consulting an attorney about possible legal recourses you may have.
- Before using a debt settlement company, research its standing with the Better Business
Bureau or the state Attorney General’s Office.
Researching your options
Consider credit counseling agencies, which are often not-for-profits that offer financial
guidance for a small fee or for free. If you decide to work with a credit counseling agency,
follow these guidelines:
- Interview several agencies before choosing one.
- Contact the NYS Banking Department to ensure a credit counseling agency is licensed.
- Make sure that services will be private and that the agency will keep your personal
- Check the agency’s complaint records.
- Make sure your agreement is in writing.
- Understand your obligations, including costs such as set-up fees and monthly service
A debt settlement company’s smooth sell
- Debt settlement companies claim to negotiate with a consumer’s creditors to lower
the total amount of debt owed for an up-front fee.
- The consumer stops talking to his/her creditors and even stops paying the minimum on
his/her credit cards to save money in an account that the debt settlement company promises
to use as a bargaining tool when negotiating with creditors.
- Some consumers who pay for these services discover that their settlement company never
contacted their creditors at all.
- Instead, some debt settlement companies take the consumer’s money and run, leaving
the consumer with even more debt to contend with, constant calls from collection agencies
and lawsuits from creditors.
- Don’t sign a contract with a debt settlement company that requires payment in
advance of obtaining the promised debt reduction.
- Hiring a debt settlement company doesn’t mean creditors stop adding interest,
late fees and other penalties to the total owed.
- Creditors are under no legal obligation to accept a settlement offer for less than the
outstanding balance owed.
- Only a small number of consumers who hire debt settlement companies benefit from doing
- Using a debt settlement company could lead to more frequent and aggressive creditor
collection efforts, which often result in judgments, wage garnishments, and frozen bank
Additional signs of trouble:
If a company
- Demands that you provide account numbers or other financial details before it will
discuss its services or fees.
- Boasts that it can “lower your monthly payments by 30 to 50 percent.”
- Claims that it can remove negative information, such as bankruptcy, from your credit
- Requires “voluntary” contributions.
- Insists that you make an immediate decision.
Assembly is doing its part:
This year, the Assembly passed a package of bills that would protect consumers from
debt collection practices and implement penalties for those who violate the law. Those
- Require debt collectors to send consumers a written notice of their rights under state
law. (Passed Assembly, awaiting Senate action, A.271-A).
- Require third-party debt collectors and debt buyers to obtain licenses from the
Department of State and obtain surety bonding. (Passed Assembly, awaiting Senate action,
- Require debt collectors to inform certain relatives and household members of a deceased
individual that they are not obligated to repay the outstanding debts of that deceased
individual. (Passed Assembly, awaiting Senate action, A.7889-B).
- Reduce harassment by debt collectors by allowing debtors a private right of action in
debt collection cases. (Passed Assembly, awaiting Senate action, A.3532-A).
- Reduce the statute of limitations on consumer credit actions from six years to three
years and bar debt collectors from trying to collect debts on which the statute of
limitations has expired. (Passed Assembly, awaiting Senate action, A.7558-A).
- Implement protections against improper and abusive debt collection practices and align
New York law with the federal Fair Debt Collection Practices Act. (Passed Assembly, awaiting
Senate action, A.8840-B).