A mountain of debt: Can credit and debt assistance companies help?
October 1, 2023 | View PDF
Millions of Americans are in debt, but debt relief companies have their own issues. American consumers hold more than $16 trillion of debt in the form of mortgages, credit cards, personal lines of credit, home equity lines of credit, student loans and personal loans. When emergencies strike or monthly paychecks don’t always cover bills, countless credit repair and debt relief companies offer to help.
However, our Better Business Bureau team has received over 11,000 complaints and almost 900 negative reports about debt and credit assistance. These reports reveal a pattern of misleading and sometimes fraudulent claims, especially among a group of companies headquartered in the American west. While their contents vary, consumers talked about higher-than-expected fees, a failure to deliver on debt reduction and credit score improvement, and a lack of response from businesses when questions arose.
While some consumers find success with debt assistance, many are unable to shed their financial burden. That leaves the question: Where do the majority of these companies fall short?
Limited success plus stacked fees
Debt relief companies might advertise quick fixes, but their ability to help is limited. In some cases, consumers report that stacking fees have lost them thousands of dollars and left them worse off than before.
Crystal from Spokane, Wash., wrote to the BBB about her experience with Lexington Law Firm, which has received an outsized number of complaints since 2020. After spending over $1,500 with the company to repair her credit, she became dissatisfied with their service after a number of issues, including accidentally revealing her Social Security Number to an outside business. In her words: “There has been no part of this relationship that has benefited us, that has not caused us stress and more work to be done to fix the wrongs.”
Her story isn’t unique. In the last three years, nearly 700 others have registered complaints at BBB about Lexington Law Firm (parent company is Progrexion). The government is taking action. Progrexion recently settled with the Consumer Financial Protection Bureau on Aug. 28, 2023. The proposed settlement from the CFPB could impose a $2.7 billion judgment against the subsidiary companies of Progrexion for collecting illegal advance fees for credit repair services through telemarketing. The order will also ban the companies from telemarketing credit repair services for 10 years.
Untangling your financial options
Many of the services offered by credit and debt assistance companies can be done by consumers themselves. However, difficulty in understanding their options, lack of know-how, or a time crunch and other issues can lead some consumers to seek assistance. Here are some key terms and services to know when researching options.
Debt relief, also known as debt negotiation or settlement: Companies offer to negotiate on a consumer’s behalf to reduce their total amount of debt.
Debt consolidation: Multiple debts of various types (credit cards, lines of credit, personal loans, student loans, business debts) are combined into one single loan.
Credit repair: Companies sort through a consumer’s credit report, looking for errors. If there are issues, they may contact the credit bureaus and ask for an adjustment.
Credit counseling, typically done by non-profits: Complete budget advisory sessions, long-term goal planning, create debt payment plans and attempt to look at financial problems holistically.
General consumer tips for debt and credit management
Critically examine any guarantee made. Few, if any, companies can ensure a credit or debt company will agree to negotiate with them or adjust reports.
Search online for free information on trusted government and nonprofit sites like FTC, CFPB and BBB. Check to see if a business is BBB Accredited.
Don’t be rushed. Unscrupulous businesses and scammers both use high-pressure tactics.
Avoid giving away personal banking information until you are 100% certain a company is legitimate.
Refuse to work with companies that won’t tell you your rights when it comes to debt relief or credit repair.
You can read our full study about credit repair and debt relief at http://www.BBB.org/CreditDebtStudy.
Know your options, with tips from the BBB
Tips for debt relief
Know your rights when it comes to debt collection.
Never pay an upfront fee. Since 2010, businesses are required to accept payment only upon services rendered. But they can ask you to deposit monthly funds into a “third-party” account and encourage you to make payments on your existing debt.
If you are in default, call debt holders yourself and attempt to negotiate a lower debt payment.
Be wary of anyone claiming to be associated with a government agency.
Tips for credit repair
Consumers can reach out to credit score companies themselves if they believe there is inaccurate information on their reports.
Use the FTC’s website at https://bit.ly/3Lsybhr to find out how to run a free credit report.
Check monthly bank statements to avoid recurring charges from companies.
Logan Hickle is a Public Relations and Communications Manager for BBB Great West and Pacific region.