By Kansas Attorney General Derek Schmidt
During difficult economic times, my office receives many calls from Kansans looking for help managing their debt. Unfortunately, scammers or others who break the law sometimes try to take advantage of consumers who are in difficult financial situations.
Debt settlement or consolidation firms can sound like great opportunities to reduce your payments and help get out from under a mountain of debt. Unfortunately, many of these firms charge excessive fees and then do little to help you with your debt. Some companies have been known to charge fees up to 15 to 20 percent of the debt.
These companies often target consumers through direct mail or by telephone solicitations. They usually ask the consumer to deposit money into an account that is supposed to be used to pay off creditors. The debt settlement firm may take its fee from this account, tell you to stop working with your creditors and ask you to authorize the debt settlement firm to negotiate on your behalf. During this time, your debts will continue to pile up, you may continue to get letters and phone calls from your creditors, and the debt settlement firm continues to charge fees for its services. Too often, consumers end up in a deeper credit hole than when they began.
Kansas law requires credit service organizations to register with the State Bank Commissioner and obtain a surety bond. State law also limits the amount of fees that can be charged by debt servicers and requires them to comply with certain business practices. If you choose to use a debt service firm, make sure it is properly registered and compliant with these state laws. A list of registered credit service organizations is available on the State Bank Commissioner’s website at www.osbckansas.org.
If you do need help taking control of your debt, remember the following tips:
- Instead of responding to direct mail or telephone solicitations from debt settlement firms, try asking for help from a non-profit credit counseling service. You can find a credit counselor in your community by contacting the National Federation for Credit Counseling at 1-800-388-2227 or www.nfcc.org.
- Make sure you have all your paperwork and records in order. Understanding how much you owe and when payments are due is the first step to creating a repayment plan.
- Contact your creditors to work out a plan for repayment. Most creditors are willing to work with you as long as you are making a good effort to repay your debt.
- Make sure all the debt you owe is actually yours. One of the most common forms of identity theft is opening credit accounts in someone else’s name. You can watch for this unauthorized activity by checking your credit reports. Each of the three credit reporting bureaus will provide you with one free report per year, which you can request at www.annualcreditreport.com.
If your debt includes a mortgage, you may be eligible for relief under the settlement negotiated by our office with the five largest mortgage servicers. Watch your mail for more information about this settlement or contact our office if you have any questions.
For more information or to report a violation of the law, please contact our Consumer Protection Division at 1-800-432-2310 or visit www.ag.ks.gov.