CFPB report reveals complaints about debt settlement companies

CFPB Monthly Complaint Snapshot Spotlights Debt Settlement, Check Cashing, and Other Financial Services Complaints – Lexology On November 29, the CFPB released Volume 17 of its monthly complaint snapshot reports on consumer complaints stemming from financial services that fall outside of the Bureau’s major complaint categories.  To date, the CFPB has handled approximately 1,035,200 complaints nationally across all products. As reported in the current snapshot: (i) Debt collection was the most-complained-about financial product or service in October; (ii) Student loan complaints showed the greatest increase—108 percent—of any product or service over the three-month period of August to October; and (iii) Alaska, New Mexico, and Missouri experienced the greatest year-to-year complaint volume increases from August to October 2016 period versus the same time period 12 months before.

  •  The “other financial services” covered in the report include debt settlement, check cashing, money orders, and credit repair.

I found that the most interesting part of this report was related to debt settlement companies.

According to the Consumer Financial Protection Bureau, it has received 2,250 complaints related to debt settlement companies  since 2011.

This amounts to 450 complaints a year or roughly 1.73 complaints per business day. That number may not seem high but keep in mind that most people don’t take the time to file a complaint with the Consumer Financial Protection Bureau.

Think about it this way. To file a complaint, someone has to 1) know who to complain to, 2) figure out how to file a complaint and 2) take the time to draft a complaint.

Most people won’t go to that trouble. According to one study, only 4% of customers will actually voice complaints with a business.

What did consumers complain about?

  • A majority of other financial service complaints involved fraud or scam as the consumer’s primary issue. These complaints involved consumers seeking to settle or consolidate outstanding debts—often student loans—with creditors.
  • Consumers reported making good faith payments to debt relief companies to pay off existing debt to creditors. Some consumers stated the payments were never forwarded to their creditors and they are now facing lawsuits for accounts they presumed were paid.
  • Some debt relief companies required upfront fees to be paid by consumers prior to being accepted as clients. Consumers stated that after paying the fees they often encountered little to no communication from the companies on the status of the accounts to be settled. Some consumers reported the accounts were often settled for much less than the amount stated to them by the debt relief company and that they met resistance when trying to obtain a refund for the difference.

In Michigan payments not being forwarded to creditors and requiring upfront fees could very well violate Michigan law.

In fact, what most consumers don’t know is that 90% of debt settlement companies advertising their services in Michigan are breaking the law.

I am not talking about those companies that are licensed under the Debt Management Act.

At the time of this draft, the following companies were licensed to assist consumers in debt management activities:

Licensee/Registrant License Number Effective Date
GREENPATH, INC.
36500 Corporate Drive
Farmington Hills, MI 48331
DM-0010557 7/30/2004
NATIONAL DEBT MANAGEMENT, INC.
17520 West 12 Mile Road Suite 105
Southfield, MI 48076
DM-0014319 9/28/2006
TOTAL FINANCIAL CENTER, INC.
310 44th Street SW
Grand Rapids, MI 49548
DM-0010553 7/30/2003

If a company you see on television, the internet or hear about on the radio is advertising debt management services and it doesn’t appear above, they are likely victimizing tens of thousands of Michiganders.

Consumers hiring debt settlement companies are already trying to do the right thing by trying to settle their debts.

Companies that pile on and essentially steal money from consumers shouldn’t be rewarded for doing so.