Texas AG: Debt Settlement Firm to Change Business Practices

Texas Attorney General Greg Abbott has announced an agreement with a Dallas-based “debt settlement” company that will result in refunds to consumers who filed or will file complaints about fees for services that were often confusing or misleading.

In an assurance of voluntary compliance agreement, DebtXS L.P. agreed to halt all deceptive advertising of its debt settlement services, including its claim to positively affect consumers’ credit scores and provide legal advice.

“Consumer debt can grow to be a serious problem. Consumers who are working in good faith to pay off their obligations need to know their rights and should never be exploited by a third party who claims to bring them good tidings,” said Attorney General Abbott. “Consumers should always remember there is no quick fix for debt or credit issues, and they should be wary of any company that suggests otherwise.”

The relatively new business of “debt settlement” as an alternative form of relief led to confusion among many of the 1,225 Texas consumers who sought the company’s services. The average unsecured debt among these consumers, about $29,500, was one of several criteria DebtXS used in determining whether to accept clients.

DebtXS routinely charged a fee of 15 percent of the total amount owed by consumers. The fee was paid over several months via automatic withdrawals from their bank accounts, though some were unaware they had agreed to this arrangement with the company.

DebtXS also required consumers to place the money they would have normally paid to creditors into a personal savings account over several months or longer. The cessation of payments technically put consumers in default of their contractual obligations with creditors, which triggered aggressive debt collection efforts and even lawsuits brought by some creditors. DebtXS misled some consumers into thinking it would hold creditors and debt collectors at bay during this period and prevent any litigation.

After several months, DebtXS would contact creditors and offer to pay off the debt at a fraction of the total balance owed. If creditors agreed, DebtXS would contact indebted consumers, who would make the agreed-upon, lump-sum payments to creditors from the savings they had accumulated over time. If creditors did not agree to the offer, insisting late fees and interest were due, consumers would be immediately liable for the entire new balance.

Despite some success reported by consumers, others believed they were misled and were unaware of the costs they would incur through the 15 percent fee. Many believed the fees withdrawn from their checking accounts were being applied to their debts, when this was not the case. Other consumers reported the company misled them by offering “legal advice” as to whether they should file personal bankruptcy. Still others were surprised upon discovering the effect debt settlement had on their credit scores. Because of late fees and increased interest demanded by creditors, most consumers usually see a decline in their credit scores, even if they successfully settle their debts.

The assurance of voluntary compliance DebtXS has signed with the Attorney General ensures the company will clearly describe all benefits, risks and costs of their debt settlement program in the future. In addition, any consumer who entered into a contract with the company may file a complaint in writing alleging that they were misled or confused about the services and fees. The complaint may be filed with the company or the Attorney General within 90 days, and DebtXS will either resolve the complaint to the consumer’s satisfaction, or the complaint will be submitted for an independent review to decide what amount of restitution DebtXS must provide.

Consumers may file a complaint online at www.oag.state.tx.us or call toll-free at (800) 252-8011.

The Attorney General offers these tips to consumers who are considering debt settlement as an alternative:

• Consider talking to a licensed attorney knowledgeable about the issue and learn about the legal consequences of stopping payments to creditors;
• Be wary of companies that guarantee results and promise you that your credit will not be negatively affected by entering into a debt settlement program. Creditors decide whether to report a consumer’s failure to pay bills on time to credit bureaus, and debt settlement companies have no sway in these decisions;
• Demand to know in advance all fees a debt settlement company will charge you for their services, above and beyond amounts to be paid to creditors, and get this in writing.

Source: Texas Attorney General’s Office