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As Credit Delinquency Rises, So Does Credit Relief Scrutiny

States struggling to control credit counselors

By Mark Huffman
ConsumerAffairs.com

December 25, 2007

The Associated Press reported this week that its analysis of data from credit card lenders shows a big spike in the number of accounts more than 90 days in arrears. That’s the delinquency period when most debt is turned over to collection agencies.

As more consumers fall behind on credit payments, states are grappling with increasing activity of so-called debt counselors and debt settlement services.

In West Virginia, Attorney General Darrell McGraw has won a court order temporarily forbidding a Florida law firm from offering debt settlement services in the state.

McGraw says the firm, Hess Kennedy, of Coral Springs, Florida, claims to assist consumers who are struggling financially to make payments to their creditors. McGraw said he has seen more of this increasingly common, and sometimes controversial business as consumer credit card debt has ballooned in the past few years.

Debt settlers such as Hess Kennedy make repayment plans to help consumers repay outstanding debts, at a deep discount, to avoid being sued or filing for bankruptcy. Monthly payments are then made by consumers to the debt settlers in turn for which the debt settlers claim to negotiate with creditors to reduce the amount of debt owed.

Although debt settlement services are unrestricted in some states, West Virginia’s law regarding debt settlement only permits for-profit companies to charge a monthly service fee of two percent of the payments made by consumers.

Although McGraw’s investigation is incomplete, the attorney general says it appears that Hess Kennedy was charging more than the two percent fee allowed by state law.

"Although the debt settlement approach to debt relief may work for some persons, the service has legal consequences and should only be offered by persons licensed to practice law in West Virginia,” McGraw said.

“My office will continue to scrutinize the debt relief industry in an effort to protect consumers who are already facing dire financial circumstances from paying excessive fees for services that may leave them in worse shape than before."

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