Security

Debt Relief Scams and How to Avoid Them

Woman who is a victim of a debt relief scam looking over some credit card bills

(6 Minute Read) — Debt relief scams are a growing problem. Lots of us have debt. It’s not always a bad thing – it can be a healthy part of a well-balanced financial life. Plus, it’s difficult if not impossible for most of us to buy the big things we want, like a home or an education, without some debt. If you have debt, and if you need to repair it – this is for you. Study up so you can stay safe and outsmart the fraudsters.

This is the last week in our August Against Fraud series — thanks for being a part of the journey! In this article, we’ll explain what a debt relief scam is, how to recognize one, how to stay safe, and what to do if you or someone you know is involved in or has experienced a debt relief scam.

What is a debt relief scam?

Debt relief scams target consumers with significant credit card debt by:

  • falsely promising to negotiate with their creditors to settle or otherwise reduce consumers’ repayment obligations
  • luring them into purchasing services with promises to remove negative credit report information
  • making false claims to increase their credit scores
  • promising to reduce credit card interest rates
  • offering to eliminate/reduce student loan debt

These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts if they provide any service at all. Some debt relief scams even tout their services using automated robocalls to consumers on the Do-Not-Call List.

What are common signs of debt relief scams?

These scams frequently target financially distressed consumers who are having credit problems which during these unprecedented times leads to significant opportunities for fraudsters. These operations lure consumers to purchase their services by falsely claiming that they will remove negative information from consumers’ credit reports even if that information is accurate.

Here are some common schemes that scammers use that you need to be aware of:

  • False promises made to consumers with student loan debt. A recent FTC complaint alleges the defendants pretended to be affiliated with the Department of Education promising to enroll consumers in student loan forgiveness, consolidation, and other repayment programs to eliminate or reduce student loan debt. Instead of providing the services promised, the company often contacted the loan servicer to place the loans into temporary loan forbearance or deferment status without the consumers’ authorization.
  • Telemarketing scammers promise to reduce credit card interest rates after being paid. Consumers are convinced the scammers are affiliated with their card issuer, or a credit card network, and can save up to thousands of dollars in interest.
  • The debt relief company asks for fees up front, before it settles any debts. Never pay in full up front before any debt relief work has been done. Scammers are looking for a quick cash grab and paying up front is the easiest way for them to make off with your hard-earned money without ever doing any work on your behalf.
  • The debt relief company guarantees it can eliminate debt or reduce it by a particular amount in a set period of time. Debt relief assistance can be a time-intensive process and the time it takes to eliminate debt differs for everyone, depending on your individual situation. If a company promises to eliminate your debt in a very quick timeframe, it’s probably too good to be true.
  • The debt relief company advises to cut off communication with creditors. A common red flag, cutting off communication with your creditors is not only wrong, but foolish as you will need constant communication with them to ensure your individual debt relief situation is proceeding as scheduled. Eliminating that communication is a clear sign scammers are at work.

“Scammers really prey on the financially vulnerable and so with the pandemic, many people have been struggling financially and they are looking for financial relief.”

— Kristen Evans, Consumer Financial Protection Bureau

How can I protect against debt relief scams?

Follow these tips from the Consumer Federation of America (CFA) to stay safe.

  1. Get all promises in writing. Verbal agreements are hard to prove. Carefully read contracts or finance agreements and make sure you understand them before you sign.
  2. Seek help for financial problems from legitimate sources. It’s Illegal for companies that offer to reduce or settle your debts to charge any fees until they’ve actually done what they promised. If you’re struggling to pay your bills, try to work out a solution directly with your creditors. If that’s unsuccessful, seek help from a qualified credit counseling agency like GreenPath Financial Wellness.
  3. Don’t pay in full upfront. As mentioned earlier, if you are asked for a payment or deposit, never pay the full price of the service up front. Scammers are looking for a quick grab and run with your money.
  4. Know your debt collection rights. Under federal law you have the right to dispute debts that you don’t owe, and many states prohibit action to collect debts after a certain number of years. Federal and many state laws also prohibit debt collectors from calling with annoying frequency, falsely threatening legal action, and discussing debts with people who aren’t legally responsible for them.
  5. When in doubt, seek assistance. If you’re not sure what your rights are or you think that something might be fishy, ask your state or local consumer agency for advice.FIND YOUR CONSUMER PROTECTION OFFICE: City, county and state consumer protection agencies are listed here: https://www.usa.gov/state-consumer .

Need help right now?

If you’re in need of debt relief, we’re here to help. Unitus partners with GreenPath Financial Wellness, one of the largest and most respected credit counseling agencies in the nation. Advice is only a free phone call away, 1-877-337-3399. Can’t call right now? Click here to request a call-back from a GreenPath representative in the next 48 hours.


What if I’m the victim of a
debt relief scam?

If you’ve fallen victim to a debt scam, here are some steps you need to take immediately:

  1. If you paid the scammer with a money order or wire, contact the financial service or institution you used to send the money and ask to cancel the transaction if possible. Be sure to report the fraud to them.
  2. If you paid the scammer using a gift card, contact the company that issued the card and inform them you just paid a scammer with a gift card and ask if they can refund your money. Be sure to report the fraud to them as well.
  3. Call the police and give them as much information as you can.
  4. The FTC recommends that you file a complaint online at ftc.gov. You can also report your experience to the FBI’s Internet Crime Complaint Center at ic3.gov.
  5. If you prefer, you can also call you state’s Attorney General’s Consumer Protection Hotline and ask that a complaint form be mailed to you:

Now that you have a firm understanding of debt relief scams, be sure to share this information with your family and friends to help keep them safe. If you know of someone in need of debt relief right now, tell them about GreenPath and the services and assistance available. There is no need for them to tackle debt relief alone.

To learn more about other types of common scams to be aware of, be sure to visit our Security page.

This concludes our August Against Fraud series, where we broke down a new scam every week throughout August. Stay tuned for future articles on how to stop fraud in its tracks. Also, be sure to follow our social media feeds (like Facebook and Instagram) for more helpful fraud-busting information, quizzes, and other insights to stay safe and well.


About the author: DJ Jones

DJ joined the Unitus Community Credit Union family in May 2018 to lead the Fraud & Security Department.

She brings over twenty-five years’ experience in investigations with a background that encompasses data breach remediation, identity theft restoration, insurance and legal investigations and financial services.

Originally from Alabama (Roll Tide!), Portland has been her home for 20 years. She and her wife are self-described foodies that love to travel and explore.

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