When you fall on hard times and your bills pile up, you may become desperate to find some financial breathing room. Capitalizing on the vulnerable consumer buried in debt, there is no shortage of companies that promise to dig you out of your financial hole. Below are a few of the common scams aimed at taking advantage of consumers who find themselves in a precarious financial situation.
Debt elimination companies and consolidation services
Debt elimination or consolidation companies promise to get rid of your debt, for a fee, or to consolidate your various debts into one payment.
The company takes an up-front fee and a percentage of each payment and puts the rest of the payment in a segregated account. At a later point, if enough money is accumulated, the debt settlement company promises to negotiate with creditors and satisfy the debt with part payment using the accumulated sums. Typically, the fees are so high that the consumer never accumulates enough money, and the only winner is the debt settlement company. Even when settlements are arranged, the fees are so high that consumers might have been better off negotiating settlements on their own.
Some companies specifically refer to the elimination of debt through the use of a "Federal Reserve-approved" procedure. This scam asks for an upfront fee from the consumer that will usually run from several hundred dollars to several thousand dollars. The Federal Reserve is not involved in any program aimed at eliminating consumer debt obligations. So debt elimination programs that claim Federal Reserve approval are completely false.
Payday loans are short-term, unsecured loans for smaller amounts of money, typically enough to make it through to your next pay day, hence the name "Payday Loan." The companies offering payday loans often employ predatory lending techniques to induce consumers to enter into loans with high upfront fees and extremely high interest rates. These loans are difficult to pay off and many consumers continue to take out new payday loans to satisfy previous ones, resulting in a revolving door of high interest loans. Our firm has experience representing consumers (see a case against Arizona payday lender here; see case against New York pay day lender
here) who have been harassed, in violation of the FDCPA, by debt collectors attempting to collect payday loan debts. These payday loans should be avoided at all costs.
Auto title loans
Auto title loans are short-term loans in which the borrower's car title is used as collateral. The borrower must be the lien holder (i.e. own the car outright). These loans are for very short periods of time, usually a month at the most. At first the interest rate is low, but upon needed extensions, the interest rates rise to high levels. When you are borrowing a high amount, it may be tough to pay it back in the short period of time. This could mean you are going to be paying much more than expected.
If you default on the loan, the lender has the right to take control of your car. They will then sell it to make their money. But if the sale is less than what you owe, you may be on the hook for the difference. If they sell it and make more than your debt, they keep that as well.
Before signing up for any of the above loans and services, do your homework. Thoroughly research any company prior to hiring them. Contact the Chamber of Commerce, Better Business Bureau or the county or state Office of Consumer Affairs in the area where the business is located to get information on the company. You should also visit the FBI's Internet Crime Complaint Center at http://www.ic3.gov/crimeschemes.aspx which provides a list of some of the common scams circulating and allows consumers to file a complaint.