March 05, 2010
March 5, 2010
Governor, OFIR say sound debt relief assistance available
LANSING - Governor Jennifer M. Granholm today joined Ken Ross, commissioner of the state Office of Financial and Insurance Regulation (OFIR), to warn consumers seeking debt relief assistance to avoid unregulated debt-settlement programs. The governor advised Michigan consumers seeking debt counseling to contact a state-regulated financial entity.
"Protecting Michigan citizens from unregulated debt-settlement programs is part of my administration's ongoing efforts to safeguard consumers and their pocketbooks," Granholm said. "As consumer credit card debt grows, the number of unregulated and financially dangerous debt- settlement companies is increasing dramatically. It's now more important than ever for consumers to be aware that safe and sound debt-relief assistance is available."
Debt-settlement companies are constantly advertising that "debt relief is just a phone call away" and that they can get consumers out of debt for "pennies on the dollar." Usually with debt- settlement programs, consumers are charged exorbitant up-front fees, and their monthly payments are held in escrow accounts. The debt-settlement company then will attempt to negotiate payoffs with creditors, one creditor at time. Debt-settlement companies usually also advise consumers to stop paying their creditors. But if creditors are avoided, the consumer's credit score will fall dramatically while debt interest, late fees and creditors' harassing phone calls continue to increase.
"Don't fall for the debt settlement pitch," Ross said. "With outrageously high up-front fees, no protection from creditors, and a guarantee to send your credit history into the toilet, these companies are bad news for consumers."
A number of these unregulated companies are illegitimate businesses trying to scam consumers. In some cases, debt-settlement companies have disappeared after consumers paid them thousands of dollars in up-front fees. Their customers are left deeper in debt and with ruined credit.
One sound debt-relief option is state-licensed, debt-management companies that are required to employ qualified debt counselors and offer detailed budgeting and debt and credit counseling assistance to Michigan consumers. Consumers also may find debt-relief assistance at their banks or credit unions.
Any debt-management company doing business in Michigan must be licensed by OFIR. All companies are subject to bonding requirements, exams, criminal background checks, investigations, and financial filings. These firms employ more than 700 qualified debt counselors who specialize in the state's specific debt laws.
Debt-management companies may recommend to consumers to simply make a few budgeting changes to eliminate their debt, enroll in a debt-management program, or, in extreme cases, declare bankruptcy.
A consumer who decides to enroll in a debt-management program pays a limited monthly fee to the debt-management firm. The company then pays the consumer's creditors on a monthly basis. The company will negotiate with the creditors to try to get a lower interest rate for the consumer and waive over-the-limit and late fees. Most debt-management plans average three to five years for consumers to eliminate their debt.
For a list of licensed debt-management firms, consumers can visit www.michigan.gov/ofir or call OFIR toll-free at 877-999-6442.
All consumer complaints regarding unregulated debt-settlement companies are referred to the Michigan attorney general's office.
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