Beware Debt Relief Rip-offs

Scam artists are having a field day as many Americans drown in debt during the recession, authorities say.

Many people, behind on their credit card payments, are signing up with companies that promise to help relieve their debt burden by negotiating for them with their creditors. Those companies tend to advertise heavily.

But, warns CBS News correspondent Michelle Miller, if the promises seem too good to be true, they probably are.

Retiree Doreen Melton and her husband, Barry Melton, say they learned the hard way, dealing with a company called Nationwide Asset Services. The experience, they say, cost them thousands.

"It sounded so good" in the ads, Doreen recalled.

The Meltons, from Lewiston, N.Y., signed up with NAS to help pay off debt totaling $15,000. They say they paid $1,800 dollars in upfront fees and were instructed not to make anymore payments on their credit cards.

"Every month," Doreen says, "I wasn't making payments, and every month they would add a late fee and an over-the-limit fee. And this was on every card. I kept getting phone calls all day long. Ninety-nine percent of the calls were creditors."

The Meltons say they paid NAS more than $11,000 over two years, but the company only settled slightly more than half the original $15,000 debt. "It's very upsetting," Doreen observes, "because our credit is destroyed."

A lawyer for NAS told CBS News the company denies any wrongdoing. But New York Attorney General Andrew Cuomo sued NAS and another company, Credit Solutions of America, accusing them of engaging in fraudulent business practices and false advertising.

Cuomo's office asserts that Credit Solutions promised nearly 18,000 customers a 60 per cent reduction in their outstanding debt -- but only around one percent of the customers -- 1,800 people -- received that savings.

The two companies, Cuomo says, "frankly are frauds."

Credit Solutions told CBS News it disputes the complaints which, it says, occurred mostly under previous management.

Cuomo says NAS promised nearly 2,000 customers a 25-to-45 percent reduction in their debt, but only 64 customers who completed the original plan got that savings. "Not only did they do nothing, they made a bad situation worse," Cuomo says.

The Meltons say NAS refunded $3,000 to them after they complained to Cuomo's office, and all they want now is to see their credit repaired and to warn others of potential rip-offs. "No matter how good it sounds or what they tell you, they're lying. There's no possible way they can do what they say they will," Doreen laments.

Miller adds that consumers' antennae should go up when something sounds too good to be true -- it probably isn't, as Doreen pointed out.

Cuomo's office advises that, if a company demands payment up-front, before completing any services, you should be wary.

Also, suggests Miller, remember that creditors have no obligation to accept a debt settlement company's offers, so be suspicious of big promises from credit repair firms.
And enrolling in debt settlement plans may not stop creditors from bringing collection lawsuits, or prevent enrolled accounts from growing larger by the addition of late fees, interest, and penalties, as the Meltons say happened to them. What's more, credit reports will reflect derogatory information, including assessed late charges and non-payment of debts, and consequently credit scores will be adversely affected -- again -- exactly what the Meltons say they went through.

It's also a good idea to run credit fix-up companies by the Better Business Bureau, Miller says.