BRYANT FUKUTOMI / BFUKUTOMI@STARBULLETIN.COM
Scams targeting stressed-out
bill payers are on the rise despite
law enforcement scrutinyFirst of two parts
Who to call, what to look for
Credit counseling and debt-elimination scams are on the rise in Hawaii and across the United States as a growing number of financially strapped people provides a burgeoning market for charlatans looking to make a profit.
Illegitimate debt relief companies run the gamut from false credit counseling services to debt-elimination and credit-repair programs. There also are companies that promise to legally relieve people of their obligation to pay taxes, mortgages or other loans. The common thread connecting these companies is that they prey on the misfortune of others to make a buck.
The whole industry is under scrutiny as the Federal Trade Commission and the Internal Revenue Service continue to crack down on credit counseling agencies like AmeriDebt, which regulators have said allegedly abused their nonprofit status to make huge profits.
But Wendy Burkholder, a counselor with Consumer Credit Counseling Service of Hawaii, doesn't expect that will stop scammers from finding ways to tap into what has been a lucrative market.
"These businesses see an opportunity because they see people who are desperate and willing to grasp onto anything," said Burkholder, whose nonprofit has been serving Hawaii residents for more than 35 years.
Many credit counseling organizations provide valuable advice, education and assistance to those seeking to better manage their debt. But an increasing number of complaints indicates that some organizations are engaging in questionable activities, the FTC said.
Some firms may be misleading consumers about who they are, what they do or how much they charge, said Howard Beales, director of the FTC's Bureau of Consumer Protection.
The FTC cautions consumers to read between the lines when faced with ads running on the Internet and in newspapers, magazines or even telephone directories that say: "Consolidate your bills into one monthly payment without borrowing," "Stop credit harassment, foreclosures, repossessions, tax levies and garnishments," "Keep your property," or "Wipe out your debts by using the protection and assistance provided by federal law."
Consumers need to beware of organizations that promise "quick fixes," said Steve Bucci, a national credit advisor with Consumer Credit Counseling Service.
"Sounds good huh? Too good! The saying 'There is no free lunch' comes to mind," said Bucci, who writes a weekly column called The Debt Adviser.
Debt elimination, where companies promise they can help customers wipe out debts by teaching them to use legal loopholes, is fast becoming one of the hottest scams, he said.
Bucci said the best advice he can give to consumers who are receiving spam e-mail from debt elimination companies is to delete the messages and continue to make good on their promise to their creditors to pay their debts.
"For those people that have accumulated credit card debt and are enjoying the sofas, clothing, artwork and other possessions that they have purchased using credit, the time comes when you must pay for what you bought," he said.
Other common scams involve credit counseling companies that misrepresent their fees or don't disclose that they retain a portion of the payments that consumers make to their debt management plans. A few promise results that can't be delivered, exaggerating the amount of money consumers will save by signing up for a debt management plan.
Some firms claim nonprofit status to convince consumers to enroll in their programs and then make substantial profits off the "donations" they collect from clients.
Some claim to provide advice and education to consumers, when in fact they simply enroll them in debt management plans without providing counseling. A few unscrupulous firms collect debt management money upfront and then fail to pay creditors in a timely manner or at all.
Other firms fail to abide by telemarketing laws or to comply with privacy or security requirements.
Consumers who get scammed using bogus debt relief programs often find not only have they lost money that they couldn't afford to lose, but their credit has been irrevocably damaged by the process, said Jim Tharp, a counselor at Aloha Credit Counseling, a Honolulu nonprofit.
"We've had clients that have come to us after they have been damaged very considerably by these types of organizations," Tharp said.
Upfront fee scams promising debt relief, lottery winnings or too-good-to-be-true business opportunities are common in Hawaii, said Ann Takiguchi of Central Pacific Bank Corp.
"Any time consumers get asked for money upfront from one of these services, it should be a red flag," Takiguchi said. "They need to check with the Better Business Bureau or the local police before becoming involved."
And although some of the people who have been scammed report the crime, cracking down on these businesses is difficult. Many of these unsavory businesses hide behind blind Internet sites or bogus post office boxes.
Federal and state regulators have said they also are becoming increasingly concerned that some credit-counseling organizations using questionable practices may seek tax-exempt status in order to circumvent state and federal consumer protection laws. State and federal statutes regulating credit counseling agencies often do not apply to nonprofits.
"Many of these groups provide a valuable service to consumers, but some use the tax code to skirt consumer-protection laws," said IRS Commissioner Mark W. Everson.
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Who to call for help
State and federal agencies need consumer help to stop the proliferation of unsavory debt relief predators. Many states have stringent laws regulating debt relief companies:Hawaii residents or tourists who have been scammed should contact the state Office of Consumer Protection at 587-3222 or the state attorney general at 586-1500 to report the crime.
Internet fraud victims may also call the Internet Fraud Watch at 1-800-876-7060.
The FTC also works to prevent fraudulent, deceptive and unfair business practices in the market place. To file a complaint or to get free help, visit www.ftc.gov or call toll-free, 1-877-382-4357.
Tip-offs to rip-offs
Questionable debt-relief services...... guarantee they can remove your unsecured debt.
... promise that unsecured debt can be settled for pennies.
... claim using their system will let you avoid bankruptcy.
... require substantial monthly service fees.
... demand payment of a percentage of your savings.
... tell you to stop making payments or communicating with creditors.
... require that you make monthly payments to them rather than your creditors.
... claim creditors never sue consumers for non-payment of unsecured debt.
... promise that using their system will not negatively impact your credit report.
... claim they can remove accurate negative information from your credit report.
Source: Federal Trade Commission
