FTC Settles with Fraudulent Debt-Counseling Agencies

U.S. regulators settled with three debt-counseling agencies accused of scamming consumers out of millions of dollars.

The three agencies involved in the settlement were National Consumer Council, Debt Management Foundation Services Inc. and Better Budget Financial Services Inc. Lydia Parnes, head of the Federal Trade Commission's consumer protection division stated that "All three companies lied about who they were, what they could do for consumers and how much they charged."

According to the FTC, there have been an increasing number of scams involving debt-counseling agencies. Although many agencies are legitimate, it has been an increasingly common problem that some agencies promise to help consumers reduce monthly payments and manage debts, but they only succeed in making matters worse for the consumer.

Better Budget Financial Services Inc. instructed clients to pay their monthly bills to Better Budget rather than creditors while the agency claimed to be negotiating with creditors. However, Better Budget was not negotiating with creditors as the consumers expected. As a result, interest would mount forcing consumers further into debt and often resulting in bankruptcy.

National Consumer Council promised consumers free debt-counseling services. Instead of offering credit-counseling they were using their non-profit status to act as telemarketers. They would place unsolicited calls to consumers to direct them to other debt-counseling services that would charge them fees and rarely reduce their debt problems.

Debt Management Foundation Services Inc. also violated telemarketing laws to solicit business from consumers. They would then charge consumers up to $1,000 for their services.

The companies involved must repay consumers more than $25 million. Debt Management Foundation Services Inc. and National Consumer Council are in the process of being shut down.