© 2024
Virginia's Public Radio
Play Live Radio
Next Up:
0:00 0:00
Available On Air Stations

Inside the Wild West of Debt Settlement Companies

openDemocracy / Creative Commons

For people down on their luck and behind on their bills, there seems to be no end of businesses looking to turn a buck. That often means people are scammed out of money — just when they need help the most. Critics say state leaders in Virginia are doing nothing to solve the problem.

One day back in 2009, Charlotte Terrell of Charlottesville found herself at a crossroads. Her credit card bills had accumulated to the point where she just couldn’t keep up. Then one day she saw a commercial on television for something called Credit Answers, and she thought this would be the answer to her problem. So she gave them call. 

“Credit Answers assured us that baby steps are big steps because even though we were making smaller payments we were coming closer to being out of debt."

So she handed over all her debt problems and all her account numbers. And then this debt settlement company started withdrawing money from her bank account. Over the next few years, the company took about ten thousand dollars out of her account to pay off about $5,000 worth of debt.  

“We were barely getting by but thinking that Credit Answers was going to help us. But they only did more harm to us than good.”

She eventually got help from Kim Rolla, an attorney at the Legal Aid Justice Center.

“It’s hard for us to tell from the record that exist what if any settlements were reached with those creditors because actually Credit Answers dissolved as an entity."

Rolla says this is a pattern she has seen too many times.

“And then the consumer defaults on their debts, their credit ranking tanks and the money that they could have been using to actually pay those debts is instead going into the pockets of a predatory company."

She says state regulators and the Virginia attorney general need to do a better job cracking down on companies that fail to get a license and operate in the shadows, charging fees that would be illegal if they were licensed.

“What we really need in the state of Virginia is for the attorney general and the Bureau of Financial Institutions, who licenses these companies to enforce Virginia state law."

That’s a common theme from lawyers who represent clients who bring charges against an industry critics say operate in the shadows. That includes the now-defunct Morgan Drexen, a company that shut down after the Consumer Financial Protection Bureau finally stepped in after years of inaction in Virginia.

“There was a state regulatory agency in charge of enforcing the statute and promulgating regulations to enforce it, and it did nothing."

That’s attorney James Boykin, who represented six different clients suing Morgan Drexen in Virginia. He says state regulators should have cracked down on the company because it didn’t even have a license to operate. 

“I wrote to them on several occasions and recommended that they look into taking action and as far as I could tell they took no steps and took no actions."

A spokesman for the State Corporation Commission says the company didn’t need a license because the business was associated with an attorney. But Boykin says that’s just a way for these businesses to get around regulations designed to protect consumers, a strategy that regulators in Wisconsin rejected. State Senator Scott Surovell of Fairfax County says Virginia’s pro-business culture creates an environment that gives debt settlement companies free reign.

“Virginia is a very hands off state when it comes to regulating business. Some people call it business friendly. Some people call it anti-consumer, but either way I don’t think it produces good results for Virginians."

He says that needs to change. 

“I think the state of Virginia needs to have a more robust consumer protection system. We need to have probably an independent department that does it. The attorney general’s office probably needs better funding so they have more attorneys and more staff."

A spokesman for the attorney general says his office doesn’t take action against businesses that have no license without a referral from regulators. And regulators say these issues are typically handled the federal government.

Related Content