TheConsumer Protection Consumer’s Division, Maryland Attorney General’s Office Edge Issue # 134 Education On Management and Settlement Companies

Consumers affected by the current economic down- companies are not licensed and of- fall are facing increasing debt and some are seeking fer plans that may be riskier than those of debt man- alternative solutions to relieve their financial burden. agement companies. Debt settlement companies often Marylanders hoping to reduce some of that debt are advise their clients to stop paying their and bombarded by advertisements for debt management instead deposit monthly payments into an account so plans and debt settlement plans. Some ads make ques- an amount can be built up that would allow the settle- tionable claims that consumers can reduce their ment company to negotiate a settlement with creditors. by as much as 50% to 70%. Consumers should not As of October 2010, debt settlement companies can assume that they will be able to enjoy the claimed sav- no longer charge fees until they have settled the con- ings. sumer’s debt, due to a regulation issued by the Federal Trade Commission. Under the FTC Rule, the debt The Office of the Attorney General recommends settlement company must explain to consumers im- not signing up for either debt management or debt portant information such as how long it will take to settlement plans unless consumers first undergo see promised results, the cost of the debt settlement counseling from a reputable agency. plan, and any negative consequences that could arise Counseling may provide from using debt settlement the consumer less expen- companies. The FTC Rule sive and more effective specifies that fees for debt options to eliminate their relief services may not be debts. A certified credit collected until: counselor can help con- sumers understand their • the company successfully options, create a bud- renegotiates, settles, reduc- get, and offer advice on es, or otherwise changes the spending habits. terms of at least one of the consumer’s debts; Debt management companies, which are re- • there is some sort of writ- quired to be licensed in ten settlement agreement Maryland, allow consum- between the consumer and ers to consolidate their the company, and the con- debts into a single monthly payment, which is then sumer has agreed to it; and distributed to the consumers’ creditors. These com- panies negotiate with creditors to waive late fees and • the consumer has made at least one payment to lower rates. Debt management companies the as a result of the agreement negoti- must also provide consumers with an education pro- ated by the company. gram and explain consumers’ alternatives for address- ing their debt situation, including budgeting or filing In addition, the Final Rule allows debt relief companies . However, under a , to require consumers to set aside money for payment to a consumer is usually required to pay the full amount creditors in “dedicated accounts.” Debt settlement compa- of the debt plus the debt management company’s fees. nies may only require a dedicated account if: www.oag.state.md.us/consumer

• the consumer owns all the funds in the dedicated Volunteer Opportunities and Internships account, including any accrued interest; Do you like to help people? Do you live in the • the consumer can withdraw money without pay- Baltimore area? Then come volunteer in the Attor- ing a penalty; ney General’s Consumer Protection Division.

• the account is maintained by an insured financial Our volunteers respond to consumer inquiries on institution that does not have any affiliation with the telephone hotline, and mediate consumer com- the debt relief company; and plaints against businesses and health care providers. You will receive training in mediation and learn • the debt relief company cannot exchange referral valuable skills. The division also offers college and fees with the financial institution. law students a variety of internship opportunities. Our downtown office is convenient to the Light To protect Marylanders in the midst of debt prob lems, the Attorney General recommends Rail and Metro, and volunteers receive a travel the following: stipend. No experience necessary. Interested? Call 410-576-6519. • Explore all alternatives with a legitimate counsel- ing agency, such as those who are members of the National Foundation for Credit Counseling. Attorney General’s Consumer Offices • Contact the local bankruptcy court to make sure the credit counseling agency has been approved by the Consumer Protection Division United States Trustee. 200 St. Paul Place, 16th Fl. Baltimore, MD 21202-2021 • General Consumer Complaints: 410-528-8662 • Contact creditors to see if they will reduce the debt. Toll-free: 1-888-743-0023 Many companies will work with consum- TDD: 410-576-6372 ers to resolve their debt situation. 9 a.m. to 3 p.m. Monday-Friday • Medical Billing Complaints: 410-528-1840 9 a.m. to 4:30 p.m. Monday-Friday • Carefully read and review any contracts before To appeal health plan claims decisions: purchasing any credit counseling, debt management Toll-free within Maryland 1-877-261-8807 or debt settlement service. If the business refuses Branch Offices to provide a copy of its contract, this is a warning • Cumberland sign that the contract contains language that may be 301-722-2000; 9 a.m. to 12:00 p.m. 3rd Tuesdays • Frederick harmful. 301-600-1071; 9 a.m. to 1:00 p.m. 2nd and 4th Thurs- days • Only do business with licensed credit counselors and • Hagerstown debt management companies. 301-791-4780; 8:30 a.m. to 4:30 p.m. Monday-Friday • Prince George’s • Check with the Consumer Protection Division and 301-386-6200; 9:00 a.m. to 5:00p.m. Monday-Friday • Salisbury the Department of Labor, Licensing and Regulation 410-713-3620; 8:30 a.m. to 4:30 p.m. Monday-Friday to find out whether complaints have been lodged • Southern Maryland (Hughesville) against the business. 301-274-4620 Toll-free 1-866-366-8343 9:30 a.m. to 2:30 p.m. Tuesdays If you have any questions regarding credit counseling, debt settlement companies or debt management com- panies, call the Consumer Protection Division’s hotline The Consumer’s Edge is produced by the Maryland At- at 410-528-8862 (TTY: 1-888-743-0023) or e-mail the torney General’s Office. Reprints are encouraged. Free Consumer Protection Division at [email protected]. subscriptions are available to groups wishing to distrib- ute to their members. Call 410-576-6956. md.us.

03/11 www.oag.state.md.us/consumer