Debt Settlement USA review: Scam 1

I was recently on a consultation with a consumer and she asked me to review a contract that she received from debt settlement usa. She had enrolled into their program a few months ago and now she was starting to get the feeling that they were much more interested in collecting their fees from her than they were in helping her settle her debts. After 5 months in their program she had given them around $4500 in fees and as a consequence didn’t have much money at all to even settle her smallest debt.
I told her that I had heard of debt settlement usa, but with over 2, 000 or so settlement companies out there, it is easy to get them confused. I informed her that this sounded like the typical high upfront fee shenanigans that most debt settlement companies hook consumers into. I didn’t have a copy of their contract on hand so she faxed it over, to get my opinion. When I received the contract, unfortunately my hunch was confirmed.

Here are the facts in the contract
1. They charge 14% of a clients total debt as a fee
2. They charge their entire fee over the first 11 months in their program
3. Their fee is not contingent on any sort of results
4. If you stop making payments, they can still keep their fees, even if they haven’t settled any debt
Here are just a few of the things I found on the web
1. They have 158 consumer complaints against them at the bbb
2. They are currently under investigation by the new york state attorney general
3. They paid a fine and refunded all clients in vermont for violating the “vermont consumer fraud act”
4. There were numerous consumer complaints found during a few google searches
Here are my thoughts
The first thing that leaped off of the contract at me was their fees. Debt settlement usa charges 14% of a clients total debt as a fee plus a 29 dollar administrative fee. Now, most debt settlement companies charge 15% of a clients total debt, so one might conclude that debt settlement usa must be better. Well I guess everything is relative, I personally think both of them are way too high.
However, even if a consumer decided that 14% of their total debt was a fair fee, here is the kick in the gut. They are going to collect that entire fee over the first 11 months into the program. Let me say it a different way. They will collect most or likely all of their fee before they even settle the first debt.
Another thing that I saw, or rather didn’t see, was a clear explanation of the fees. Sure they told her that her fees were going to be about 500 dollars a month for 11 months but I sure didn’t see that fee totaled anywhere. I guess if someone saw the number $5, 500 in fees upfront, they might just think twice about this program.
After crunching their numbers and double checking their fuzzy math, I actually got pissed. Ya I was literally pissed off about the lengths that these programs will go to to trick consumers into signing up. Let me show you what I mean. This client had about $40, 000 worth of debt. Debt settlement usa wanted to put her on their plan where she would pay about $600 a month. About $500 of that would go straight to them for the first 11 months. So after 11 months, the client would have paid $6, 600 yet, only have $1, 100 that she might be able to use to settle her debts. How much of that $40, 000 is she going to be able to settle for $1, 100? Now you can start to see why I was getting angry when I was reading this.
To add insult to injury, they are misleading her and then covering their butts in the fine print. When I use a real calculator and check their fuzzy math, the only way for this client to finish up the program in the amount of time that they estimate and still cover their fees, would be if they settle all of this client’s debt for about 34 cents on the dollar. Hmm, according to the president of debt settlement usa in response to a complaint against them, he claimed that their settlements average about 43 cents on the dollar. That means, the program is probably going to last longer and definitely cost more than their rosy scenario that they are giving the client.
In fact, lets look at the fine print. In the fine print the consumer will learn that the quoted numbers are certainly not a guarantee. (see fuzzy math problem above). We also learn that their fees are not contingent upon any specific result. They consider the fees earned when they receive them and my favorite, if you stop making payments for any reason, debt settlement usa is entitled to keep everything you have given them up to that point.
I think I am starting to understand why they have been subpoenaed and are under investigation by the attorney general in new york. I also recently read that they had to give full refunds to all of their clients in vermont because they failed to offer a 3 day right of rescission and violated the “vermont consumer fraud act.”
They have 158 complaints with the bbb and some quick google searches for “debt settlement usa” scam and “debt settlement usa” rip off, revealed quite a bit of unhappy clients.
I don’t know the principle officers of this company or anything more about this company than what I read in their contract and I found on the web. However, from what I do know about them, I would certainly not recommend them to any consumer. Even if you discount the attorney general investigation and all of the consumer complaints, I personally don’t feel that charging a financially struggling consumer 14% of their debt (all upfront) is at all beneficial to them.
Debt settlement usa makes all of their money upfront. Their fee is not based on their performance. If their client has a financial mishap and can’t afford to complete the settlement program, they can keep their fees. Clients are not likely to settle any of their debts with creditors for over a year. If debt settlement usa goes out of business or is shut down by regulators, clients will not likely get their money back. Debt settlement usa has no financial incentive to provide a client with support after they have paid all of their fees.
When I take all of these things into account, I see an unconscionable contract. I see every benefit is provided to debt settlement usa and I do not see any consumer benefits. Now, I am human, and I could be missing something, so if someone can explain to me how charging a consumer 14% of their debt, upfront, pushing out settlements for over a year and providing no guarantees, is in the best interests of the consumer, I would appreciate it if you would set me straight. Until then, I must recommend that a consumer not enroll into the program currently offered by debt settlement usa.