MCRC Executive Director Marceline White
“Debt settlement companies promise to help consumers with their debt, but instead many do no work, collect large fees, and leave financially distraught consumers in deeper debt, with angrier creditors, worse credit scores, and dwindling options.

Here is how most debt settlement companies work: They tell the consumer – who often has tens of thousands of dollars in debt – to stop paying their bills. Instead, the consumer is told to make monthly payments to an account that will later be used to make a huge lump-sum payment to the creditor. (The idea is that the creditor will be so happy to get a lump sum payment that they will accept less than the amount actually owed.)
This might work in theory, but in reality, the debt settlement companies are taking such huge fees up front that the consumer can spend months if not years making payments that only go toward the fees – not toward reducing their debt

Meanwhile, the creditors keep calling because they are not getting paid, the consumers’ interest rates rise, they may be taken to court, and they have less money than when they started.

Most consumers, once they realize how the program really works, drop out of their debt settlement plans. But in many cases, their money is not refunded and they have paid hundreds or thousands of dollars for absolutely no service. No wonder these companies are popping up in email solicitations, on television, and in counties throughout Maryland, and across the country.
Debt settlement is currently unregulated in Maryland. MCRC strongly supports legislation to regulate the industry, set reasonable fees for service, provide disclosures to consumers, and prohibit certain practices. It is critical to regulate the debt settlement industry on the front end, rather than wait for more Marylanders to get into deeper financial trouble by working with many of the debt settlement agencies that will only compound their problems.

Specifically, we would like new see the new legislation:
•    employ a broad definition of debt settlement services and products;
•    set reasonable fees of no more than 15 percent of the total savings achieved in completed paid settlements, with the savings measured by the difference between the amount of the original debt and the amount of a binding settlement of the debt;
•    require payment only after results (settlements) are achieved;
•    mandate disclosures of the material facts and negative consequences of debt settlement; and,
•    ban claims of savings as inherently misleading because individual results vary so widely that historical results may not apply to many debts; at a minimum, require that claims of savings be based on savings net of fees paid."

Attorney General Doug Gansler
"Desperate economic times bring about desperate economic measures by some people. The unfortunate part of it is it also brings out predatory lenders and those who would prey upon vulnerable consumers. Debt settlement companies are one of those types of entities.

These are people who are down on their luck, who are often way behind on their house payments and other payments and they say to those people ‘Don’t pay your bills anymore, instead – pay us.’ Not only that, they make them pay up front.

What we are trying to do is curb these debt settlement companies into becoming legitimate companies, perhaps like the debt management companies, and say we are no longer going to allow in Maryland an advance-fee structure. Moreover, we are going to cap what you can charge at 15 percent of the total debt that a consumer has. Those are the two salient features of the legislation that will be brought forward this year in Annapolis to try and really rid Maryland of what are purportedly debt settlement companies but what are in actuality predatory thieves."

Deputy Commissioner of Financial Regulation Mark Kaufman
"In general the debt settlement industry is not well understood and reports such as this that bring to light the practices and how the industry operates are helpful.
The reality is this industry is one that’s growing in the cracks between the legal structure that we have. Unfortunately, when the economic environment turns down, these cracks tend to turn into chasms into which the most vulnerable people in our society are falling. 

At the Office of Financial Regulation we’ve supported legislation to regulate this industry and intend to support it again. As a general matter we have serous concerns across the board about products which are sold to vulnerable consumers with high upfront fees."

Statement provided by Del. Michael Vaughn
“Given the current economic climate when too many Maryland citizens are struggling financially, I am concerned that many of them will respond to sales pitches from debt settlement companies promising to cut their debt in half, only to end up paying hundreds or thousands of dollars in fees and being in a worse financial situation than when they began. 

That is why I am sponsoring legislation that will ensure that consumers who sign up for a debt settlement plan receive the services they are paying for by prohibiting debt settlement companies from collecting fees before they have settled the consumers' debts and placing reasonable limits on those fees. My legislation will ensure that only consumers who truly belong in a debt settlement plan are enrolled while allowing those debt settlement companies who are able to assist consumers to earn a reasonable fee for their services.”

Lee Tarver,  a retired steelworker in Baltimore
"[A debt settlement salesman] pulled money from my credit card – over $1,2000, and that’s a debt that keeps going up – and he wound up doing nothing. He eventually just disappeared. All of them seem like a bunch of crooks. And we’re looking to get these regulations straightened out so these people can’t do this."

Gloria Snowden, a claims specialist at DLLR
"My name is Gloria Snowden and I was involved in a scam with Consumer Credit Counseling of America. This company had me set up with three different lawyers. My situation started until 2003, so from 2003 to 2008 they were taking money out of my account. I thought they were going to represent me in court with my creditors but when I went to court they never showed up. All I need to say is that people like these settlement companies need to be locked up, put in the jail and never let out. It caused me a lot of stress, a lot of anguish and I finally had to file for bankruptcy."

To download our report on Debt Settlement, click here. To download the executive summary, click here.