2010-07-02 / Columnists

Notes On Consumer Affairs

Commentary By Assemblywoman Audrey Pheffer

AUDREY PHEFFER AUDREY PHEFFER Credit cards can be a useful and convenient way to pay for a variety of goods and services. However, consumers sometimes find that they have overextended themselves and may have a difficult time paying off their credit card debts. If you find yourself in this position, there are several options available, including working with your credit card issuer directly. Many legitimate providers offer assistance to guide consumers out of debt safely.

Before reaching out to a credit counselor or other debt management professional, you can try contacting the credit card issuer yourself. Explain that you want to work out a modified payment plan that reduces your payments to a more manageable level. Keep accurate records of every communication between yourself and your card issuer. If possible, you should continue making payments on your debts. If you do not make a payment for 180 days, your issuer may “write your debt off” as a loss. This will result in your credit score taking a large hit, and you will still owe the debt. However, some issuers will still negotiate with you even after they “write off” your debt.

If you do decide to hire a company to assist you with reducing your debt, you should do some research first. Search the Internet for complaints about the company to see what others have experienced. Be leery of any company that claims it can pay off your unsecured debt for pennies on the dollar, tells you to stop communicating with your creditors, requires that you pay the full fee within the first few months, or touts a “new government program” to ease credit card debt. You can also research a provider’s standing with the Better Business Bureau by calling 212-533-6200 or by visiting http://www.bbb.org and the New York State Attorney General’s Office by calling 1-800-771- 7755 or by visiting http://www.oag. state.ny.us.

There are three main types of providers offering their services to New York consumers. Credit counseling and debt management agencies provide financial education and, based on the consumer’s debt situation, may enroll the consumer in a debt management plan in which the provider negotiates more favorable repayment terms with creditors on behalf of the consumer. Debt managers also receive and distribute monthly payments made by the consumer to his or her creditors. New York State requires these entities to be not-for-profit companies and licensed by the State Banking Department. You can check if a provider has a current license by calling the Department at 1-877-BANKNYS or visiting http://www.banking. state. ny.us/sibudget.htm.

Debt settlement companies offer a debt reduction plan that differs greatly from those offered by credit counseling and debt management agencies. Many instruct their clients to stop paying creditors and instead accumulate funds in a savings account that can be used to convince creditors to settle the debt for less than the principal balance. They do not negotiate repayment terms with creditors and do not provide financial education. During the period when the funds are accumulating, creditors may impose additional finance charges and undertake aggressive collection efforts. Settlement companies often charge upfront and monthly fees and, if a settlement cannot be reached with a creditor, most do not refund the fees already paid. If a settlement can be reached, the consumer must declare the amount by which the settlement reduced the consumer’s debt for as income on his or her federal tax return.

Consumers should consider all other options before considering debt settlement. Recently, law enforcement investigations and lawsuits have exposed numerous intances of fraud and unfair business practices perpetrated by unscrupulous debt settlement companies.

As Chair of the Consumer Affairs and Protection Committee, I am currently working on legislation to outlaw unfair industry practices and to require debt settlement providers to be licensed.

Finally, for more information on settling your credit card debts, you can contact the Federal Trade Commission by calling 1-877-FTC-HELP or visiting http://www.ftc.gov/bcp/.

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