It's a fairytale so tragic, there's no prince to break the spell/But now I'm counting on a miracle.
-Bruce Springsteen
Desperate people want to believe it's true. They want to believe that there are companies that can easily get rid of their credit card debt.
They see the constant stream of commercials bombarding their television sets and they respond.
More often than not, they are deeply disappointed.
As the headline of a recent New York Times article says, "Peddling Relief, Industry Puts Debtors in a Deeper Hole."
Gary Rivlin's wonderful new book, Broke USA, talks about the "poverty industry," companies, such as payday lenders, who prey upon the poorest of the poor.
Unlike the "poverty industry," debt relief is a business that cuts across classes. After the crash of the housing market and a prolonged recession, people in every demographic have credit cards companies and other collectors hounding them.
Many of them have never dealt with collectors before and don't know what to do.
Which makes them easy pickings for the debt relief companies.
Calling a debt relief company can often make matters worse. Debtors can pay outrageous fees to the debt relief companies, and still not have any problems solved.
The New York Times article notes two lawsuits. In those, the Attorney General of New York is quoted as saying that no more than ONE PERCENT of customers gained the services promised by marketers.
A Colorado investigation came to a similar conclusion.
Instead of sending money to a debt relief company, debtors would be better off going to the race track and betting on a horse.
Most horses have better odds than the 99 to 1 shot that debt relief companies offer.
Debt relief companies prey on fear and ignorance. There are many things that consumers can do to protect themselves from harassing collectors.
The Fair Debt Collection Practices Act has been on the books for many years, but few debtors know about it. IF you are in debt, it's time to read and understand it.
You can get a booklet explaining the law from the Federal Trade Commission at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf
A little knowledge of the Fair Debt Collection Practices Act can go a long way.
Another thing you can do is to pick up the phone and talk to your creditors yourself.
Any kind of "special deal" that the debt relief companies promise you is normally something you can do on your own -- without paying the outrageous fees that the "debt relief" companies charge.
If creditors seem serious about filing a lawsuit, filing a lien or garnishing wages, you need to talk to a lawyer.
Lawsuits, liens and garnishments are legal matters. I would rather pay money to a trained and educated lawyer, than to some nameless person at the other end of an 800 number.
Lawyers can walk you through your legal rights and explore options like bankruptcy. Since many are trained negotiators, I've found that a lawyer can have a greater impact in getting a settlement than a debt relief company would.
The debt relief industry argues that there are some good companies in the business, but I don't know who they are, how to find them or what kind of training they have.
I know that attorneys have years of education and state bar associations overseeing their activities. I'd take my chances with them.
The New York Times article noted that a plethora of state and federal agencies are looking to crack down on the debt relief people.
Senators Clare McCaskill of Missouri and Charles Schumer of New York are sponsoring legislation that would cap their fees at 5% of the savings they recoup for their customers.
Since the managing director of forensic audits and special investigations for the United States Government Accountability Office testified that "the vast majority of companies provided fraudulent and deceptive information," it seems to me that the 5% cap, may be 5% too much.
Debt relief is another industry that preys on the desperate. People who call the 800 numbers are, as Springsteen said, "counting on a miracle."
At 99 to 1 odds, reality is more like the character in another in another Springsteen song, The River, who asks, "Is the dream a lie, if it don't come true?"
I don't see many dreams coming true with the help of debt relief companies.
Don McNay, CLU, ChFC, MSFS, CSSC is an award-winning financial columnist and Huffington Post Contributor.
You can read more about Don at www.donmcnay.com
McNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University.
McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery
McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.