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My firm has represented many consumers who signed up with various “debt reduction” firms. Most of them are affiliated in some way with a law firm.

All of the ones that we have seen require the consumer to pay huge upfront fees, usually thousands of dollars (money that the in-debt consumer can not afford but pays anyway, lured by the promises of only have to pay 30%-40% of the balanced owed to their creditors). None of our clients were told by the debt reduction firm that the monthly payments they were making would first go to pay the debt reduction company.

Second, to a client, they were all told to stop making payments to their creditors, even when they could afford to make the monthly payments. In no case that I’ve seen did the debt reduction company make any attempt to negotiate with the creditor. As you can expect, this lead to the creditor filing suit.

Also, as many credit card companies have told us, they will not negotiate with any debt reduction company, even if it is affiliated with a law firm.

I’m glad that Florida and other states have started to take action. It seems to me that most, if not all, of these “debt reduction” companies follow the same MO – take the consumer’s money and then don’t provide any services. Hopefully, the Attorney Generals (and maybe even the US DOJ) will take action.

David, apparently you don’t know anything about the debt reduction business by your comments. Maybe you should keep your comments based on Michael Jackson and Wal-Mart Law. If you were a $100,000 in debt and were heading into bankruptcy and could avoid the big B by paying $65,000 into a settlement program that afforded a low monthly payment to get the situation resolved would you take the offer? If you were smart you would, unless you’d rather sell your house to pay off unsecured debt.

Credit card companies get wired millions of dollars in settlements every month from debt negotiation companies. There are thousands of consumers enrolling into settlement programs every week. The success rate in these programs far far exceeds the (miniscule in comparison) consumers with a bad experience.

People obviously seek debt reduction services because they are having financial hardship and can’t make payments on the creditor’s terms. So they seek an alternative to dodging their debts or bankruptcy. Debt reduction is a needed service in this country. I’ve personally enrolled bank managers, accountants, doctors, attorneys, business owners, and hundreds of other sophisticated consumers into such programs – all with no problems.

Additionally, competent debt counselors are supposed to disclose the inherent risks to a duct reduction program; such as sending accounts to collections, charging late fees, judgments, wage garnishments, creditor phone calls and other measures in an attempt to collect moneys owed during the debt reduction process. The point is, a competent service is better than bankruptcy.