Public Employee Press

Union helps members ripped off by consolidation scams
Getting out of debt

By DIANE S. WILLIAMS

If you feel you are drowning in debt, DC37 can throw you a lifeline.

With help from the union's Municipal Employees Legal Services, many members have been able to break free from easy credit rip-offs and, in some cases, get back money they have paid to predatory debt settlement companies.

"Debt settlement companies try to take advantage of people who in good faith want to repay their debts. Don't let them do it to you," said MELS Associate Director Robert Martin. "Our advice is, call MELS and get professional advice before you even think of going to a debt settlement company." MELS is a union benefit, and its services are free to covered members.

Local 983 member Robert Hutchinson and Local 1549 member Fernando Agurto were victims.

Hutchinson owed about $30,000 on almost a dozen credit cards. Freedom Fidelity proposed a plan for debt consolidation that promised to pay off his debts in three years. "They said they could improve my financial status. It sounded like a fix for my money problems," he said.

He had paid Freedom Fidelity $350 a month for 18 months when Bank of America called about his credit card. "That's when I realized Freedom Fidelity had not made any payments," said Hutchinson. "I had stopped making the monthly credit card payment because Fidelity said they would pay it."

Debt settlement's high costs

Agurto owed about $25,000 on his credit cards.

"I decided I needed some help to either consolidate or go into bankruptcy," he said. He responded to a letter from Debt Zero, which mailed him a contract that he signed and faxed back with a blank check letting them withdraw $540 a month from his bank account.

"It was too much of a hardship to pay that bill and buy food and pay my rent," Agurto realized. He paid Debt Zero but was still hounded by creditors. Demanding an accounting, Agurto learned that the debt settlement service "did not pay off any of my debts, even after withdrawing $7,500 from my bank account."

A member for 30 years, Agurto saw an ad in the Public Employee Press for a MELS workshop on consumer debt and finance. There he met MELS lawyers who advised him to stop paying Debt Zero; MELS is trying to recoup the $7,500 the company had taken.

These members are not alone. In today's tough times, many find their money doesn't stretch as far as it used to and use credit cards to supplement their income. Others turn to Internet payday loans for fast cash, but only fall further behind. Debt settlement companies offer relief, but MELS warns that their promises are too good to be true.

"Debt settlement companies have a flawed model and a poor track record," Martin said. "They won't necessarily be able to settle your debts even if you diligently make payments. Your creditors will still be calling and may sue you. And the settlement companies take their fees - which are very high - off the top, so that the first few months of payments go just toward fees."

A recent rule of the Federal Trade Commission prohibits debt settlement companies from taking fees until they actually settle a debt. But this rule only applies when a consumer deals with a debt settlement business over the telephone. "The FTC rule is a huge step forward, but debt settlement companies get around it here by opening storefront operations," Martin explained.

The DC 37 Political Action Dept. is working with a statewide coalition, New Yorkers for Responsible Lending, for legislation to protect consumers from predatory debt settlement schemes. Consumer advocates also hope that the newly created federal Consumer Financial Protection Bureau will use its regulatory authority to rein in debt settlement companies.

MELS offers professional advice

MELS offers members like Agurto and Hutchinson hope and professional advice. The free union service helps members extricate themselves from debt settlement scams, defends against debt collectors' lawsuits, and helps clients file bankruptcy where appropriate.

"I found DC 37 and MELS trustworthy and very helpful," Agurto said. "This economy is critical and the reality is we need help - even when we have jobs. I am a victim of fraud and I am working with MELS to see it end."

On his way to financial recovery with help from MELS, Hutchinson said, "I fell into debt and trusted the wrong company. I believe a lot of members are in my same situation. I thought this would never happen to me."

"Be very careful about debt consolidators," Hutchinson warns. "Every one of these guys is a scam artist. They are out to take your money, rob you and push you deeper into debt. They never help. In this bad economy, they prey on people. Stay away from them!"