Credit repair and debt relief

American and Canadian consumers hold more than $16 trillion of debt in the form of mortgages, credit cards, personal lines of credit, home equity lines of credit, student loans and personal loans. It can add up to a huge amount of cash owed, and the total continues to rise post-pandemic. 

Debt is not inherently bad, but millions of North American residents find themselves underwater as monthly payments and interest stack up. When emergencies strike or monthly paychecks don’t always cover monthly bills, missed payments result in late fees, plummeting credit scores and create further economic distress. Countless credit repair and debt relief companies offer to help.

But over 11,000 complaints and almost 900 negative reviews submitted to the Better Business Bureau® about debt and credit assistance reveal a pattern of misleading and sometimes fraudulent claims, especially among a group of companies headquartered in the American west. While their contents vary, consumers talked about higher than expected fees, a failure to deliver on debt reduction and credit score improvement and a lack of response from businesses when questions arose. 

Conversely, other consumers report positive experiences with the credit and debt assistance industry, praising their efforts in helping them shed their financial burden. 

Predatory debt relief, consolidation and credit repair companies advertise quick and extensive fixes for low credit scores and defaulted debt, but their ability to enact change is often much more limited than implied. In some cases, consumers say to BBB that stacking fees in debt relief programs and lackluster results from credit repair businesses have lost them thousands of dollars and left them worse off than before.

Crystal from Spokane, Washington wrote to BBB about her experience with Lexington Law Firm, which has received an outsized number of complaints since 2020. After spending over $1,500 with the company to repair her credit, she became dissatified with their service after a number of issues, including accidentally revealing her social security number to an outside business. 

“We are demanding a full refund since there has been no part of this relationship that has benefited us, that has not caused us stress and more work to be done to fix the wrongs,” Crystal said. 

Her story isn’t unique. In the last three years, nearly 700 consumers have registered complaints at BBB about Lexington Law Firm, parent company Progrexion. Another 300 posted negative reviews. Consumers hire debt settlement firms to remedy their financial issues, but often find themselves with more debt and worse credit than when they started. 

The Consumer Finance Protection Bureau partially won a case against Lexington Law in 2023 and has asked a federal court judge to levy a $3.1 billion fine against the company. In the lawsuit, the CFPB says the fine serves to pay back illegal fees levied against 4 million consumers who had their rights violated under the Telemarketing Sales Rule, which requires six months to lapse after services are rendered before fees can be charged. 

“The time has come for Defendants to return that money to the consumers they unlawfully charged, cease their illegal billing practices, and pay penalties for their misconduct," the CFPB wrote in the lawsuit. 

Lexington’s parent company is currently undergoing bankruptcy in response to the CFPB case. It has “ceased all telemarketing and monthly billing for about 80% of its customers” according to Reuters. The company indicated it plans to continue business once the lawsuit is resolved. 

“This move will ensure that we set a course for a future filled with advocacy that will lead to more Americans securing financing on the most favorable terms available to them,” Chad Wallace, CEO of Progrexion said in a press release.

Many of the services offered by credit and debt assistance companies can be done by consumers themselves. However, difficulty in understanding their options, lack of know-how or a time crunch and other issues can lead some consumers to seek assistance. Here are some key terms and services to know when researching options. 

• Companies offer to negotiate on a consumer’s behalf to reduce their total amount of debt.
• Debts must already be considered past due.
• Companies claim this can help consumers reduce their debt load and establish either a lump sum or payment schedule.
• Can take years before any debts are settled.
• Not all credit companies will negotiate.
• More commonly used with credit cards, lines of credit, personal loans
• May offer lower interest rates or monthly payments on student loans while removing certain protections.
• Debt settlement may induce a taxable event.

BBB® tip:  

Never pay an upfront fee. Since 2010, businesses are required to accept payment only upon services rendered. But they can ask you to deposit monthly funds into a “third-party” account and encourage you to make payments on your existing debt. 

• Multiple debts of various types (credit card, lines of credit, personal loans, student loans, business debts, etc.) are combined into one single loan.
• With good enough credit, some consumers may be able to lower their overall interest rate, resulting in less money paid over time.
• 0% APR credit cards, which allow consumers to pause interest for a limited time, are another version of debt consolidation offered by credit card companies.
• Landing a good interest rate during consolidation typically requires good credit.

BBB® tip: 

Avoid adding to debt, as failing to pay off a consolidated loan before repayment term ends could lead to later issues. 

• Companies sort through a consumer’s credit report, looking for errors or
• If there are issues, they may contact the credit bureaus and ask for an adjustment.
• Credit repair companies can’t do anything to fix missed payments, which naturally come off credit reports after seven years.

BBB® tip:

Consumers can reach out to credit score companies themselves if they believe there is inaccurate information on their reports.

• Typically done by non-profits.
• Complete budget advisory sessions, long-term goal planning, create debt payment plans and attempt to look at financial problems holistically.
• Sometimes offer free services to those who can’t afford the fees.
• Offer debt management plans to select consumers, which can help reduce interest rates on loans.

BBB® tip: 

Some credit counseling services offer free or highly discounted services. BBB recommends consumers do their research before signing up.

Consumer complaints about debt and credit repair services have remained consistent with BBB over the last three years. Common complaint topics include high fees, unexpected charges and customer service issues. In some reports to BBB, consumers paid thousands of dollars for what they believe to be little gain. 

In many cases, debt relief companies review the consumer's defaulted debt and negotiate with willing creditors to lower the payment amount. Once agreed upon by all parties, the debt relief company will usually open escrow accounts and collect the total amount owed from the customer over a set time period. 

When the industry first started, companies were able to charge fees at any point in the process. A 2010 FTC rule on “advance fee” debt settlement has outlawed the practice. Now, businesses may only collect a fee when a settlement is reached, and the debtor has made at least one payment to the creditor. The rule does permit firms to require that consumers make monthly payments to an escrow-like account and encourage debtors to cease making further payments to creditors, often resulting in added late fees and charges to the consumer's accounts and a negative impact on their credit scores. In addition, monthly service charges are assessed against those accounts, diminishing the balance.

While this has helped protect consumers, many continue to report to BBB that stacking fees end up costing them hundreds or even thousands of dollars more than they expected.

The American Fair Credit Council, an industry group that represents debt settlement companies, compiles the “Regan Report”, which categorizes various aspects of the debt settlement industry. Many in the industry feared the FTC ruling in 2010 would stymie their businesses, but those concerns appear unfounded. According to the study, there were 1.6 million debt settlement customers in 2020 — a 2,750% increase since 2012 — with $45.2 billion in debt. 

Since 2011, nearly $11.8 billion in debt was settled by the industry with almost $4.5 billion paid in fees. The AFCC says that is about $4,700 in savings per customer. The Internal Revenue Service may consider these savings as taxable income.

The FTC lists several risks related to debt settlement. Debt holders might see their credit impacted as some creditors opt to start the debt collection process, which can include taking the case to court. In some cases, consumers could have their wages garnished or liens placed on their home.  If a consumer can’t make their monthly payments throughout the settlement process, they may drop out without settling all or any of their debts.

Of those who entered settlement plans, nearly half dropped out before finishing payment. Still, even those who leave a program often have paid off some of their debt.

Some customers told BBB their issues stemmed from the fee structures of debt settlement companies. Brittni in Westland, Michigan told BBB she hired a debt settlement company back in 2018 for relief from more $36,000 in debt her father held. They agreed to a contract which would see them pay a little more than $27,000 , and the company promised to help wipe out any remaining obligations, saving her father thousands of dollars.

Five years later, Brittni was a few hundred dollars away from paying the full $27,000. But when she looked at her balance, only $5,780 was to be paid to her creditors, and the rest to the debt settlement company.

“This is totally against my contract and downright fraud,” Brittni told BBB. 

In cases like Brittni’s, settlement companies appear to make promises to consumers about being able to negotiate with their debt holders only to have those creditors decline to participate. In some cases, creditors are not paid at all.

Experts in the debt resolution industry say most creditors are willing to negotiate with settlement companies, and most consumers end their relief programs with a positive outcome.

Steve Boms, who works with the American Fair Credit Council on legislative policy, told BBB that consumers have full control over their involvement in settlement programs, meaning they can pull their funds or stop payments at any time. "That is a right that they have, which we think is totally appropriate,” he said. 

_{One debt relief company sent a consumer this email, leading her to believe they had begun negotiations with her creditors. After several months, none of the debts had been adjusted or paid down by her monthly payment to the settlement company. Source: BBB customer complaint}

But the majority of those who come to debt resolution companies are facing significant financial hardship. Relief companies can leverage their relationships with creditors to get the best deal for customers. Boms said companies can also use their knowledge of individual creditors to begin negotiations at the ideal time.

And while there is no industrywide policy, Boms said debt resolution companies will steer customers more suited for credit counseling or bankruptcy toward those services.

Some customers seeking help in the U.S. turned to a group of businesses in the west. According to BBB data, Utah, Arizona and Nevada are the 5th, 7th and 11th most complained about states, respectively, despite their relatively small population size. 

Evan in Nottingham, Maryland told BBB he contacted a debt settlement company to deal with two credit cards that held $14,000 in debt. 

The sales reps were initially friendly and helpful, and they assured Evan that a debt settlement program would wipe out his obligations. Months later, he was dismayed to learn that neither account was settled and both had been closed. One creditor sent the account to collections, he said, and the other was in the process of suing him.

"Over the last few months, my credit has dropped 300 points,” Evan told BBB. “The sales rep, and later manager, knowingly took advantage of the fact that I was a college student with only a few years of financial knowledge."

James in Mount Laurel, New Jersey believed he was paying $40 each month for over a year toward a student loan settlement. After contacting his loan holders, nothing had been paid to the creditor. He told the BBB the experience was “disheartening.”

Many consumers originally seeking debt relief on a single loan told BBB they were convinced to consolidate other debts into the repayment amount as well. 

_{Source: BBB complaint data 2020-June 2023}

Dozens of consumers originally seeking debt relief told BBB they were convinced to add non-delinquent debts into their negotiation program. 

Raymond in Columbia, South Carolina told BBB he entered a debt settlement program with Burlington Financial Group after being told by the company to stop paying on his non-deliquent debts. They charged him $405 a month as a part of his plan. This program would fix his debt issues, they said.

Months later, Raymond received a letter from a civil court, informing him that he was being sued for over $9,000 because of unpaid debts.

In May, the CFPB announced it was distributing over $22 million to consumers harmed by the now-shuttered Burlington Financial Group after its investigation which found "the company failed to produce any evidence showing that it had invalidated, eliminated, or lowered any of its customers’ debts.”

Renauld Smith, executive director of the International Association of Professional Debt Arbitrators, told BBB in an interview that debts must have already gone unpaid in order to be settled, but no company should ever advise someone to stop paying to enter a settlement.

Consumers told BBB about similar issues with credit repair companies.  

Mohammed in Paterson, New Jersey contacted credit repair company 123 Credit Restoration in late 2022. A man named Joe at the company was allegedly offering to remove every negative mark on his report for $500. Months later, Mohammed realized nothing had changed. 

“We contacted (Joe) again and told him based on the credit reports with all 3 credit bureaus nothing has changed. He promised to send us evidence that some have been removed, but he never did,” Mohammed told BBB. 

123 Credit Restoration claimed in response that it removed the marks in question and granted a refund, but Mohammed pushed back, saying the negative marks remained on his report.

_{A form letter generated by a debt relief company to put a hold on a consumer’s bank account. Source: BBB consumer complaint} 

"If someone calls you and you aren’t sure who they are? Just hang up,” Grajales said. 

Throughout Canada, consumers have reported to BBB about their own issues with credit and debt assistance companies. 

Ralph in Grande Prairie, Alberta contacted Spring Financial in an attempt to boost his credit score and was told to pay $1,000 which would be returned to him at the end of the program. Months later, Ralph was surprised to see he owed the company $1,750 and would not receive any money back. 

“They put on my credit bureau a debt to Spring Financial of $1,750 which decreased my credit score from 645 to 601,” Ralph said. In response, the company claimed the two parties came to an agreement, but Ralph denied that and said the issue remained unsolved. 

Representatives from the National Foundation for Credit Counseling, which accredits non-profits meant to help consumers create financial plans, told BBB in an interview that most consumers would be best served by first plotting out their financial outlook with a credit counseling service.

Mike Croxson, the NFCC’s CEO, said immediate debt settlement is far too drastic. “Amputation isn't isnt necessarily the right answer for this scratch,” he said.

The organization urges consumers to consider their options when financially strained, rather than committing to hundreds or thousands of dollars in fees. Croxson said the cost of credit counseling is typically somewhere between $20-$40 a month, but nobody will be turned away due to an inability to pay.

The reality, however, is that real financial solutions can take years to fully enact. “It is not instant oatmeal,” Croxson said. "If you do this, you will build skills and discipline to drop off a (credit counseling) plan. You want to drop off as soon as you can."

Credit repair scams follow a similar pattern. Fraudsters reach out to consumers seeking to fix their subpar credit, making big claims about their abilities. They ask the consumer for payment to begin the process, but once paid, they either disappear or offer fraudulent services. 

“I was told that the negative items on my report would be disputed with the credit bureau, and in so doing, boost my score,” Nero in New York City told BBB. “Instead, after paying for the services and enrolling in a monthly subscription plan, I was offered stolen credit lines, essentially to be listed as an authorized user, and no other alternate service.” 

Nero confronted the person he had been talking to once he realized it was a scam. They blocked his number and stopped answering his calls. 

Betty in Kingston, Ontario told BBB she wanted to check her credit report and found a group online offering to pull it for her. Unaware that the U.S. and Canadian governments grant citizens the right to pull their reports for free, Betty gave her payment information to the scammer. For several weeks, they charged her card $20, ignoring her calls and requests to stop the payments. 

“I am currently off work on stress leave under doctor's orders, and do not have any income coming in at the moment,” Betty told BBB. “I keep calling and requesting it to be cancelled, and they just keep telling me that the back office will deal with it.”

BBB® tip:  

Student loan forgiveness scams are common. Any offer should be scrutinized thoroughly before sending money.

The FTC has taken action against debt and credit schemes with four different cases seeing significant updates in 2023. 

Michael and Valerie Rando, et al.

• The FTC called credit repair company The Credit Game “bogus”, accusing Michael and Valerie Rando of charging thousands of customers hundreds of dollars for fake credit repair services.
• The suit also alleges the duo encouraged people to use their COVID-19 benefits to pay for services and some of the company’s advice was illegal.

Stratics Networks

• Stratics Networks made millions of robocalls about debt services, according to the FTC’s suit against the company.
• The suit alleged the company used a “ringless voicemail” system to deliver messages to the inboxes of consumers without ever causing their phone to ring.
• Many of these messages allegedly violate the Telemarketing Sales Rule and Do Not Call Registry.
• This case is a collaboration between the FTC and the Department of Justice, which filed the suit on behalf of the FTC.

ACRO Services 

• The FTC and the three operators of a debt relief scam known as ACRO Services (among other names) entered into settlement agreements earlier this year that permanently ban the operators from participating in telemarketing and selling debt relief products or services.
• The lawsuit claimed Sean Austin, John Steven Huffman, John Preston Thompson, and their companies charged customers tens of millions of dollars by falsely promising to eliminate or substantially reduce their credit card debt.
• American Consumer Rights Organization, Consumer Protection Resources, LLC, Reliance Solutions, LLC, Thacker & Associates Int’l LLC, and Tri Star Consumer Group (also d/b/a Music City Ventures, Inc.) were all named as companies in the suit.
• “These defendants preyed on older Americans already struggling with credit card debt and caused them to fall into even worse debt, with lasting harm to their credit,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We will continue going after companies that take advantage of people in financial distress.”

SL Finance and BCO Consulting 

• In response to a FTC complaint, a judge temporarily halted two related student loan debt relief schemes which allegedly used deceptive claims and promoted fake forgiveness programs to bring in approximately $12 million.
• The FTC's complaint alleged the companies claimed to be with the Department of Education and collected illegal payments, which they said would go toward student loan debts but instead went to the businesses themselves.
• Michael Castillo, Christian Castillo, Gianni Olilang, Brandon Clores, Kishan Bhakta, and Allan Radam were named in the complaints targeting student borrowers, many of whom were low income.

A group of federal laws related to debt relief and credit repair provide some protections for consumers. Taken together, the   laws help consumers access information and prevent abusive, high-pressure practices. 

• Fair Credit Reporting Act - Allows free access to credit reports and requires there be no charge for disputing erroneous, inaccurate or incomplete information.
• Telemarketing Sales Rule - Requires disclosure of certain business terms, prohibits misrepresentations and makes unwanted calls illegal.
• Fair Debt Collection Practices Act - Largely applies to collections but applies to companies that traffic in multiple types of debt-related work.
• Credit Repair Organizations Act - Prohibits advance fees before services are completed. 

Some states have protections of their own. Several require debt negotiation licenses. Connecticut, Delaware, Minnesota, Nevada, Rhode Island, Tennessee. New York recently introduced a bill requiring licensure for debt settlement companies. Many states require licenses for debt collection. 

Recommendations to regulators 

• Ensure clear and upfront disclosures of what fees are being charged, as consumers continue to be confused by their debt settlement agreements.
• Continue to monitor advance fee or advance fee-like payment structures, as many companies appear to be charging customers before they are eligible to do so.

• Follow laws and regulations and only charge customers after a service is completely rendered.
• Be upfront with customers about what services are provided and the timeline in which they can expect them to be completed.
• Stop recurring monthly payments when services aren’t being rendered.
• Encourage a licensing system to ensure those working with consumers are knowledgeable about best practices.
• Don’t encourage consumers to default on their debts in order to make them available for settlement.
• Follow BBB guidelines for businesses looking to collect on unpaid debts.

• Know your rights when it comes to debt collection.
• Don’t pay or provide payment information until service is rendered.
• If you are in default, call debt holders yourself and attempt to negotiate a lower debt payment.
• Be wary of anyone claiming to be associated with a government agency.

• Use the FTC’s website to find out how to run a free credit report.
• Check monthly bank statements to avoid recurring charges from companies.

• Follow BBB tips for budgeting and debt management.
• Critically examine any guarantee made. Few, if any, companies can ensure a credit or debt company will agree to negotiate with them or adjust reports.
• Search online for free information on trusted government and nonprofit sites like FTC, CFPB and BBB. Check to see if a business is BBB Accredited.
• Don’t be rushed. Unscrupulous businesses and scammers both use high-pressure tactics.
• Avoid giving away personal banking information until you are 100% certain a company is legitimate.
• Refuse to work with companies that won’t tell you your rights when it comes to debt relief or credit repair.

Consumers dealing with debt should be aware of their options. While some may decide to do business with a debt assistance or credit repair company, there is a wealth of information online for savvy citizens to deal with their debt and credit issues without paying for a service. For those who do hire help, research a company thoroughly, check their BBB profile and be aware of your rights about when and how you can be charged for services. 

• Better Business Bureau or BBB Scam Tracker
• Federal Trade Commission (FTC) or call 877-FTC-Help
• Consumer Financial Protection Bureau or call (855) 411-2372
• Canadian Anti-Fraud Centre - or 1-888-495-8501
• Find your state's Attorney General online