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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 all adds up to a mountain of cash owed, and the total continues to rise post-pandemic. When they fall behind on their payments, some consumers stumble into expensive debt relief and credit repair options that leave them worse off than when they started, according to a new study by the Better Business Bureau (BBB)®.
The BBB study - Credit and Debt Assistance: Some debt relief and credit repair companies fail to deliver on big promises – compiles customer complaints, negative reviews and BBB Scam Tracker reports to show how some companies rely on consumers’ confusion and urgency around unpaid debts to extract thousands of dollars in fees for services most can do themselves.
Some credit and debt assistance companies treat consumers ethically, resulting in positive experiences for buyers and owners. By calling out and denouncing substandard marketplace behaviors of businesses and scammers, this study intends to make consumers smarter and businesses better.
Since the beginning of 2020 until mid-2023, BBB has received over 11,000 complaints and almost 900 negative reviews related to credit and debt assistance companies. Many described the optimism they felt when initially contacting these companies, hoping they would help the consumer dig themselves out of debt or revive ailing credit scores marred by prior missed payments. Instead, many consumers found themselves deeper in a financial hole.
In Washington state, one woman told BBB she was promised a large increase in her credit score for an upfront $1,500 fee. She paid, only to find that months later, there was no improvement, and the company had accidentally revealed her social security number to an outside party.
“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,” a Washington woman told BBB about her experience with a debt relief company.
BBB’s study also shows that many services offered by companies – debt negotiation, the creation of payment plans, and disputing inaccurate credit report information – can be done by consumers themselves by calling their creditors or writing letters to credit bureaus. Still, many find the process onerous and confusing, making the quick fixes promised by less-than-scrupulous businesses attractive.
Another consumer told BBB she paid $27,000 toward a debt relief program meant to wipe out $36,000 in debt. After three years of payments, she believed the program was completed. However, only $5,780 went to her creditors, and the rest was paid in fees to her debt settlement company.
Scammers haven’t missed an opportunity, wriggling into their victim’s financially fraught situations to leverage their hope for a better future. As in BBB’s previous studies on the vacation industry and payday loans, fraudsters prey on vulnerable consumers already wrapped up in difficult money situations. According to a BBB calculation, more than half of those who reported a credit or debt assistance scam to BBB Scam Tracker lost money.
A California woman told BBB she paid $1,800 over six months to a scammer pretending to be a part of a student loan forgiveness plan. “That was when I started looking deeper into the company and realized I have been taken advantage of.”
Over 1,600 BBB Scam Tracker reports show the problem extends far beyond fake student loan forgiveness programs to include other types of debt relief as well as credit repair schemes.
BBB urges debt relief and credit repair companies to create nationwide standards for their programs. BBB also recommends the Federal Trade Commission and Consumer Financial Protection Bureau continue their focus on businesses offering few services for the prices they charge, as the two have won or settled several large-scale cases in the last few years.
Tips for resolving debt or credit problems:
- Know your rights when it comes to debt collection: There are laws and regulations that regulate how companies can collect debt and how they can contact you.
- Don’t pay or provide payment information until service is rendered by debt relief and credit repair companies. A 2010 FTC rule prohibits charging upfront fees.
- Don’t fall for promises of quick fixes: 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.
- See if you can help yourself: If you are in default, call debt holders yourself and attempt to negotiate a lower debt payment.
- Be vigilant: Check monthly bank statements to avoid recurring charges from companies.
How to report:
If you suspect you are the subject of fraud or dishonest business practices, report your case to:
- To register a complaint or post a review with Better Business Bureau (BBB) - BBB.org
- To file a scam report with BBB - BBB.org/ScamTracker
- Federal Trade Commission (FTC) - ReportFraud.ftc.gov
- Canadian Anti-Fraud Centre (CAFC) - Online or by phone at 1-888-495-8501
- Check your state Attorney General’s website to see if you can file online