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Alaska Joins Crackdown on Debt Settlement Firms

By Faye Mergel
Published: Sunday, November 15th, 2009

The attorney general for Alaska is joining other states in an effort to crack down on debt settlement companies that offer dubious services to consumers who are struggling with their payment. Such firms promise that they can negotiate with lenders without leaving negative items on a credit report.

Alaska Joins Crackdown on Debt Settlement FirmsAfter an increase in complaints, forty states sent out a letter to the Federal Trade Commission seeking for amendments that would provide better protection to consumers against debt negotiators. Advocates say consumers who do not want to tarnish their credit report but are no longer able to meet their obligations with creditors become easy victims. They add that those firms cash in on other people’s problems, taking full advantage of the consumers’ misery.

Cindy Drinkwater, Alaska’s assistant attorney general, says regulators all over the United States are doing their best to prohibit conducts requiring upfront or advanced fees from consumers who are already struggling with their finances. She continued that Alaska’s Attorney General, along with counterparts from other states, is pushing to change rules for debt settlement companies.

The changes are aimed at regulating television, Internet, and radio ads which debt settlement firms use to lure consumers who are not fully aware of the consequences a debt negotiation has on their credit report. The campaign also targets to limit the phone calls made by the firms, which is seen by consumer advocates as a very aggressive strategy to acquire clients.

Experts say the changes will prohibit companies from presenting their services deceptively through any advertising medium. They note that among those deceptive practices include promising consumers that collection calls will stop where in most cases, creditors are not aware that a borrower is currently in negotiation and continue to demand full payment. Since they do not know that a consumer is undergoing negotiation, lenders keep on reporting delinquencies to the credit bureaus, which severely damages a consumer’s name.

Specialists say consumers who can no longer afford to meet their payments need not to burden themselves more by paying for expensive services from debt negotiators. They encourage borrowers to do the negotiation themselves, adding that it only takes proper organization of finances and enough confidence to face creditors. They explain that creditors want to be paid in full and are more considerate to consumers during these tough financial times so they are most likely to consider negotiations.

Experts note that people who personally did the negotiations reported feeling better about themselves and were able to come up with more successful deals from lenders. More importantly, negotiations that are done by borrowers themselves show up better on a credit report.

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