TODAY

TODAY   |  July 07, 2010

Do debt settlement companies save you money?

Popular companies that claim to help settle Americans’ debt have seen a boom in business during the financial meltdown, but are they all they claim to be? NBC’s Lisa Myers investigates.

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MEREDITH VIEIRA, co-host: Back at 7:43. This morning on TODAY INVESTIGATES , a cautionary tale on popular debt settlement companies that have seen a boom in business during the financial meltdown. NBC 's senior investigative correspondent Lisa Myers has details. Lisa , good morning.

LISA MYERS reporting: Good morning, Meredith . Debt settlement companies promise to negotiate with your creditors to get them to settle for a fraction of what you actually owe, typically 40 to 60 cents on the dollar. But do they really deliver? We took a look at one such company and at the experience of some of its clients.

MYERS: The commercials seem to be everywhere.

MYERS: Debt settlement companies claiming they can get your creditors to settle your debts for less than you owe.

Ms. HELEN BLASS WILSON: Kayla , no texting.

MYERS: Helen Blass Wilson and her husband, Jim , were struggling with tens of thousands of dollars in credit card debt after paying his father's medical bills. With three children, they simply could no longer make the financial pieces fit.

Ms. WILSON: No matter what we did, nothing was working.

MYERS: She went on the Internet and found Credit Solutions .

MYERS: That company , based in Dallas , claimed it could settle your debts for half what you owe and leave you debt free within three years. Helen signed up. She says the company told them to stop paying credit card bills, ignore warning notices, not to talk to creditors at all.

Ms. WILSON: They said don't pay anything. We're going to take care of everything for you. And I trusted them.

MYERS: Then came harassing calls and e-mails from creditors. She says she repeatedly called Credit Solutions for help.

Ms. WILSON: And I would tell them, we need help. We -- I'm scared. I don't know what to do. And they said, we understand, we understand. Don't worry about it. We'll deal with them.

MYERS: But after a year with Credit Solutions , the Wilsons say their debt situation was worse. Their total debt higher because of late fees and penalties. One of their creditors sued them; others threatened to. Their credit rating was ruined. And they'd paid Credit Solutions up front fees of $6,000.

Mr. JIM WILSON: Which is money that we could have used to spend...

Ms. WILSON: Mm-hmm.

Mr. WILSON: ...to -- on our credit card bills.

MYERS: Credit Solutions says it generated 11 settlement offers for the Wilsons . The Wilsons acknowledged the company did get them some settlement offers , but say they couldn't afford most of them, not on top of Credit Solutions ' fees. Credit Solutions claims 99.5 percent customer satisfaction . But the Better Business Bureau of Dallas told us it's received more than 1600 complaints in the last three years and gives the company a grade of F.

Mr. CHRIS BURGESS (Better Business Bureau of Metropolitan Dallas, Inc.): We've seen so many complaints that you have to wonder what is Credit Solutions actually doing.

MYERS: The company disputes its F grade and says that most BBB complaints have been resolved. Credit Solutions denies telling the Wilsons to stop paying their credit card bills, but other former customers told us the same story. So we decided to call the company ourselves. Legally, we can only play our side of the conversation. I said I was thinking of signing up. If I do, what do I do about my next credit card bill? Do I go ahead and make that payment? Answer: "No, no, you don't. You stop right away." So I stop making all credit card payments? Answer: "Exactly, exactly." An undercover investigator for the Government Accountability Office recently called Credit Solutions and heard this...

Unidentified Man: One hundred percent of the clients who have been successful have stopped paying their bills.

MYERS: Credit Solutions is just one of about 250 debt settlement companies now handling more than $11 billion of credit card balances and taking 5 to 20 percent in fees, whether or not the debts are reduced. The industry as a whole is coming under increasing attack.

Mr. WILLIAM BINZEL (National Foundation For Credit Counseling): The business practices that are prevalent within the debt settlement industry are abusive, deceptive and unfair to most consumers.

MYERS: A debt settlement industry trade association blames a few bad apples.

Mr. DAN GOLDBERG (The Association of Settlement Companies): There have been a couple bad actors that unfortunately have been allowed to taint the entire industry . That's unfortunate. The vast majority of debt settlement companies provide very valuable services to consumers.

MYERS: The attorneys general of three states, Texas , New York and Missouri , have all charged Credit Solutions with deceptive practices and false advertising. Credit Solutions says it can't comment directly on those charges but says the claims are unfounded. The Texas AG reported the company 's own data shows that over 80 percent of the debts enrolled in its program don't get settled. Credit Solutions says that number is grossly inaccurate. Former employees of the company , which is now headquartered in this building in Dallas , tell NBC News that though it's a legitimate company that does settle some debts, its business model depends on misleading customers. They say the company is designed to profit from the desperation of customers rather than to help them. These two former employees asked that their identities be disguised. They're suing Credit Solutions for unpaid overtime but say the main reason they quit was because the company was taking advantage of customers. Did you ever see anything that you thought was deceptive or misleading?

Unidentified Woman #1: Every day, all day. I was told, stick to the script. It's designed to confuse the consumer. As long as you do that, you'll make sales.

MYERS: What did you eventually come to believe that the company was really doing?

Unidentified Woman #2: Their top priority is to help themselves. Helping people get out of debt is secondary.

MYERS: Credit Solutions declined our request to visit and interview CEO Doug Van Arsdale . Instead the company provided its own video and statement.

Mr. HEATHER CARMICHAEL (Credit Solutions): The almost $1 billion we have settled for our consumers to date and the real settlement letters and video testimonials on our Web site shows that we produce life-changing results for our consumers.

MYERS: In one testimonial on the company Web site , a woman named Rose says she gave Credit Solutions a try after seeing a positive report right here on the TODAY show .

Unidentified Woman #3: So I watched that piece on the TODAY show and I sat down and listened.

MYERS: One problem -- we could find no record of the TODAY show airing a report recommending Credit Solutions . We asked the company months ago to put us in touch with a few satisfied customers. Besides Rose , they did not. The Federal Trade Commission is moving to crack down on debt settlement companies and to ban up front fees such as those charged the Wilsons . After the Wilsons ' complained, Credit Solutions returned $ 1200 but kept $4800 of the fees they paid. Unfortunately, the Wilsons have now filed for bankruptcy.