On the Backs of the Vulnerable: Debt Relief

I read this in the New York Times this morning. Then I saw Funny's post on the same concept, so this is a sister post.

Sometimes I think I must be crazy because I never see anything on this topic: trickle up economics. The Times article is about companies that offer to help you out of your credit card debt. In spite of being on a no-call list, I get an occasional robocall, with a concerned voice saying something about how many people are in debt blablabla.

This is how they work:

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

“What they don’t tell their customers is when you stop sending the money, creditors get angry,” said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. “Collection agents call. Sometimes they sue. People think they’re settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit.”

In the case of two debt settlement companies sued last year by New York State, the attorney general alleged that no more than 1 percent of customers gained the services promised by marketers. A Colorado investigation came to a similar conclusion.



And look who is in the biz:
Cody Krebs, a senior account executive from Southern California, manned a booth for LowerMyBills.com, whose Internet ads link customers to debt settlement companies. Like many who have entered the industry, he previously sold subprime mortgages. When that business collapsed, he found refuge selling new products to the same set of customers — people with poor credit.

“It’s been tremendous,” he said. “Business has tripled in the ” last year and a half.

And look how they sell it:
“We negotiate the past while you navigate the future,” read a caption on its Web site, next to a photo of a young woman nose-kissing an adorable boy. “The American Dream. It was never about bailouts or foreclosures. It was always about American values like hard work, ingenuity and looking out for your neighbor.”

So the money trickled up from the poor to the real estate agents, builders, etc and waaaay up to Goldman Sachs et al, all for the American Dream of an ownership society.

Now the money is moving up through these debt relief businesses.

And it continues to move up from the student loan borrowers...

I think I'm going to return to my rice cooker.