ATTORNEY GENERAL’S OFFICE SETTLES WITH CREDIT COUNSELING AGENCY

Attorney General J. Joseph Curran, Jr. announced today that his Consumer Protection Division has entered into a settlement with Debtscape, Inc., formerly known as Neway, Inc. and Accucredit, Inc., 1304 Concourse Drive, Linthicum, MD 21090. Debtscape is a credit counseling agency that sold debt management plans to consumers.

In Maryland, only a non-profit corporation can offer and sell debt management services. Debt management services are provided when a credit counseling agency receives monthly payments from consumers for the purpose of distributing the funds to consumers’ creditors at a lower monthly rate negotiated by the credit counseling agency. Prior to October 1, 2003, a credit counseling agency could not charge fees for its services (the Maryland Debt Management Services Act became law in October 2003 and allows credit counseling agencies to charge capped fees for debt management services).

The Division alleged that Debtscape improperly charged fees for its services prior to October 1, 2003, and did not act as a non-profit because, rather than operating for a charitable or educational purpose, it operated primarily for the benefit of its former president, William Sargent, and Debtworks, Inc. and Ballenger Group, two for-profit processors to whom Debtscape referred all of its clients. The Division further alleged that Debtscape provided little or no credit counseling to the consumers who paid its fees and, instead, enrolled virtually all consumers into debt management plans that generated high fees for Ballenger, Debtworks and Debtscape’s former management, regardless of whether such plans would benefit the consumers.

The Division also alleged that Debtscape made numerous other misrepresentations, including misrepresenting that the purpose of its fees were to support its operating costs when, in fact, the fees it charged were to benefit Sargent, Ballenger and Debtworks; that it had direct relationships with creditors when, in fact, it had no relationship with creditors; and that enrolling in debt management plans would benefit consumers when, in fact, enrolling in a debt management plan could harm some consumers’ credit and did not benefit many of Debtscape’s customers. Debtscape has denied that it committed any of the alleged violations.

Under the settlement the Division reached with Debtscape, the company has agreed to return the fees it charged Maryland consumers prior to October 1, 2003, the total of which the Division estimates will exceed $500,000. Debtscape also agreed to pay the Division $20,000 in costs and a $50,000 penalty, which increases to $200,000 if Debtscape breaches the settlement. Debtscape also agreed not to misrepresent its services, to provide substantial counseling services to consumers and not to enter into any financial arrangements that will improperly benefit its officers or others.

"Consumers who are struggling with debt need to receive meaningful counseling services and not be sold other services that will not help them,” Curran said. For consumers who are seeking credit counseling or are considering signing up for a debt management plan, the Attorney General offered the following advice:

• Check for license. Companies that offer debt management services must be licensed with the Maryland Department of Financial Regulation. If you want to check if a company is licensed, you may call the Department of Financial Regulation at (410) 230-6100.
• Watch out for excessive fees. Maryland law limits the amounts a credit counseling agency may charge for debt management plan services to a one-time consultation fee not to exceed $50 and a monthly service fee of $8.00 for each creditor included in the debt management plan, but not to exceed $40.
• Check out the reputation of the company. Call the Maryland Attorney General’s Office at (888) 743-0023 and the Better Business Bureau to find out if consumers have filed complaints against the company. Try calling the credit counseling agency before enrolling to see whether it will be difficult to reach a credit counselor.
• Find out if your creditors will deal with the company. Not all creditors will agree to work with a credit counseling agency, particularly secured creditors and those whose debts are not dischargeable in bankruptcy (e.g., home mortgages, car loans, student loans).
• Determine if the debt management plan is right for you. Make sure your counselor goes over your income and debts thoroughly to determine if you can afford the monthly payments and it is the right choice for you.
• Read your plan agreement carefully before signing. Make sure there are no hidden fees and that you understand all of its terms.
• Follow up with your creditors and make sure they are being paid. Being in a debt management plan does not relieve you of the responsibility to make sure your creditors are being paid on time. Many consumers complain that they made their monthly payments to their credit counseling agency on time, but the agency is making late payments to consumers’ creditors. Ask the credit counseling agency if it will provide you with a monthly report showing payments to your creditors, and follow up with your creditors to make sure they have received payments.
• Know that participation in a debt management plan may be reflected in your credit file, and it will not erase your prior credit problems. Ultimately, paying off your debts may result in improving your credit history. However, your creditors may make a negative comment on your credit record if you participate in a debt management plan, which may make it more difficult to get credit while you are enrolled in a debt management plan. Be wary of any credit counseling agency that promises to remove negative information from your credit record that is accurate.

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