Deceptive Practices in the Debt Settlement Industry and How Your Mortgage Business Can Avoid Them

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December 12, 2017 | By RGR Marketing Blog

How to Protect Your Mortgage Business and Your Customers

Debt settlement scams and their attendant scandals have been a part of the debt settlement industry as long as there has been such an industry. In fact, deceptive practices were so widespread and egregious in the industry at one point, that the Federal Trade Commission had to step in and issue new rules and guidelines to keep aggressive debt settlement companies from telemarketing their ways into the pockets and piggybanks of consumers.

In the mortgage business, debt settlement can be a powerful tool to help some consumers realize their dream of home ownership. But, debt settlement is powerful medicine, and for many prospective homeowners, it can pack an unpalatable taste.

Debt settlement can stick around on a consumer’s credit report for years, affecting their credit rating and making the chore of finding them a loan at decent terms next to impossible. Here’s what you can do about it.

Hidden Fees and Long Term Consequences

This situation can often be exacerbated by the lack of understanding those who have already been through debt settlement have about the process and its ramifications. This lack of understanding, in many cases, is directly a result of the deceptive practices of debt settlement companies.

Here’s what to watch out for before you make referrals, and what you may need to educate your customers on if they’ve already been through the process.

False Credit Repair Claims

Many debt settlement companies have run afoul of consumers (and the FTC) for making specious claims about their ability to repair credit or wipe a consumer’s credit report clean. What debt settlement can do for consumers is negotiate a lower payoff amount for existing debts.

This service does remain on a consumer’s credit report for several years, however, making the securing of a loan on good terms far more difficult.

Misleading Information About the Impact of Debt Settlement

Contrary to what some debt settlement companies will tell your customers, debt settlement will not take all of their credit problems away. It will not give them a “clean slate.” And it will not, in many cases, be any less expensive than paying their debts off (with interest) over the long haul.

What it may do for them is give them immediate relief from making full minimum payments on their debts by either negotiating a lower settlement payoff amount, or through debt consolidation under a loan at (often) a higher interest rate. Also, the debt settlement companies charge for these services.

Know Who and What You’re Dealing With

If you’re planning to refer potential customers whose credit could use a facelift to a debt settlement or credit counseling service, first make sure that you know who and what you’re dealing with.

Many city, county, and state governments offer free or low cost consumer credit counseling and there are government sponsored groups that offer debt consolidation, without many of the erroneous or specious claims that debt settlement companies often make.

Remember, the customer who you steer in the right direction is more likely to be able to make genuine repairs to their credit and return to purchase a mortgage with you.

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How to Protect Your Mortgage Business and Your Customers

Hidden Fees and Long Term Consequences

False Credit Repair Claims

Misleading Information About the Impact of Debt Settlement

Know Who and What You’re Dealing With

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