National Debt Relief a Fraud?

Once a month I help out one of our clients with her personal finance issues, such as checking her credit card balances and calculating her residual income from her deceased ex-husband’s films. Unfortunately, she has always had others take care of her bills and finances and is purposefully clueless about finance charges and credit card debt. Hence, whenever credit card offers come in the mail, she has me look over them. The majority of the offers I shred immediately; there’s no reason to own more than 20 credit cards!

However, the other day while going through her offers, I came across a suspicious looking check from the National Debt Relief Stimulus Plan. “Hmmmm,” I thought. The return address was directly from Washington D.C., but knowing her finances fairly well, it seemed too good to be true; pay one-third of the debt she owed by cashing their $28,000 check. It just smelled fishy, so I did some quick and dirty research online and found that most people were wondering the same thing. It turns out that it is not a program from the government as the title would have one believe. Instead, it is a debt consolidation company using the terms “relief and stimulus” in their name for some persuasive and deceptive marketing.

Luckily for this woman, I caught the scam and shredded it right away. But what about a more desperate person who thinks this is their answer to becoming debt-free? What would happen then?

According to my research, if someone actually cashed one of these checks unknowingly, they’d be signing up for a debt consolidation program. The debt consolidation company would begin negotiating with their client’s financial institutions for a settlement amount. Obviously, someone who is already delinquent with their payments may not care as much about how a debt settlement would affect their credit score. However, a person who has been able to keep up with their debt payments, but is becoming frustrated by not seeing a reduction in their total amount due would then be subjected to a negative account or accounts on their credit report.

Is this helpful for a person deep in debt? Personally, I think it depends on the individual. If they are making a decent and conscious effort to change their spending ways and begin living debt-free, then it could be beneficial; getting their debt down to zero in a shorter period of time and paying less for it. On the other hand, many people enrolled in these programs never complete them. They end up missing a payment, then all of their accounts plus their consolidation account go into collections. This behavior is usually the reason they ended up so far behind to begin with. I know someone who recently entered one of these programs because they were “desperate” and they are already missing payments only a few months into the program.

Is this National Debt Relief Stimulus Plan company deceptively marketing to desperate people? In my opinion, yes. Personally, I think this is wrong. If I were the CEO of this company, I would feel ashamed to be posing as a government program. Instead they need to offer a free finance seminar on how people can negotiate with their creditors themselves, then explain how their services really work.

Have you encountered these checks or know someone who did? Does this seem like a legitimate way to market a debt consolidation company? Is it ethical?