How to Check Out a Business to Avoid Getting Ripped Off

5. Ask the Company to Put Their Performance Claims in Writing.

If a representative is willing to tell you they have a great success rate for the services they are selling, then they should not hesitate to share that data with you. In fact, the Federal Trade Commission has some very clear guidance about how a company should do that:

“State the savings based on the customer’s debt when he or she signs up for the program. You may not inflate savings figures or percentages by including interest and fees the credit card company adds after a customer signs up for your program.

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“May [a company] base advertising claims on the experiences of some previous customers? Yes, but your sample must be representative of the entire relevant population of your past customers. To accomplish this you must, among other things, use appropriate sampling techniques, proper statistical analysis, and safeguards for reducing bias and random error. You can’t cherry-pick the most successful examples to inflate your results.If you advertise or represent that your customers will save a certain amount of money or reduce their debt by a certain percentage—for example, “We can settle your debts for 40% to 60%”—your statements must be truthful, and you must have objective proof to back them up. Your claims must accurately reflect the results you’ve achieved for previous customers. It’s important to consider the message your claims convey. Under the law, the FTC looks at claims from the point of view of reasonable consumers. Therefore, what matters isn’t the literal accuracy of the words you use, but rather your proof to support the “net impression” your message conveys. For example, claiming that your past customers have achieved “up to 60% savings” is likely to convey to new customers that they, too, will get savings of around 60%. If you don’t have solid proof to back that up, the claim is deceptive.Here are several important requirements for making sure your savings claims are truthful and not deceptive:

Example 8: Andy signs up with a debt relief service offered by Company H, owing $10,000 on his credit card. One year later, following negotiations with the credit card company, Company H negotiates a settlement allowing Andy to pay $6,000 to resolve the debt. However, since Andy enrolled, the credit card company has charged him interest and late fees totaling $2,000, so that Andy now owes $12,000. By getting a settlement for $6,000, Company H has saved Andy $4,000 ($10,000 minus $6,000) or 40% of the debt at the time of enrollment. It would be deceptive for Company H to claim to have saved Andy $6,000 ($12,000 minus $6,000) or 50% of his debt.

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“Include the impact of … fees on the claimed savings. You may not inflate your savings claims by excluding the fees your customers paid you.

Example 9: Betty owes $10,000 on her credit card, and signs up with Company J’s debt relief service. Company J gets a settlement allowing Betty to pay $5,000 to resolve the debt. However, at the time of settlement, Company J charges Betty a $1,000 fee for its work. It would be deceptive for Company J to claim to have saved Betty $5,000 – or 50% of her debt – because Betty also had to pay $1,000 in fees. Instead, Company J may truthfully state Betty’s savings as $4,000 ($5,000 minus $1,000) or 40% of Betty’s debt.

“In calculating the results … achieved over time, [a business] must include customers who dropped out or otherwise failed to complete the program. Don’t base your savings claims only on customers who successfully completed your program.

Example 10: Company K had 10 customers signed up for its service. Each one had $10,000 in unpaid credit card debt for a total of $100,000. Five of the customers completed the program, and each saved $5,000 – for a total savings of $25,000. The remaining five customers dropped out of the program, each one still owing the $10,000 they owed when they signed up with the program. Taken together, Company K has saved its customers $25,000 – or 25% – of the total $100,000 debt they had when they signed up with the program. It would be deceptive for Company K to exclude the drop-outs and claim that it saved its customers 50% of their debt.

“Include all debts enrolled by your customers, not only those that have been settled successfully. In calculating your savings claim, you may not exclude accounts you failed to settle, even if the failure was due to customers dropping out of your service.

Example 11: Company L has 10 customers, and each of them enrolls two $1,000 debts in the program – totaling 20 debts or $20,000. Company L is able to settle 10 of the 20 debts, each for $500. However, it was unable to settle the remaining 10 debts before those customers either completed or dropped out of the program. Thus, Company L has saved its 10 customers $5,000 or 25% of their debts in the program. It would be deceptive for Company L to exclude the 10 accounts that weren’t settled and claim a savings rate of 50%.”

While the FTC examples apply specifically to debt settlement companies, the examples can also be used as guidance for other debt help. For example, the success rate of a mortgage modification or credit counseling program.

Nearly all credit counseling programs will not put their performance numbers or success rates in writing. That should certainly make you wonder why.

Here is a good example of a credit counseling group that does put their performance measurements in writing and you can use that to evaluate what you should expect from other credit counseling groups.

For example, if a company is trying to sell you mortgage modification help for thousands of dollars, certainly they should be willing to provide you with documentation to show how successful they have been. And even supply performance data with your specific large lender should be on file. If they are unwilling or unable to provide you with such data, that should make you hesitant.

Remember, their data must show the performance of all clients enrolled, not just successful clients.

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6. Check With the Attorney General’s Office.

You can find the current Attorney Generals listed here. The links to their websites will be there as well. You can contact the Attorney General office in your state and their state to inquire if there are any complaints on file. The Attorney General office may also be able to help you determine if the company should be licensed to provide the services they are selling you and check if the company is licensed.

Check with the BBB (cont.) »

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