Blumenthal: Beware of debt-reduction companies

January 7, 2009; As originally appeared in The Connecticut Post

HARTFORD -- Attorney General Richard Blumenthal, key lawmakers and statewide housing advocates want to put predatory debt-reduction companies out of business.

Blumenthal and legislators including Sen. Bob Duff, D-Norwalk, co-chairman of the Banks Committee, said Tuesday they will eliminate a loophole that allows so-called debt reducers to take away the homes of unwary, vulnerable property owners.

Blumenthal said that hundreds of Connecticut homeowners may have fallen victim to the legal scams, in which debt-reduction companies persuade uninformed, financially strapped people to relinquish their homes and become rent-paying tenants.

"These financial bottom feeders are selling snake oil of the most dangerous kind to consumers who are in financial trouble," Blumenthal said. "This kind of organization has no place in our economic scene and should be banned: Under legislation that Blumenthal will propose and that Duff plans to support in his committee, debt reducers would, at the least, be forced into working as nonprofit organizations.

Upfront fees would also be prohibited and consumers would be given a three-day moratorium to nullify contracts, under the proposal.

"We're here on one of most pernicious and Advertisement prevalent problems financially in our state and country today," Blumenthal said in a noontime news conference in his office. "As economic woes worsen, financial bottom feeders become more prevalent and pernicious." The scams include promises to reduce mortgages, eliminate bad-credit histories and stop foreclosures.

"In fact, they take advance fees that doom consumers to even deeper debt and we've seen the very real and horrific consequences of the mortgage rescuers and debt reducers who prey on families and consumers when they are most vulnerable," he said.

"Avoid any organization that makes a profit by offering these services and reqUires any upfront or advance fee, because that road is destined to doom for anybody in financial distress," Blumenthal said.

Duff, who last year successfully sponsored legislation that helps property owners, without cost, through the Connecticut Housing Finance Authority and the state Department of Banking, said people should use the free services, including foreclosure mediation and refinancing programs.

"Frankly I've had constituents who are engaging with debt adjusters and I tell them, at the moment we have state services already," Duff said. "We want people to use those services before they go out and pay for other types of services." He called Blumenthal's proposal "a very important piece of legislation" at a time when Connecticut is in the top 10 states for rates of foreclosure.

"When you have an economic crisis or some kind of slowdown that's when everybody else comes out to take advantage of those who need it," Duff said.

Erin Kemple, executive director of the Connecticut Fair Housing Center, said that since last April, the state has reported about 1,000 foreclosures each month.

"The number of people who are desperate to keep their homes grows every single month," Kemple said. "We have gotten complaints from people who have been victimized by these agencies."

Rep. Kenneth P. Green, D-Hartford, co-chairman of the Legislature's Select Committee on Housing, said that debt reducers often prey on distressed urban neighborhoods, stapling signs on utility poles offering help with taxes, credit cards and mortgages.The schemes include skimming equity off homes from property owners.

"They promise you a lower payment and you can remain in your home," Green said. "They fait to tell you a number of certain things and that's why the language has to be specific and clear to consumers. We have to regulate them and be aware of them."

Blumenthal, whose office is investigating companies based in Connecticut and around the nation, said he spoke with U.S. Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, who agreed that the issue is a national problem.

"Right now the federal government has been asleep at the switch," Blumenthal said.

Nonprofit credit counseling services are listed at www.debtadvice.org. Consumers can also call 211 for a list of federally approved housing counselors or go to www.ctfairhousing.org.