Sometimes, as two North Philly consumers discovered, paying what you owe isn't nearly enough.
Brian Yard grew up in Towanda, a small blue-collar town in northern Pennsylvania, where, he says, people are scrupulous by nature and pay their debts as a general principle. Yard, 61, says he never imagined that this ingrained morality would be put to the test.
Early in 2008, Yard was suffocating in credit-card debt. His credit rating, once in good standing, had steadily plummeted. For Yard, filing for bankruptcy suddenly looked like a feasible option. But then a barrage of debt-settlement solicitors started calling him every day, voices with hollow promises of eliminating his mounting debt in less than three years. Yard says he had never heard of debt settlement before, so he ignored the calls.
Desperate to escape his financial woes, Yard finally picked up the phone one day in October 2008 and listened. Using powers of persuasion, a solicitor from Guardian Referral Network, a company “dedicated to helping individuals and families rid their lives of burdensome debt,” convinced Yard, a North Philly resident, to sign over his debt to a debt-settlement company. Willing to do almost anything to rid himself of the gnawing anxiety that had plagued him for months, Yard agreed. “When you’re between a rock and a hard place, you’re looking for a lifeline and you just kind of close your eyes and hope,” he says.
Acting as the middleman, Guardian Referral Network connected Yard with J. Hass Group, a debt- settlement company based in Arizona that, at the time, went by the name of JDH & Associates. A few days later, the company sent Yard a 20-page contract loaded with legal jargon and microscopic print.
At first, Yard put the documents aside, but the company persisted, calling him constantly and asking if he had signed yet. A month later, he signed the documents, which included a power of attorney that gave JDH the power to speak to Yard’s creditors on his behalf. “[The phone representative] told me the first thing they do is let all the creditors know [that he enrolled in a debt-settlement plan] and they send them the copy of a power of attorney,” Yard says. He adds that the company also told him to stop paying his credit card bills.
Two years later, Yard’s debt has grown by an additional $14,000 and he’s been sued by one of his creditors.
Yard joins a long list of debtors being victimized by the predatory, for-profit debt-settlement industry.
Debt-settlement companies promise to work with credit-card companies to write down debts—even when most creditors openly avoid working with them. As a result, some will advise consumers to discontinue their credit payments, so as to ease the settlement process when a debt is transferred to a debt buyer or collection agency, which are generally more apt to negotiate with settlement companies. Subsequently, consumers are then slapped with lawsuits from their creditors for months of missed payments. These debt-settlement companies, many of which operate without accreditation, then hit consumers like Yard with thousands of dollars in egregious fees and hidden charges.
“I feel stupid,” Yard says. “I was looking for a lifeline and [debt settlement companies] throw you an anchor.”
Before becoming a pawn of this multimillion dollar industry, Yard described himself as “a normal person who managed things.” He worked a series of odd jobs before settling in as an assistant general manager for Capital Auto Auction in Northeast Philadelphia. While at work, he says he suffered debilitating injuries to his back, wrist and neck after falling off of a platform. Yard was put on worker’s compensation and at that point, viewed retirement as a comfortable option. “I had a couple of retirement plans—I had done OK investing,” he says. “I had a SEP IRA and a traditional IRA, then I got a settlement from workman’s comp. I took the money from that and I invested it in stocks.”
Yard says he invested his settlement money in bank stocks since “everybody was making money” off of them. He figured that if he were ever in dire straits, he could sell the stocks and live off of what he had left. Then, in October 2008, when the banks started to crumble, Yard’s nightmare scenario became a harsh reality.
“At the time, every night you turn on the TV, Citibank is going bankrupt, Bank of America is going bankrupt, so I sold them [the stocks] for practically nothing.”
With 90 percent of his stocks wiped out and without any steady income, aside from the Social Security disability checks, Yard began running up tabs on seven different credit cards. He also began supporting his girlfriend, who moved in to his home with her three children. When her 17-year-old daughter got pregnant, Yard depleted one of his retirement accounts to help her out. By the time Yard signed on with JDH, he was $50,000 in debt.
Based on records provided by JDH & Associates/J. Hass Group, Yard began making monthly payments of $816.64 to the debt-settlement company, including a $39 maintenance fee. These fees were laid out in the contract.
The documents show that JDH withheld the first three payments as a fee for their services. Each subsequent payment was placed in a trust account that would be used for settlement payments to credit card companies. Over the next 15 months, the company received 48 percent of the payments, and it deposited the remainder into a bank account for settling debts via NoteWorld Servicing Center—a Bend, Ore.-based payment processing company that recently had its accreditation license yanked by the Better Business Bureau—which charged Yard a mysterious $200 management fee, the only fee not detailed in Yard’s contract with the debt-settlement company.
Months passed and Yard’s debt burden only seemed to weigh heavier. He called the debt-settlement company to complain, and the following day a representative called back: One of the creditors had agreed to a “time sensitive” settlement offer. They agreed to take $2,525 on a $5,500 bill. Yard gave the green light to settle.
Yard was not as successful with his other credit cards because he stopped making his credit-card payments. Subsequently, he was sued by one of his creditors.
The creditor demanded that Yard pay $14,313 on his original debt of $11,800. When he turned the lawsuit over to JDH’s legal department, they responded with a settlement offer of $9,546—81 percent of the original debt and 67 percent of what it ballooned to. Yard reluctantly said yes, reasoning that this was his largest debt. A week later, the settlement company informed Yard that the credit-card company had rejected the offer.
Growing increasingly weary with the arrangement in April, 2010, Yard called Kerry Smith, an attorney with Community Legal Services in Philadelphia. “There’s really some question here as to how much the debt settlement company is doing,” says Smith, who works with dozens of clients like Yard. “Mr. Yard is really unique in that he’s so dedicated to trying to make this work that he’s put in half of his income. He’s the rare consumer that actually accumulated money in a savings account and yet it doesn’t seem like [JDH] were doing anything until he called them.”
PW's Summer Guide 2014