Connecticut Attorney General's Office

Press Release

Attorney General Investigates And Seeks To Stop Predatory Debt Reducers

January 6, 2009

Attorney General Richard Blumenthal today proposed legislation to fight predatory debt reducers that offer mortgage and debt rescue services that may actually cost consumers their homes.

Blumenthal -- joined at a press conference by State Sen. Bob Duff, D-Norwalk, State Reps. Kenneth Green, D-Hartford, and Ryan Barry, D-Manchester, and the Connecticut Fair Housing Coalition -- said he is investigating several debt reduction entities for misleading consumers about their services and results.

Debt reducers are unregulated and often claim to offer services to rescue homeowners from foreclosure or severe debt.

In some cases, debt reducers deceive consumers into relinquishing their homes, turning homeowners into tenants. In other cases, consumers pay expensive advance fees to debt reducers that fail to provide promised relief. Often, consumers report that oral promises fail to translate into consumer contracts.

Blumenthal's proposal -- An Act Concerning Foreclosure Rescue and Debt Reducers -- would compel debt reducers to provide advance disclosures that clearly and conspicuously explain their services, and prohibit advance fees.

Blumenthal said, "Like quicksand, these supposed debt rescue schemes sink consumers deeper in distress the more they struggle. We must rescue families from false rescuers, who offer lead-filled lifelines.

"Rescue predators pitch a variety of financial snake oil -- promises to stop foreclosures and save homes, reduce mortgages and erase credit card debt, eliminate back tax obligations and rehabilitate bad credit histories. Most charge upfront or advance fees -- only deepening debt. Debt reducers promise homeowners help, but deliver only hardship. They leave consumers out of cash and out of luck, and even out of their homes. As economic woes worsen, financial bottom feeders become more prevalent and pernicious.

"Consumers should reject any debt reducer who charges an upfront or advance fee, and seek help from a non-profit credit counseling agency. My legislative proposal would ban the worst practices of these predators: profit-making organizations, deceptive pitches, advance fees and exploitive contracts.

"Debt reduction schemes exploit our most distressed consumers -- homeowners devastated by debt and terrified of looming foreclosure. Many are willing to spend their last pennies on unfair and excessive advance fees for only a pittance of relief, deceptively pitched.

"My office will use existing law to fight any debt reducer that deceives consumers, but stronger laws are vital. Nonprofit credit counseling agencies are available at, a website maintained by the National Foundation for Credit Counseling."

Sen. Duff said, "Foreclosure rescue and debt adjustment scams prey on the vulnerability of desperate people who are just trying to work their way out of a difficult situation. Additionally, they tarnish the good name of those services that are in operation solely to provide real help. In these difficult times, we must do what we can to protect those in need of help and hold the unscrupulous accountable."

Rep. Green said, "During these difficult economic times it is important that our citizens, and particularly our homeowners, be protected from people and companies that may offer a silver lining to their conditions without fully explaining the risks involved. This proposed legislation is a step in the right direction that protects our citizens and their hard earned possessions in this most arduous era of our state and nation."

Specifically, Blumenthal's proposal would require individuals selling debt reduction services to:

  • Clearly describe in the contract the services to be provided and an analysis of the consumer's debt, including the likelihood that the debt can be reduced or foreclosure avoided;
  • Provide consumers with a three-day right of cancellation;
  • Prohibit any upfront or advance fees; and
  • Be nonprofit.

The legislation would also authorize the Banking Commissioner to investigate and reduce debt reducer fees that are excessive when compared to common industry fees and in relation to the consumer's financial benefit of such services.

Debt reducers are separate and distinct from debt adjusters, which are regulated and actually collect consumer money and forward payments to debtors until the debts are paid off.