Avoiding scams

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company's location.

Beware Debt Relief Ads

Whether your debt dilemma is the result of illness, unemployment or overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes.

Ads may pitch the promise of debt relief, but they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it's generally considered the option of last resort. The reason: It has a long-term negative impact on your credit worthiness. A bankruptcy stays on your credit report for 10 years and can hinder your ability to get credit, a job, insurance or even a place to live.

Advance-Fee Loan Scams

Ads for advance-fee loans often appear in the classified ad section of local and national newspapers and magazines. They also may appear in mailings, radio spots and on local cable stations. Often, these ads feature "900" numbers, which result in charges on your phone bill. In addition, these companies often use delivery systems other than the U.S. Postal Service to avoid detection and prosecution by postal authorities.

These scams often target consumers with credit problems or consumers who have difficulty getting credit. In exchange for an up-front fee, these companies guarantee that applicants will get the credit they want — usually a credit card or a personal loan. The up-front fee may be up to several hundred dollars.

Don't confuse a legitimate credit offer with an advance-fee loan scam. An offer for credit from a bank, savings and loan, or mortgage broker generally requires your verbal or written acceptance of the loan or credit offer. The offer usually is subject to a check of your credit report after you apply to make sure you meet their credit standards. You are usually not required to pay a fee in order to get the credit. And legitimate creditors never guarantee in advance that you'll get the loan.

Under the federal Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or receive payment until you've received the loan.

Be suspicious of anyone who calls you on the phone and says they can guarantee you will get a loan if you pay in advance. Hang up. It's against the law.

Protecting Yourself

Here are some points to keep in mind before you respond to ads that promise easy credit, regardless of your credit history:

* Most legitimate lenders will not "guarantee" that you will get a loan or a credit card before you apply.

* It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.

* Never give your credit card account number, bank account information, or Social Security number out over the telephone unless you are familiar with the company and know why the information is necessary.

Credit Repair Scams

You see the ads in newspapers, on television and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

"Credit problems? No problem!"

"We can erase your bad credit — 100 percent guaranteed."

"Create a new credit identity — legally."

"We can remove bankruptcies, judgments, liens and bad loans from your credit file forever!" Do yourself a favor and save some money too. Don't believe these statements. Only time, a conscientious effort, and a plan for repaying your debt will improve your credit report.

The Warning Signs

If you decide to respond to a credit repair offer, beware of companies that:

* Want you to pay for credit repair services before any services are provided.

* Do not tell you your legal rights and what you can do — yourself — for free.

* Recommend that you not contact a credit bureau directly.

* Suggest that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number; or advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity.

If you follow illegal advice and commit fraud, you may be subject to prosecution.

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of "Consumer Credit File Rights under State and Federal Law" before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before signing the contract.

The law contains specific consumer protections. For example, a credit repair company cannot:

* Make false claims about their services.

* Charge you until they have completed the promised services.

* Perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees.

Your contract must specify:

* The payment for services, including their total cost.

* A detailed description of the services to be performed.

* How long it will take to achieve the results.

* Any guarantees they offer.

* The company's name and business address.

Where to Complain

If you've had a problem with any of the scams described here, contact your local consumer protection agency, state attorney general or Better Business Bureau.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, call toll-free, (877) 382-4357, or use the online complaint form.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at milt.zall@verizon.net.