Attorney General rolls out annual data showing more Coloradans using debt management services for longer periods

DENVER — Colorado Attorney General John Suthers has released his office’s second annual report on debt management activity. The report details the success rates, failure rates and fees of Colorado’s debt management companies during the 2009 calendar year. According to the data for 2009, consumers are enrolling with debt management companies in greater numbers and the length of time they are spending under contract with these firms is increasing.

“With the country’s economy still working to rebound, it should come as no surprise that many Coloradans are struggling,” Suthers said. “This new data underlines the hardships everyday Coloradans are facing. Although this data is sobering, it underlines the cautious approach consumers should have when retaining a credit counseling or debt settlement company.”

The report, available online, shows more Coloradans are relying on debt management, credit counseling and debt settlement companies to help them get out of debt, Comparing the 2008 and 2009 data, the number of Coloradans using debt management companies that have registered with the state grew nearly 18 percent:

  • The number of Coloradans enrolling in credit counseling contracts grew 7.8 percent from 7,342 to 7,912.
  • The number of Coloradans enrolling in debt settlement contracts grew more than 44 percent from 2,847 to 4,101.

The new data shows that the amount of time consumers are spending under contract with credit counseling and debt settlement companies increased in 2009 compared with 2008:

  • Consumers under contract with credit counseling services in 2009 spent an average of 50 months under contract, a 21.9 percent increase over 2008.
  • Consumers under contract with debt settlement companies in 2009 spent an average of 39 months under contract, a 21.3 percent increase over 2008.

The report also shows movement in the average level of debt Coloradans enrolling with debt management companies had in 2009 compared with 2008:

  • Coloradans enrolling in credit counseling contracts had an average debt of $22,802, an 8.3 percent increase.
  • Coloradans enrolling in debt settlement contracts had an average debt of $29,996, a 2.6 percent decrease.

The data also shows that only 11.35 percent of consumers who contracted with debt-settlement firms in 2006 have since successfully settled all their debts and only 15.9 percent of consumers who contracted with credit-counseling firms in 2006 have since successfully paid off their of debts.

Debt management companies fall into two categories: credit counselor and debt settlement. Credit counselors negotiate with creditors to waive or lower interest, fees and payments. Consumers make monthly payments to the counselors that are distributed to creditors. Debt settlement companies contract with consumers to set up regular payments into a bank or trust account rather than directly paying creditors. After a certain amount of funds accumulate, the debt settlement company then uses consumers’ contributions to negotiate a lump-sum settlement of the debts.

“If consumers decide to work with a debt management company, I would encourage them to ensure that the businesses is registered and complying with Colorado law,” Suthers said. “Consumers should be leery of any debt management plan that has a 100 percent success guarantee or encourages them to stop paying their creditors altogether. Consumers should always be advised to contact their creditors first before entering into a contract with a debt management company.”

The first annual report, released in October 2009, laid out the same data for the debt management industry for the 2006, 2007 and 2008 calendar years. To learn more about the regulation of debt management companies or to view a list of registered debt management companies and their disciplinary history, visit www.coloradoattorneygeneral.gov/dm.

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