Don’t let debt cancellation fool you

Marketplace Staff Dec 4, 2009

Don’t let debt cancellation fool you

Marketplace Staff Dec 4, 2009


Tess Vigeland: So there you have it — no cash gifting. Unless it’s a holiday card that Grandma filled with a few crisp dollar bills. But what about all those other too-good-to-be-true offers that so many people keep falling for and falling for? Here’s an example: What if someone promised that for a small fee, if you got laid off, injured or fired, all your debts could be forgiven? Poof! They’re gone! And the offer is coming from your credit card company?

Bob Sullivan covers Internet scams and consumer fraud for, and he recently wrote about something called “debt cancellation service.” I asked for a simple explanation of what this is.

Bob Sullivan: Well it’s a new kind of insurance. Probably everyone who has a credit card at some point in their life got one of those inserts, which offered some way of getting out of your bill if you died or lost your job. Up until about 10 years ago, it was called “credit insurance.” But the banks have figured out that they can make a lot more money if they essentially cover the insurance themselves. So now they call it “debt cancellation.” It’s not regulated by insurance boards anywhere around the country. And what you do is pay a dollar or two a month per $100 in balance and if something bad happens to you, the bank promises to pay your bills for you, under certain conditions.

But it’s really not a good deal for consumers, because the costs add up very quickly; $3,000 balance can be $60 a month. There’s lots of other insurance products that help you with this, it can be cheaper. And as you might imagine, there’s a lot of red tape that you have to go through to actually claim the benefit.

Vigeland: Now you used an inside source for your story, someone who actually works at a telemarketing firm and sells this stuff. Talk to us about what kinds of practices he described to you that are used to get people to sign up for this.

Sullivan: I think the real problem with debt cancellation, if you look at the Internet, you’ll just see complaints all over the place from people who get this service and don’t even realize that they have it. So they buy something at a store, they sign up for one of those one year same-as-cash deals when they buy a big television. Next thing you know, they’re paying $20, $30 a month for something that they don’t even know they signed up for. So how does that happen?

I was contacted anonymously by someone who works at a telemarketing company and folks call him up thinking that they’re just simply activating their credit cards. But instead, he pushes this service at them, using all manner of technique. The one that really irks him, and the reason he reached out to me, essentially to confess and try to warn people, is that the description of how it works and how much it costs sounds a lot like it’s free. They very carefully, over and over again, repeat the phrase, “If you have no balance at the end of the month, it costs you nothing.” But listen to what I said. It didn’t say if you never have any balance at all. On one day of the month, picked by the credit card company, they decide how much to charge you for this credit insurance, and even if you pay your bill in full every month, you still pay for this service

Vigeland: Wait, wait a minute. Wait a minute. You can pay off your bill, in full, every month, but they pick a day at random, so that whatever balance you have on that day, that’s what you’re going to get charged for?

Sullivan: Well, they wouldn’t characterize it as “random.” But it’s the end of the month day, the billing closing date, whatever the date is, but a date you don’t really have access to, that’s the date they file the charges. And so it’s basically impossible to have the product and not pay for it. Even though, over and over again, when they make the sales pitch, they sound like there’s lots of conditions under which you don’t pay anything.

Vigeland: And I want to take you back to something you said earlier, which is, this is something where all of us who have credit cards, debit cards, you have that sticker on the front that says “You have to call this number to activate the card.” For some of these situations, when you’re calling that number, you’re not actually doing it because you have to activate a card — this is so they can try to sell you something.

Sullivan: That’s right. The deck is stacked here in lots of ways and one of them is is when you get this particular kind of credit card, the sticker that’s on the front — that we’re all used to, that we all call compulsively for security reasons — when you call, it’s purely a telemarketing phone call. So you think you’re activating the card and right away, they say, “We’re glad you called. Here’s this service and you really should have it. And um, by the way, it probably won’t cost you anything if you don’t have a balance at the end of the month. So I’ll just sign you up, all right?”

Vigeland: So should you never call that number or are there some cards where you do have to call the number?

Sullivan: See, one thing that really irritates me — I’ve written a lot about identity theft and security — and when companies blend security measures with marketing measures, it really confuses consumers and puts them at great risk.

Vigeland: Yeah.

Sullivan: I would not want to tell any consumer to not call the number on those stickers they get from credit card companies, because normally, that’s a good security policy. But here we have a company muddying those waters and probably will hurt the security measure in the end.

Vigeland: So you got this story from an anonymous telemarketer. I know that you did call the banks to get their response. Can you share that with us?

Sullivan: Yes. I spent several days going back and forth with the retailer and the banks involved and showed them the scripts that I had. The telemarketer actually shared with me dozens of pages of telephone scripts to back up the claims that he was making about how manipulative the conversations were. And their final response was essentially that “If you listen carefully, our descriptions of the products are very clear and unambiguous. We’re not doing anything to try to mislead consumers.”

And this is a situation that I think we see in a lot of sales cases. Think about auto dealerships, for example. Perhaps strictly speaking, what they’re saying is not illegal or even wrong, but what matters most is the impression that’s created. And the impression is created by design in this case, I think, that the product is free or could be free, when it never is.

Vigeland: Bob Sullivan, thanks so much for the cautionary tale.

Sullivan: You bet.

Vigeland: Bob Sullivan of If you’d like to read his full blog about debt cancellation, go to our Web site,

While you’re there, take a moment and let us know how you’re budgeting for the holidays. It can be an expensive time of year, so how are you handling the pressure to buy, buy, buy?

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