PhotoThe state of Florida and the Federal Trade Commission (FTC) have reached a settlement with the operator of several debt settlement companies after filing a lawsuit last year.

The state and federal governments teamed up to bring charges against Chastity Valdes and the companies she controlled, Consumer Assistance LLC, Consumer Assistance Project Corp. and Palermo Global LLC.

The charges specifically accused the companies of targeting consumers with student loan debt with illegal debt relief offers.

The suit claimed the companies took up-front fees in return for their promised debt relief and credit repair services. They allegedly promised victims they could reduce the amount of their student loans and repair their credit.

Tough loan to get out of

Student loans, of course, are among the most binding of debts and can't even be discharged in bankruptcy.

Among the laws the defendants were accused of violating are the Florida Deceptive and Unfair Trade Practices Act, the FTC Act, the Telemarketing Sales Rule, and the Credit Repair Organizations Act.

The settlement essentially puts the companies out of business. Under the terms of the agreement, they cannot sell debt relief and credit repair services, and can't even make any material claims about any products or services.

They are also prohibited from misrepresenting endorsements, making money from consumers’ personal information, and being careless in the disposal of personal information.

They would also be required to cough up $2.3 million in damages, if they had it. Since they don't, they have to turn over all of their assets to Florida and federal authorities. If it turns out they weren't being truthful about the amount of the assets, the full $2.3 million judgment will be imposed.

Avoiding debt settlement pitches

Debt settlement schemes most commonly target people with large amounts of credit card debt, usually making it sound like it's easy to get credit card companies to agree to accept a fraction of what is owed.

That's hardly the way it works. When a consumer stops making payments, as advised by a debt settlement company, he or she is besieged by debt collectors. In the process, the consumer's credit score craters.

The FTC doesn't say you should never try to settle your debt, but it does say you need to be very, very careful. And you should always avoid doing business with a debt settlement firm that charges an upfront fee, which is illegal.

Remember, you can talk to your credit card company yourself, and will probably have better luck than a debt settlement company will.

Learn more about what the FTC advises on debt settlement here.

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