FINANCIAL INNOVATION WATCH

ABC NEWS REPORTS--In these troubled economic times, it seems as if it's impossible to turn on the radio without hearing an ad for debt settlement.

After having children and going through a divorce and moving two years ago Ms. X found herself deep in debt. That's when she saw something about Credit Solutions of America on TV. When she looked into it, the program sounded promising.

"You can likely become debt-free within three years or less," stated Credit Solutions on one of its videos. On its Web site, the company claims it can help clients reduce their debts by up to 50 percent of what they owe.

Ms. X signed up, and said that the first thing Credit Solutions told her to do was stop paying her credit card bills, which, according to a study by the National Consumer Law Center, is standard advice in the debt settlement world. Instead, she said the company told her to put a chunk of money that could be used to make a settlement offer to the credit card companies into a safe special investment vehicle (SIV).

But that SIV account didn't accrue fast enough, Ms. X said, because, in the meantime, Credit Solutions was automatically deducting its own fee -- 15 percent of Ms. X's total debt -- from her account. In the first three months, the company deducted roughly a third of the fee from her bank account and then the ensuing balance over the course of the next 14 months.

Ms X remained in the Credit Solutions structured settlement program for 20 months, and paid the company's full fee, yet Credit Solutions did not initiate a single debt settlement for her. And because she wasn't paying her credit card bills, the late fees and penalties piled up, causing her debt to soar from $13,000 to $18,000. Meanwhile, her AAA credit rating plunged.

Credit Solutions has now asked for permission to repackage her credit card debts in a special securitized pool backed by the rest of her savings.

The owners of Credit Solutions are anonymous and the Company maintains a mailing address at Broad Street New York.