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Home > Debt Relief Industry > Debt Settlement Industry in Denial At Their Own Peril. Ass Whopping Next Week.

Debt Settlement Industry in Denial At Their Own Peril. Ass Whopping Next Week.

Just one day after the Senate hearing on the debt settlement industry, many inside the industry think the hearings went okay or feel they were a bit one sided but they can recover from that. People, it’s time to wake up and smell the coffee.

New Legislation Will Make Debt Settlement Companies Vomit

A Washington Post article today confirms what I’ve been saying about federal legislation being pushed forward by the credit counseling industry trade groups and major banks. According to the Washington Post the legislation is to be introduced by Senator Charles Schummer next week.

I’ve seen that legislation and if the debt settlement industry didn’t like the hearings yesterday they sure as hell are not going to like this legislation that limits up-front fees to $50, allows no monthly fees, caps settlement fees at 5% of the debt actually settled, allows for full refunds by consumers, and prohibits claims of debt reductions or settlement success unless verified by an independent audit.

I think what is most interesting about the legislation to come is that if the debt settlement industry thinks creditors are behind them they are in for a cold shower. Guys, your date is just about to run off with your best friend.

You see, the biggest banks have participated in the drafting or already reviewed this new Schummer legislation, along with the National Foundation for Consumer Credit, (NFCC), and the Association of Independent Consumer Credit Counseling Agencies (AICCCA). And one thing I do have to praise the NFCC for is that they know how to give an ass whopping extraordinaire. They have tremendous street cred with regulators.

Here are some key excerpts from the Washington Post article titled “Debt-settlement firms misled consumers, GAO report says.”

A government investigation into the burgeoning debt-settlement industry has found that many firms misled consumers by claiming to be affiliated with federal stimulus programs and exaggerating their ability to reduce consumers’ loans.

The report by the Government Accountability Office, presented Thursday at a Senate commerce committee hearing, included audio recordings of salesmen describing their companies as “government approved” and linking settlements to the federal bailout of troubled banks. Another sales recording stated that all customers eliminated their debt in three years, while others encouraged customers to stop paying their creditors — a practice that violates the industry’s own standards.

“It is appalling beyond words,” Sen. John D. Rockefeller IV (D-W.Va.), who heads the committee, said at the hearing. “These debt-settlement companies are kicking people when they are down.”

Industry groups have defended their business by pointing to roughly $2 billion in debts that they have settled. The U.S. Organizations for Bankruptcy Alternatives (USOBA) and the Association of Settlement Companies (TASC) said that their members are supposed to fully disclose the terms of their agreements with customers and are prohibited from encouraging them to stop paying bills.

But the GAO examination, which was conducted from November through this month, found that 17 of the 20 companies contacted told undercover investigators to do just that.

In addition, the companies claimed success rates from 85 to 100 percent. The FTC and state investigations have found the rate to be less than 10 percent, though the industry argues that it is closer to 34 percent.

Debt Settlement Industry in Denial At Their Own Peril. Ass Whopping Next Week.
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Citizen joe

    Hey Steve, I want to thank you for your efforts in educating the public to scams and fraudsters but it would be much more helpful if you put a date on your articles and even had a way to sort by date on certain subjects. Outdated information does not help the public and wastes time.
    Thanks.

  • Light Bulb

    Who in the industry thinks it didn’t go too badly? They can recover? Really? Like full traction, coma, life support recover?

    That’s what that hearing and everything that led up to it was. An approaching freight train with ample warning to get out of the way or even rebuild tracks to divert a disaster. Nope. Not gonna do it. Not gonna move an inch of that track and then…………….SPLAT!!

    The Hubris is not surprising!

    The Bulb

    • Dan

      That hearing was absolute disaster for the Debt Sif Industry..and I am really concerned with the Chairmans behavior and more so his demeaner. I think that he embarrased himself as well as the entire investigation staff with some of the comments and statments he made. I would like to make a few points. The issue regarding retreival of fee for service up front and over a portion of the program is nothing new..and I am completely shocked that this was not brought up. An attorney collects a retainer fee before actually working a case!, Burger King requires you to pay for your food prior to them preparing it and serving it to you, An auto sales company requires a down payment 90% of the time before you can take ownership of the vehicle, A clothing store requires that you pay for the clothing prior to leaving the store with it!..I simply do not understand why Mr. Ansbach did not clearly explain the nature of the work in which a debt settlement company participates in when a consumer becomes a client. I think if he reminded them of the cost of good employee’s and the cost to operate it would have clearly made sense to everyone that a fee is required. I am no dummy I know that USOBA is raking in the doe signing up debt sif co’s all over the country as members and yes they are now learning that they need to tighten things up and that it is going to take losing out on some money to do, but in the end if we can all continue to operate it will be worth it. The Chairman and others also stated that we prey on the down and out consumers!..false..we are not knocking on their doors!..we are simply using the same moral and ethical advertising tools every other industry that requries advertising is using, as well as sales methods with regard to contacting and pitching leads! I simply do not get it, is someone jealous at the money that is being made…are the big banks behind all this..and upset with the fact that settling the their loans is common knowledge and is a service people can pay for? One more thing..the chairman clearly stated that his highly regarded team of investigators were professionals when it came to TARGETING the consumers who had a bad experience…well ofcourse ..why didnt they try to find some that had a good experience…well we I know why…but this is “bottom line” not fair!

      • Barb

        I agree and why don’t you ask the Chairman how much money he gets from the Banking industry to support his campaign. Also what is the difference between debt settlement and paying a lawyer to help someone declare bankruptcy. So we can say that Bankruptcy Court “preys on those in trouble”.

        They also state that consumers can negotiate their debt on their own. Yeah right! May be some can but just like loan modifications – the banks don’t answer the phone and if they do they don’t help!!

        Why not try seeking individuals from those that were helped by debt settlement agencies? My sister was one of them.

        Barb

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