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The Debt Settlement Consumer Protection Act of 2010

As I said, a bill would be coming to control debt settlement companies and here it is.

Of particular interest are the consumer groups that are part of the release.

  • Consumers Union
  • National Foundation for Credit Counseling
  • Consumer Federation of America
  • National Consumer Law Center
 The Debt Settlement Consumer Protection Act of 2010
Things are heating up in Debt Settlement.
Illustration Credit: Steve Rhode

 The Debt Settlement Consumer Protection Act of 2010
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SCHUMER, MCCASKILL UNVEIL BILL TO REIN IN PREDATORY DEBT SETTLEMENT COMPANIES—SCAMMERS TAKE CONSUMERS’ MONEY AND LEAVE THEM DEEPER IN THE HOLE

Debt Settlement Companies Offer ‘Quick and Easy’ Solutions to Consumer Credit Problems, But Instead Leave Consumers Deeper in Debt With Further Damaged Credit Ratings

Schumer-McCaskill ‘Debt Settlement Consumer Protection Act’ Would Provide Greater Disclosure, Limit Fees to Consumers, and Provide Additional Enforcement Power to State and Federal Agencies to Protect Consumers from Scams

Senators: Deceptive and Abusive Debt Settlement Scams Are Rampant and Need to be Shut Down

WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) and Claire McCaskill (D-MO) introduced new legislation Wednesday to protect millions of working families that are struggling with substantial personal debt but are being preyed upon by scammers that claim to provide debt-settlement assistance. The “Debt Settlement Consumer Protection Act” would provide greater disclosure to consumers, limit fees that debt settlement firms can charge, and provide additional enforcement power to state and federal official to crack down on these abusive and predatory companies.

There has been an exponential growth in the number of debt settlement companies offering so-called “quick and easy” solutions to consumer credit problems. On radio and television, consumers have been bombarded with an onslaught of advertisements with false and deceptive claims about debt settlement companies’ ability to negotiate deals with creditors to reduce or cancel consumer debts. Many consumers facing challenges in meeting their financial obligations have increasingly turned to these companies for debt settlement assistance – with disastrous results. In reality, these for-profit companies take consumers’ money and leave them even deeper in debt. Consumers’ credit scores also take a big hit.

“When consumers are working to get their financial house in order, the last thing they need is for debt settlement scams to bury them deeper into debt,” said Schumer. “This legislation will crack down on predatory companies that are preying on those already in dire financial situations. We need to make sure that working families who are digging themselves out of debt and trying to recover from financial ruin are protected from companies that are out to increase their profit. This legislation will help keep the wolves at bay while families try to regain their financial strength.”

“Debt settlement companies prey on people who are desperate and vulnerable, often through misleading and fraudulent promises of help,” McCaskill said. “This bill would rightfully crack down on these predatory practices and help protect hard-working families who are struggling to pay off their bills.”

The premise of debt settlement is simple: the consumer is advised to stop paying their creditors and instead make monthly payments into an escrow account to accumulate money. The debt settlement company promises to use the account to strike a bargain with creditors. The company claims it will negotiate with the consumer’s creditors and convince them to accept partial payment in full satisfaction of the amount owed by the consumer.

In reality, the vast majority of debts do not settle. In fact, many credit card companies refuse to work with debt settlement firms. Not only are consumers out the hefty fees charged by debt settlement companies, including up-front fees (often a percentage of the total debt), fees to set up escrow accounts, and monthly maintenance fees. They also often are sued by their creditors for the balance due – which, perversely, has grown larger as a result of the debt settlement companies’ advice to consumers to stop paying their debts.

In these economically troubled times, financially vulnerable consumers should be shielded from these kinds of predatory anti-consumer practices. The Debt Settlement Consumer Protection Act would do just that by requiring debt settlement companies to provide meaningful written disclosures to consumers before services are rendered, limiting the types of fees that debt settlement companies can charge, and providing federal and state enforcement authorities with the tools necessary to protect consumers from abuses.

The Schumer-McCaskill Debt Settlement Consumer Protection Act does three main things:

  1. provides for meaningful written disclosures;
  2. limits and caps the types of fees on consumers;
  3. and provides additional enforcement powers for state and federal agencies.

Specifically it requires debt settlement companies to itemize the services to be provided, list the consumer’s debts, provide a clear and conspicuous list of all fees and compensation to be paid by the consumer to the debt settlement company, and inform consumers of their right to cancel the debt settlement contract and get fees refunded. It prohibits a debt settlement company from requesting or receiving any debt settlement fee from a consumer until the company has provided the consumer with documentation that a debt has, in fact, been settled, ensures settlement fees are reasonable and commensurate to the actual services provided, and that they cannot exceed specified amounts.

It also provides consumers with the right to cancel a debt settlement contract and receive a full refund of unearned fees. Lastly, the legislation provides for enforcement through the Federal Trade Commission, state Attorneys General, and private rights of action as well as giving the FTC the ability to regulate the advertising and marketing practices of debt settlement companies.

The Debt Settlement Consumer Protection Act will provide much-needed, fundamental consumer protection to millions of working families. Consumer groups and non-profit credit counseling organizations that have endorsed the bill include: Consumers Union, the Consumer Federation of America, the National Consumer Law Center on behalf of its low income clients, and the National Foundation for Credit Counseling.

Gail Hillebrand, Senior Attorney & Financial Services Campaign Manager, Consumers Union, said: “Senator Schumer’s bill will address the serious problems for consumers in debt settlement and end the incentive for debt settlement companies to sign up consumers who they have no realistic likelihood of helping.”

Susan C. Keating, President & CEO, National Foundation for Credit Counseling, said: “In a business where the norm seems to be to mislead consumers in advertising, to fail to make meaningful disclosures, and to collect excessive fees in advance of providing services, Senator Schumer’s legislation is the first comprehensive bill in Congress to protect consumers struggling to pay their bills from these and other deceptive and predatory practices that are rampant in the debt settlement industry. We congratulate Senator Schumer for his leadership on this important consumer issue.”

Travis Plunkett, Legislative Director of the Consumer Federation of America, said: “The Consumer Federation of America applauds Senators Schumer and McCaskill for introducing important legislation to crack down on debt settlement predators. These firms often charge outrageous fees by falsely claiming that they can slash the amount consumers owe their credit card companies. However, the sad reality for many debt settlement clients is the opposite of what they are promised: more debt, a ruined credit rating, and a bleak financial future.”

The National Consumer Law Center has also endorsed the bill: “Senator Schumer’s bill will give consumers long-needed protection from those who prey on the desperate by offering false hope of relief from crushing debts at an exorbitant price.”

The Debt Settlement Consumer Protection Act of 2010 by

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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.
  • Steve Rhode

    Interesting. Let’s discuss a specific example where I “bashed” a company and examine if any criticism I wrote was deserved. Give me the link to a specific article and a point I raised that you disagreed with and let’s talk about it.

    Steve

  • Danywise46

    yo stop bashing companies and get a life dude ive had a debt firm handle my case and it was great experience……..i hate people like u got nothing else better to do with you life than bash companies.

  • Rick Morgan

    Hi, Steve (and Sean),

    Forgive me, Gentlemen, I’m not normally one who engages in blogs; this is why I’m only responding now. Forgive me, too, if I repeat myself from the earlier post.

    First, I only posted my prior piece once, so if it appeared anywhere else, it wasn’t me.

    Anyway, yes, Steve, you’re correct, there is nothing illegal about operating a Christian company, unless one is in China or some similar oppressive political system.

    I can certainly understand your responses with regard to companies that claim to be Christian. There are any number of companies describing themselves as such in a vast number of industries, and many of them don’t know the first thing about what it means to be a true Christian. Many of them use the word “christian” as some sort of dodge which, of course, gives true Christianity a bad name. Contractors, lawyers, you name it, they’re out there.

    But that doesn’t mean that there aren’t Christian companies in existence that operate ethically and do what they say they’re going to do. The company I represent most certainly operates under the laws of our state and FTC rules. More important, we operate according to God’s Law as found in the Bible.

    If you’re still reading, and you don’t believe in the Bible, then you’re probably rolling your eyes right now, and that’s OK. It doesn’t change the truth. And don’t misunderstand: This country is crying out for honesty, for ethical behavior and people who do what they say they will do. Everything the majority of the United States was founded on and craves today can be found in Biblical teaching.

    By the way, Sean, based on your “personally and ethically” comment, I would respectfully suggest that you, like millions of others, might have a view of Christianity that has been clouded and misrepresented by non-Christians, the media and the aforementioned “bad apple” businesses. You might wish consider going to the Source, pick up a good study Bible and really understand what is in that Book.

    Look, Guys, this stream is about debt settlement and the merits, or lack of them, therein. Ronald Reagan said it pretty well: “Trust but verify.” This is about personal responsibility and not depending only on the government–God save us!–to help us. Virtually every area in which the government meddles ends in a 5-star cluster–well, you know.

    I’ll repeat what I said earlier: The people who have gotten “taken” by less-than-reputable debt settlement companies had responsibility in what happened to them, and more than likely didn’t do their homework on the companies in question. Did they ever ask themselves how they got into debt in the first place? Only they know that. They were very likely anxious for a quick fix to their problem to get out of debt, when they didn’t get into debt overnight. I say this because of people who call in and are disappointed that we’re not going to be on the phones with their creditors the day after they enroll.

    In a culture where instant gratification isn’t fast enough anymore, we have a saying: “Everybody wants to go to heaven, but nobody wants to die.”

    It’s unrealistic thinking. We’re all human, Christians and non-Christians alike, and therefore not perfect. No program is going to be perfect. We tell this to people who call in all the time. We tell them what we can do, as well as what could happen. But we tend to under-promise, and then over-deliver.

    I’ve noticed that in the GAO/Good Morning America/ABC reports that I’ve seen that there was only one side presented. There were no interviews of people who have gotten and are continuing to get out of debt through settlement. There were lots of credit counseling interviews but, again, those companies are owned and operated by credit card companies.

    I’m amazed that so many of the very same people who rail against the government and truly corrupt, fraudulent and abusive banks, not to mention an agenda-driven media, are the same ones who are so quick to believe these same entities.

    God gave us free wills, but make no mistake: There are people in power, i.e., the government, backed by the biggest corporations, who seek to rob us of our free wills and personal freedoms. The financial “stability” act being voted on almost as we speak will do just that. If the Schumer-McCaskill bill is sneakily folded into that, then you get your wish: An ethical, viable bankruptcy alternative destroyed. One more way to control the American people.

    (Oh, and by the way, the same bill is apparently tacking on the earlier failed McCain supplement bill as well, further robbing us of making adult decisions regarding our health. I mention this partly to illustrate that again that we can’t trust either side to do what’s right.)

    All in the name of “protecting” the American people. Good luck with that. In the end, it really doesn’t matter. It’s all going to play out the way it’s supposed to. After all, God’s on the throne, and it’s His Plan, whether we understand it or not.

    Love you both, and God Bless you.

    Rick

  • http://active-debt.com Sean Ryan

    Is that post (above from Rick Morgan) a repost by you Steve? I read it somewhere else last week on your site- exact same thing…….

    • http://GetOutOfDebt.org Steve Rhode

      Sean,

      Not a repost from me. Maybe he just posted it twice?

      Steve

      • http://active-debt.com Sean Ryan

        Yes- That is certain then- It is, in the exact same post, in a thread elsewhere on your site- Personally, and ethically (although I do NOT KNOW their marketing strategy) when I see anyone touting themselves as a “christian” company it puts up a red flag. Correct me if I’m wrong but I believe their are Federal Laws that make that representation illegal unless, as a business, you are a non-profit and funded by a church.
        Any comment Rick?

      • http://GetOutOfDebt.org Steve Rhode

        Sean,

        Not illegal as far as I know and I’ve certainly written about my share of “Christian” scammers. LOL

        Steve

  • Rick Morgan

    Hi, Steve,
    I stumbled upon this stream a few minutes ago and read with interest each posting. The reason I’m interested–and concerned–is that I’m in the debt settlement industry as well.

    Every industry has its share of scammers. They come out of the woodwork because they smell a payday and prey on the misery of others. Take them out and deal with them according to existing FTC rules. I get your point about DS not keeping its house in order. (It’s at least arguable.) But there is no need to pile legislation upon legislation. Let’s enforce the laws we have and not (further) cripple yet another industry. Government has gotten very good about doing that lately.

    The company I represent is one who gives full disclosure–the good, the bad the ugly–including a negative effect on credit, possible summonses, etc. We can and do get people out of debt ethically, typically within 36 months or less and for about half of what they owe, including our fee. We don’t take all our fees on the front end, we don’t charge a monthly admin fee. There is nothing hidden or false. We don’t tell people not to pay their creditors. If they could afford that, they wouldn’t need a program.

    As far as the credit score aspect, no matter what the consumer does–debt settlement, consumer credit counseling, BK, continuing to do what one is doing–his score will be affected. However, it will be affected least through an effective, reputable debt settlement program.

    BK should always be considered as a last resort, because, while the consumer might walk away from his debt free and clear, BK, like entitlement programs, puts a greater burden on the rest of society. Credit card companies will take no loss on; they will only pass along the burden to other consumers.

    The recent credit card act that took effect a couple months ago will do nothing to give relief to consumers. The companies had 9 months to come up with new ways to charge fees to consumers, including charging fees for those who have NEVER had a late payment.

    Controlling-type people who call in to find out about the program ask me on a daily basis why they should pay us to negotiate for them when they can “negotiate” with the card companies on their own. I always tell them that they’re perfectly entitled to do so, but to bear in mind that the card company still has all the control. I illustrate it this way: We’re within our consitutional rights to represent ourselves in court, but it’s never recommended, because we’d be going up against people who are professionally trained to bury the opposition.

    Card companies don’t want to help. They’re only interested in hooking people in with slick advertising and then keeping those people on an interest treadmill literally for the rest of their lives if they can do it. The card companies will not negotiate unless the consumer is behind on his payments, and then will refer the consumer to a “good credit counseling company”–because the card company most likely owns that CCC. The CCC will not tell the consumer up front that it is owned by the card company, will not tell the consumer that the CCC will show up as a 3rd-party intervention mark against his credit–similar to a court trustee–and in the end, resembles a Chapter 13 BK.

    My wife and I were in a CCC–more specifically, Christian Credit Counselors, a “non-profit”; the type of company that further gives legitimate Christian companies a bad name–who very faithfully took over $500/mo out of our account and handed it over to Visa. After nearly a year, one would have thought our balance would have lowered by about $6500. In fact, it moved about $1000. Once I went to work for a debt settlement company and found out the difference, we cut them loose. No money back.

    Interestingly, I work for a genuine Christian debt settlement company. We do business according to not only government regulation, but according to what the Bible says about money, debt and being good stewards. It’s my considered opinion that the government and most people’s cynicism in this day and age runs so deep that they have a difficult if not impossible time believing that there are companies out there who act in a genuine Christian fashion.

    We don’t take responsibility away from people, Steve. It’s their debt. They incurred it. Many of them made bad decisions–including the people who were videoed whining in front of Jay Rockefeller’s (don’t get me started)–committee. They got taken by scammers, but did they do their homework on their respective companies? Doubtful. We tell people that no program is going to be perfect, since they’re all man-made. There is a saying: Everybody wants to go to heaven, but nobody wants to die.

    But they were taken, just like people get taken by the aforementioned slick advertising.

    All that said, it’s my opinion that the economy went off the rails due in large part to collusion and bad decisions by the banks in partnership with government.

    We’re dealing with a corrupt banking system, and we can’t trust government to do anything right. Government Accountability Office? An oxymoron if ever there was one.

    If you’re still with me, I apologize for taking up so much time. I appreciate your consideration and the discussion. But more Draconian government we don’t need.

    God Bless you,

    Rick

  • http://active-debt.com Sean Ryan

    Some folks might wanna hurry and get into the time-share or auto warranty biz…. Dishonesty and greed have basically ruined a good thing for consumers- My hope- still, that they take lawyers out, allow noteworld & Global type accounts to remain, allow a reasonable monthly service charge ($40), remove front fees and increase back to at least 25% of savings-. That will kill Affiliate programs, and force settlement companies to EARN our money.
    Whatever……..

  • Mike Millet

    How does that make you feel?

    • John

      Mike – where are you getting your information? I am pro debt settlement without the harsh regulation on an industry that has companies trying to actually help those in debt.

  • Mike Millet

    So Steve how do you feel now that the DSCPA was removed from the bill?

  • http://active-debt.com Sean Ryan

    NEVER AGREE TO ANYTHING UNLESS ITS IN WRITING!!!!!! Why do you think they wont write the offer? Hmmmmm.

    • http://GetOutOfDebt.org Steve Rhode

      Sean,

      LOL. I was waiting for someone to jump on that. You’ve got to love the balls on Advanta. They want electronic access into the bank account with no valid offer. If you have a moment, how about elaborating why it’s a bad idea for gator? He needs to know before making this huge mistake.

      Steve

      • http://active-debt.com Sean Ryan

        Haha- Yeah, well more than one reason jump right out! Any money you have in the bank, they could grab it all to the degree you owe it. If they know you have money in the bank, they may just sue you…. Most common is they will take what they can & simply continue to take the monthly payment until you stop it- Typically it’s a valid debt, so once you allow them access to your account and they grab the $$, it’s theirs!
        If it is a valid offer, they will put it in writing- Therefore………
        Good luck Gator!

      • Gator11

        They did call back and offer to fax the agreement over but would not agree to a check by mail.Access to my bank account was never and option,they tried but I respectfully declined. Will wait to they agree to my terms.

  • gator11

    Has anyone had trouble with the 50% settlement program? Advanta offered me 50% settlement with the understanding that,(1)I would not receive anything in writing until the account was set up and the 1st payment was made via telephone,(2) they will set up 5 additional monthly payments to pay off account.Just wondering since all the credit guru’s say never agree to eletronic payments and also get any offers in writing first.

  • http://www.emergeamerica.com Michael Reilly CDS

    Steve, I have a question and I’m interested in your opinion/answer.

    Before I state the question let me say “I did some digging” and rumor has it that the DSCPA of 2010 is still in its infancy and will not be passed/approved anytime soon. Not sure where your intel is coming from. I guess we all wait and see.

    The question: Steve I want you to wear the creditors shoes and let’s say for argument sake the bill is adopted, you as the creditor (unless you live in a closet) now know my fee structure, more importantly how I get paid.
    I start to negotiate with you on behalf of a person that truly needs solid results in a settlement program. Tell me how you (as the creditor) don’t hold all the leverage in the negotiation? You now have the ability to hold out until I crack (knowing how I earn) or the consumer cracks as all offers must be presented. How does this benefit a consumer who truly needs a program like debt settlement?

    This in my opinion is just one of many unintended consequences that will hurt consumers across the country caused by a hasty decision. Think about all the debt currently under management by settlement companies. This is a true victory for the lenders and again, in my opinion, will cause a huge increase in bankruptcy filings.

    As you know there are many aspects of the legislation I agree with, but when the cost is born by the consumer who simply can’t afford it, it’s time to question the intent.

    • http://GetOutOfDebt.org Steve Rhode

      Michael,

      It looks like the DSCPA may be voted on as an amendment by the Senate as early as today. It was attached over a day ago to the Restoring American Financial Stability Act of 2010 that is currently on the floor of the Senate. For the text of the amendment with changes see this story.

      But it really doesn’t matter how quickly that passes since the FTC TSR rules which will cover debt settlement should be made public within weeks to a month or so as my sources tell me. Regardless of the DSCPA those rules will provide the first step at fee regulation.

      I just don’t see creditors being that clever. They are giant process monsters that operate by committee rather than nimble beasts that seem to treat individuals as individuals.

      My bet would be that creditor support of DSCPA is more about control. They resent debt settlement companies taking their fee before a creditor gets paid and they’d rather see consumers go to an entity they have more control over, credit counseling. It’s the same naked motive I witnessed first hand by American banks in the UK against the IVA, another similar process where the provider gets paid first.

      But before the finger gets pointed all around town about what destroyed the debt settlement industry, in my opinion greed and deceptive marketing destroyed it, by the debt settlement industry itself. If the industry ticked along and always took the bulk of money as a performance fee and had avoid such deceptive marketing as you hear in this recent sales call, none of this regulation would be pouring down. Regulators and legislators respond to issues, not generally proactively seek them out.

      Steve

  • Mike Millet

    Steve someone needs regulate your site with negativity you spew debt settlement. How come you never complain about credit counseling? They have a higher drop out rate then ds and a lower completion rate, and those are facts!

  • Terry

    I guess the only way to tell if the new regulations are a good thing or not depends on if you are a consumer or a DSC.

    When a company takes thousands of dollars in fees & you realize your original debt has increased by 50% in 2 yrs. Then company hides behind their 60 day refund policy, something needs to be regulated.

    • http://GetOutOfDebt.org Steve Rhode

      Rumor has it the Debt Settlement Consumer Protection Act might come to a vote as early as tomorrow as part of another piece of legislation. But the FTC rules to regulate debt settlement will be out in a few weeks.

      Something will happen soon.

      Steve

  • http://GetOutOfDebt.org Steve Rhode

    Will the Debt Settlement Consumer Protection Act pass? Well a somewhat similar bill just passed the Illinois House and Senate with overwhelming bipartisan support. $50 upfront, no monthly and 15% of actual savings once settled.

    Read more here.

  • http://active-debt.com Sean

    Well- The lawyers win & the consumers lose. My company, a small company in this business, is one of the VERY FEW that collects NO up front fees- We are paid a % of how much is saved at settlement- Now, we are out. Our average settlements are in the low 30’s and our completion rate is near 90%. We contacted the GAO with an offer of our books as OPEN to them. Never heard back-
    NOW- I watch the industry scramble to set up law based settlement companies- UNDER THE SAME MODEL THAT TORE THIS INDUSTRY APART- They will charge between 15 & 20% UPFRONT and call it a retainer. GAO said success rate for the front loaded model was close to 10% if the legal model is 30% I will be shocked.

    Consumers are NOT being helped here. NOT NOT NOT- We make a total of 12-15% but oNLY get paid to preform- The legal model is paid NO MATTER THE RESULTS!!!!!!
    Senator Schumer how do YOU sleep at night?
    Sean Ryan

  • Eugene

    “In reality, the vast majority of debts do not settle. In fact, many credit card companies refuse to work with debt settlement firms.” I can’t believe you (or whoever you’re arbitrarily copying this from) actually tried to snake this into an article. If you knew anything about debt settlement, you know that debt gets sold, so even CONSUMERS would fall to the same fate with credit card companies. I’d like to hear you admit at least this if nothing else– that this statement is VERY misleading!

    You wrote in response to a comment, “These new regulations wind up impacting you because your trade associations and the industry did nothing to rein in the bad actors and embrace consumer protection.” What kind of generalist BS is that? That’s like saying, “since a Compton neighborhood has not weeded out its own gangmembers, the whole neighborhood should go to jail.” EVERYONE wants the bad/abusive debt settlement companies out of business, so shouldn’t that be the goal of the bill? Not to you. You say, “This legislation is not designed to regulate, it is designed to put everyone out of business as it was presented.” And it seems like you approve it 100% of the way!

    “They wasted so many chances to police their own industry and frankly did nothing.” Not all debt settlement companies are under TASC and USOBA. And how do you know they did nothing? Or when you say “nothing”, you mean, “not enough to get a unfair, generalized bill proposed by some government know-it-all and approved by a blogger who conincidently has his own site that has links for credit counseling, an industry that wouldn’t mind the demise of debt settlement”?

    I’m surprised you can continue to do this stuff, Steve. I really am.

    • http://GetOutOfDebt.org Steve Rhode

      Eugene,

      According to USOBA and TASC, the debt settlement trade groups, only 34% of debt enrolled in a debt settlement program is actually settled. That would be the minority of debt. Attorneys General in their investigations found that less than 10% of all debt settlement clients resolved all of their debt through debt settlement.

      The legislation is a response to the industry not embracing boundaries, regulation, and consumer protection. Maybe you have a suggestion how the bad actors can be regulated in such a way to protect consumers that does not catch up good players. I’d be interested in what specifics you have to offer. What national legislation are you proposing to accomplish this?

      I’m just reporting on what is being said when I say the bill is designed to put companies out of business. In fact I’ve written specifically about my suggestions for the bill. It’s a bit hard to take the shots at me seriously when you have not read everything I’ve written on the subject.

      I’m all ears. How many debt settlement companies that you know of flew around the country supporting UDMSA that would have regulated debt settlement years before a need for the Debt Settlement Consumer Protection Act?

      The “generalized bill proposed by some government know-it-all” that you speak of was actually the work of a number consumer groups and major banks, not some government entity.

      I love the fact you want to slap me for credit counseling ads when others have no problems with those and give me shit for debt settlement ads. Can’t win.

      You are welcome to your opinion but you really don’t seem to have a clue here what I’m all about. And oh yes, if you don’t like what I have to say, don’t read what I write. And while you are slamming me for my being off base and not knowing the subject, you have no idea how many regulators, investigators, attorney general offices, consumer protection departments, debt settlement companies, credit counseling companies and consumers I talk to each week.

      Steve

      • Eugene

        Steve,

        I’ll be real with you. I couldn’t find public data online about on USOBA’s settled debt amounts, but I did find a TASC survey on the FTC site:

        http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00334.pdf

        And there, I find a similar 34% you mentioned (pg 2, Q3), only it wasn’t the amount of settled enrolled debt– RATHER, it was the proportion of clients who completed, or is likely to complete, their debt settlement programs. Please tell me we’re not talking about the same 34%, because that’s a big difference. I’d really like to see the USOBA data if you have it– just to make sure.

        And as for 10% of clients who settled 100% of their debt, what percentage settled 90%? 80%? 70%? Is that not relevant? What if a client’s ONE credit card out of the TEN he has in his wallet consists of 90% of his total debt amount? If that ONE card is settled at 50%, is that not SIGNIFICANT?

        I love numbers, Steve, but they don’t mean anything without context– and I don’t feel like you gave me enough context.

        And as for having a suggestion on how to clean up the bad without taking out the good; how about plain ol’ disclosure (as mentioned in the bill) and delivering what you promise. And if you don’t, you owe the client a refund, and get sued. If you are a BAD company, that’s what happens, right? But none of this, “only get money when you settle” crap, because that’s what puts GOOD settlement companies out of business along with the BAD. I mean, I only had a few minutes to think about this, but I think that’s pretty damn smart.

        As for credit counseling, you can’t tell me that and debt settlement achieve the same goals. They are different. Different means to different ends. So you can’t say one is better than the other because they serve different people.

        Let’s be HONEST, Steve. That’s the only reason why I harp on you– not because you’re a bad guy. I like your face. You put your picture up, and that makes me like you. But it’s because I don’t think you’re being 100% honest with your articles– maybe because you didn’t know– but either way, that is not good enough to be called the truth, and I get uppity.

        I like you, man, and I hope you put this comment up along with USOBA data, because you actually got me to get out of bed to write this– and that says a lot.

      • http://GetOutOfDebt.org Steve Rhode

        Eugene,

        Glad I could get you up out of bed. Driving passion 24×7.

        When I was citing the USOBA number I was referring to the USOBA presentation before the Congressional hearing. You can watch it here.

        Again, the video above discusses the number with more detail and clarity.

        As for the comparison between success rates of credit counseling and debt settlement, it’s a topic I’ve written about at length. Here is a piece I wrote in June, 2009. The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.

        It’s just my opinion but it is probably much more cost effective for states to control the industry bad actors with blanket regulation than it is to go after individual companies. Take for example how much states have had to spend on suits against some companies like Credit Solutions. It’s mentioned in the video link above.

        Believe me, I understand what happens with the broad brush approach. That does not mean I support it, but I do understand it. And this is not the first time it has been used to regulate industries. If you have alternative suggestions you think will work better than what was proposed, call the offices of Schumer and McKaskil.

        Steve

      • http://active-debt.com Sean Ryan

        My back end % company was NEVER a member of TASC because we saw tham as a lobbying org for the Front Fee model- Steve you keep saying that OUR industry watchdogs let US down- They were dirty to begin with. Consumers LOSE with this bill- WHY if the banks are involved in the bill would the lawyers win-? Why would a back end program not be allowed to make a profit? This bill is another smoke & mirrors win for Schumer who is a Smoke & Mirrors representative

  • http://www.emergeamerica.com Michael Reilly CDS

    With a little time to spare this morning I will throw in my two cents on the topic. The way I see it, where the industry went wrong has to do with corporate growth, the big operations desire to expand at any cost, enter the affiliate! Cash flow for the affiliates caused the change in structure that lead the majority of Debt Settlement Company’s to the front loaded, flat fee structure. Operating this way allowed larger organizations to expand with little or no investment, providing (typically) under capitalized start-ups with a cash-flow. The trade off is loss of control IE. who is hired, who is training, what is said to the client and for those who did enroll, in many cases, disappointment.

    • http://GetOutOfDebt.org Steve Rhode

      Michael,

      Excellent observation. I agree completely.

      Steve

  • Lisa

    For anyone who is/has been in debt, this is devastating news! If debt settlement goes under, millions of consumers will be forced into bankruptcy. I see this happen every day, I happen to work for a debt settlement company who already follows just about every provision listed above. Well, except for the fee structure, seeing as NO company would be able to cover overhead & salary costs with a $50 enrollment fee & 5% on the back end for settlement fee. Example: Someone enrolls with $10,000 unsecured claims, that is settled at $5,000, thus $5,000 savings to the consumer. In a typical 36 month program, that comes out to about $8.33 per month, per client. Maybe if there were more regulation, and less bad-mouthing in this industry, it wouldn’t be such an issue. As far as CCCS goes, that’s a crock of s***, I know of many people who went through that, and were still deep in debt after 6 years of going through them. They aren’t bad-mouthed so badly though, because they are funded BY THE CREDIT CARD COMPANIES. It’s unfortunate, if this bill does get passed, approximately 30,000 people will be out of jobs, and that is just those employed by TASC members. And I’d like to know, how is it fair that Chuck Schumer can be secretly working on this act for 9+ months, then debt settlement has less than 48 hours to react? It’s a shame, there are always two sides to every story, but everyone is so quick to hear the bad stories and the complaints, but if anyone ever took a minute to realize the benefits in something (and this comes with EVERY industry!) then maybe everyone would have a fair chance.

    • http://GetOutOfDebt.org Steve Rhode

      Lisa,

      Interesting that your comments contain almost verbatim the content of the TASC and USOBA emails that were sent out today or yesterday.

      I understand your outrage but honestly the industry really has nobody to blame but themselves. For years States have been behind the Uniform Debt Management Services Act that would have resulted in much higher income for debt settlement companies but the trade associations fought that every step of the way.

      Before you start believing the BS line about this new regulation being the action of New York activists, you need to read this.

      This has not been a short notice event. The FTC has held hearing after hearing and still can’t get the cooperation, information, or even the USOBA member list.

      What you are watching here is an industry that made nearly every wrong move to protect itself.

      And it seems to me the biggest reason many companies will vanish is not because something can’t be worked out of the fees, but because most debt settlement companies today are almost a Ponzi, with new sales needed to pay for current needs. If money paid by previous clients had been escrowed and taken as earned there would be plenty of cash to help companies transition.

      Steve

  • Tom

    Steve,

    In your expert opinion, do you think this legislation will pass as written? If not, do you think these companies are still going to be able to collect upfront fees? Also what are your thoughts on the agenda that politicians are in this to protect the “Big Banks” from taking losses on settlements that these companies are able to negotiate. The interesting issue is, Credit Card companies collecting BILLIONS of dollars annually in FEES, as well as the high interest rates that leave consumers paying minimum monthly payments for the rest of their lives.

    • http://GetOutOfDebt.org Steve Rhode

      Tom,

      I think there is a 50% chance this will get attached to some other bill and sail through. The problem is the debt settlement industry and trade associations have no credibility left anymore. They wasted so many chances to police their own industry and frankly did nothing.

      Banks will still settle with consumers after this passes. I don’t believe in the bigger argument.

      This situation is the result of a lot of consumers getting screwed by bad actors in debt settlement and the industry doing nothing about it.

      Steve

  • Madeline

    I have been in the settlement industry for 8 years now and frankly, welcome legislature that will help weed out the bad companies that are not providing honest services for clients. There is no such thing as a quick fix and it is imperative that consumers be given full disclosure, including potential creditor litigation, tax ramifications, and adverse credit notations. Legitimate companies DO exist in the marketplace; the practice of settlement itself has been utilized by banks for decades, if not centuries.

    What people need to realize is that if something sounds too good to be true it probably IS. Settlement is not too good to be true, nor a quick fix. It is an alternative to BANKRUPTCY and the only consumers that should consider it as an option or those that are in the rears that do not want BK. It is important to verify expenses and budget to make sure it will provide benefit and welfare; similiar to CCCS. Unfortuately, the industry has been rampaged with shady mortgage players who pay no mind to providing legitimate services.

    Regarding fee structure, people do not realize the cost associated with marketing and the differences between receiving caps from banks (CCCS) and not; and it is those same people that are so quick to try and compare the two. It would be ideal to limit fees to 5% but there is no way a company can successfully pay for marketing and overhead to service clients the right way at 5% cost.

    It sounds to me as if you are saying, Steve, that you’d rather see consumers have only the option of bankruptcy if their current circumstances are creating a negative cashflow… rather than implement regulations to an industry that can and DOES provide benefit.

    • http://GetOutOfDebt.org Steve Rhode

      Madeline,

      I previously posted an opinion that I thought a $50 monthly would make more sense plus a higher success percentage. Read this other post.

      Steve

  • Mike

    It will never pass as written Steve. You are very foolish if you think so.

    • http://GetOutOfDebt.org Steve Rhode

      Mike,

      I don’t think so. There will be changes.

      Steve

      • Danywise46

        yo stop bashing companies and get a life dude ive had a debt firm handle my case and it was great experience……..i hate people like u got nothing else better to do with you life than bash companies.

      • http://GetOutOfDebt.org Steve Rhode

        Interesting. Let’s discuss a specific example where I “bashed” a company and examine if any criticism I wrote was deserved. Give me the link to a specific article and a point I raised that you disagreed with and let’s talk about it.

        Steve

  • John

    What about the companies who are trying to do it right, albeit few, that agree that the fees should be collected after settlements, and ony take customers who they can help?
    No one can make a profit on 5% of the savings.

    • http://GetOutOfDebt.org Steve Rhode

      John,

      Since industry trade groups TASC and USOBA elected to not police their industry the good guys will be dragged under by the bad acts of other members and peers.

      This legislation is not designed to regulate, it is designed to put everyone out of business as it was presented. Tell me, who do you suggest is a good guy that regulators should use as an example?

      Steve

      • http://active-debt.com sean

        It WONT put everyone out of business- LAWYER groups who STILL SUCK at this are already going crazy! The lawyers win, consumers lose.

  • http://www.emergeamerica.com Michael Reilly CDS

    Well it’s about time! I personally deal with folks in the NY market place, many of which have been taken by those who prey on the weak, not to mention those hiding behind the attorney based model. I often wonder when someone of power will look in that direction.

    Keep up the good work Chuck!

    • Adam

      It amazes me that almost everyone who says “I was taken by a settlement company, is someone who quit before completing the program. If you are putting $300 a month into escrow to settle 30K in debt it will take at least 18 months before there is enough money to even make a first offer. It is not a quick fix it is legitimate way to get debt free in under 5 years. Not being able to collect more than $50 in the first 18 months+ of a clients program is like saying senators and congressman should not receive pay until laws are passed that match their campaign promises.

      • http://GetOutOfDebt.org Steve Rhode

        Adam,

        In my opinion that would be a gross over-assumption. Many people bailed out of the programs because they were found to be illegal, as in the 30,000+ consumers that suffered under Hess-Kennedy and Allegro Law, and many bailed because they were sued while enrolled in a debt settlement program.

        You appear to be saying that the consumers should have known their debts would not be settled for years even though many debt settlement sales people say otherwise, state they will make credit calls stop and promise to settle debts for as low as “pennies on the dollar.”

        As for the position that it is unreasonable to wait for the job to be completed before being compensated, that’s the way most companies in America work. I had solar panels installed and did not pay the company till the work was fully completed. I don’t pay the guy that cuts the grass before he cuts it. A company that starts up to create some automotive product does not require people to buy it before investing in designs, tooling and production.

        While the time periods are shorter in some of my examples, maybe the real problem here is that consumers that can only save $300 a month are not appropriate for a long term debt settlement approach and should never have been enrolled to begin with.

        In a $30K program the typical debt settlement fee would be about $4,500 and not stop lawsuits or collections calls and result in bad credit and a possible tax liability. When for $1,500 a consumer can go bankrupt, avoid any tax liability for forgiven debt, legally stop all collection calls, stop all lawsuits and terminate any garnishments. Where is the value in the debt settlement approach?

        Steve

      • Adam

        Lawyers require retainers & payments even when they lose the case, Doctors charge thousands even when they cannot cure a disease, Congressmen & women & senators make a VERY comfortable income even when they never initiate 1 law based on the campaign promises they make. I do not want to argue this point but I (as a settlement employee) Know that good debt settlement companies do 100′s of hours of work to achieve each settlement. This law says those hours can only be compensated after a settlement is achieved that would take an exorbitant amount of funding to pay for the people who work on the case. Settlement, like law and medicine and politics carries no guarantee so those 100′s of hours of work could go uncompensated. I personally have clients who have completed their settlement programs and not 1 was unsatisfied. My wife has had her first card settled an $18,500 mastercard was settled for $1900 she has 3 smaller cards still pending and should be finished in just 1 more year. As for Bankruptcy It is an automatic public record (judgment) that remains on one’s credit report for at least 7 years but usually more like 10-18 years I have personally seen bankruptcies on my clients credit reports that were discharged in 1992. The advantage of a settlement program is that a monthly payment you make is about 1/2 what it was before enrolling. If a client ends up with a garnish it is usually still less costly than the minimum payment was to their creditor before enrolling, as for collection calls and such. EVERY client I have enrolled I tell the following drawbacks 1. your credit score will decline 2. you will receive collection calls. 3. you can be sued by your creditors. 4. We DO NOT send monthly payments to creditors unless negotiated. 5. You can be taxed on the amount you save which is a small percentage of the savings. These are on our contract in clear precise language as well. The fee for bankruptcy average $1500 is for about 2 hours of work so $750 an hour is reasonable but for 100 hours $4500 is not?

      • http://GetOutOfDebt.org Steve Rhode

        Adam,

        Your statement about bankruptcy remaining past 7 years for a Chapter 13 or 10 years for a Chapter 7 is not correct. If a case was missed and is still being reported past those timelines it is a simple matter to have it remove by contacting the credit card company. interestingly, a debt which goes into default in a debt settlement program is also reported for 7 years, same as a Chapter 13 bankruptcy.

        You might run the best debt settlement program around, but this isn’t about you. I suggest you read TASC and USOBA Members. You Are Only as Strong as Your Weakest Link.

        These new regulations wind up impacting you because your trade associations and the industry did nothing to rein in the bad actors and embrace consumer protection. They are the ones that drove this bus into the wall.

        Steve

      • jorge

        Adam,

        Your statement is wrought with inaccuracies. Bankruptcy involves a lot more work than you think (2 hours)That’s a joke. The paperwork itself is 100 pages long plus hearings, etc. I know, I’ve claimed and it saved my life for pennies compared to what was discharged.

        Also, don’t try to compare lawyers and doctors to the self-proclaimed non-licensed and generally uneducated debt settlers of the world. Debt settlers aren’t even required to undertake criminal background checks.

        Fix this system before more consumers get hurt..then, let the states bars deal with lawyers. There are plenty of good and honest lawyers out there that won’t touch debt settlement with a ten-foot pole. I know, I am good friends with one of them.

        PLUS, LET’S BE HONEST, ANY CONSUMER WITH A HALF A BRAIN CAN NEGOTIATE THEIR OWN DEBT. Why pay thousands so that someone else can make a phone call for you???

      • Adam

        Jorge, I meant 2 hours of work for the attorney not the client. To answer your other misstatements, 1. One of my clients was trying to settle herself and Discover would not negotiate with her but once turned over to us they settled for .43 on the dollar. I know that bankruptcy in NY requires 42 pages of forms to fill out but hearings are not required. One meeting with a trustee appointed by the court is all that is necessary. I stand by the fact that there are MANY different things you pay for before you receive the service,IE: Magazine subscriptions, Keep in mind that the so-called licensed professionals IE: doctors, lawyers, and politicians are sued often due to the fact that they charged and did not do the work correctly. If you think any idiot can settle their own debt try calling a creditor one day and offering a settlement it is easier to fly a spaceship. By the way I work with excellent consumer advocacy lawyers and have for 17 years. Most of them call corporate attorneys scam artists. The firm I am affiliated with has only attorneys handling all settlements. Do not judge an industry on the bad apples. I also want to state that my company is not affiliated with USOBA or TASC.

      • Geoff

        Jorge,

        I’ve read Adam’s previous post, and I believe he’s talking about the lawyers working for 2 hours on Bankruptcy, not the consumer.

        Also, settling your own debt isn’t always the easiest thing in the world. Not only having to deal with creditors, but also collection agents can be pretty tough. Like you said, claiming Bankruptcy “saved your life”, but in retrospect, I’m sure you know exactly how ruthless these collection agents can be.

        Now, I think it’s a safe assumption that most people who have major unsecured debt (and are considering “help” – Settlement, bankruptcy, etc.) also have a problem managing money. Since, well, managing their money poorly, greatly added to them being in major debt in the first place. Debt Settlement provides a safe, trustworthy way of helping someone actually save up for a settlement- Paying into a escrow account.

        Also, who’s to say that a creditor doesn’t file a lawsuit against someone, who is trying to save up for settlement on their own?

        (I’m not saying this applies to the industry as a whole) Lawyer Based programs in Debt settlement usually provide legal services in that case. So, how much would it cost for a person to retain their own lawyer in that matter? 250 an hour?

        What amazes me is your statement: “ANY CONSUMER WITH A HALF A BRAIN CAN NEGOTIATE THEIR OWN DEBT.” If that’s true, then why did you end up having to file Bankruptcy?

      • Jorge

        A. I was saying lawyer’s spend a lot more time than 2 hours.

        B. I didn’t “negotiate” my debt because it made way better sense financially to simply discharge it. Why should I ruin my credit for the next few years and have no legal protection while paying the majority of the debt?

  • Katrina R.

    Steve … HUGE news. Good job.

  • Paul

    Great reporting, has this bill already been passed or still in the process?

    • http://GetOutOfDebt.org Steve Rhode

      Paul

      It’s just out of the gate. We will have to wait and see what makes the finishing line.

      Steve

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