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Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the Attorney

Debt settlement companies right now are “running” to find lawyers to front their operations or to be the service providers of debt settlement services because the debt settlement industry feels attorneys are going to be exempt from the new consumer protection law. Let’s see specifically what the Debt Settlement Consumer Protection Act says about this.

(B) EXCEPTION.—The term ‘debt settlement provider’ does not include the following:

‘‘(i) Attorneys when—
‘‘(I) acting in the ordinary practice of their professions;
‘‘(II) acting through any entity in the ordinary practice of their profession;
‘‘(III) acting in the States where they are licensed to practice their profession; and
‘‘(IV) not holding themselves out as debt settlement providers or providing debt settlement service. – Source

Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the Attorney

I think focusing on this possible exception is a fatal flaw
and makes the industry a bigger target.

Rather than actually address the bad actors in the debt settlement industry that are ripping consumers off, the trade associations are running for an exception. Without addressing the underlying problem of consumers getting screwed the industry is only hurting itself and its reputation further by looking for a loophole to perpetuate bad acts.

Rather than either TASC and USOBA stepping forward and embracing some type of regulation they appear to simply want to continue business practices as usual but with a loophole, the attorney model.

In fact, here is a proclamation from one site.

Debt Resolution Attorney’s Are Exempt

Here is a summary about the issue at hand. I am sorry this has come on with such urgency, but it’s time to mobilize. For all of you who tell me how much you want to help and get involved, now is the time. Please read below the email that was sent to me from our staff in D.C. And then please, follow the instructions and get ALL of you staff and you on the phones with your Senators. This is an important week and huge hurdle we need to overcome.

Last week, on April 27, Senator Chuck Schumer (D-NY) introduced S. 3264 entitled the Debt Settlement Consumer Protection Act. Both USOBA and TASC were purposefully kept in the dark on the Act’s secret development, despite the fact that both groups have been working on debt settlement legislation in numerous states for years, while also working with the Federal Trade Commission right now on a similar rulemaking effort.

As soon as USOBA and TASC learned about the Act, they reviewed it and determined that the fee provisions are so restrictive and radical as to shut down most if not all debt settlement companies. Those provisions ban any fees other than a $50 set up fee and a settlement fee not to exceed 5% of what a company saves a consumer. For example, if a consumer enrolls $10,000 in debt, and a company settles it for $5,000 over a typical 3-year program, the most you can charge is $50+ 5% of $5,000, a total of $300 (not recoverable until you settle all their debts). This is an average of $8.33 per month, barely more than the minimum wage. It represents an attempt at the most restrictive, destructive fee provision in the country. Full Story

USOBA and TASC immediately requested a meeting with Sen. Schumer’s staff. Yesterday, they had that meeting and learned that the Senator’s office has been working on this legislation for 9 months; that they have been working with consumer groups on its development; and, that the Senator intends to forgo any real discussion of this bill by instead offering it in full as an amendment to the Restoring American Financial Stability Act, which is in the final stages of completion. The staff offered us an opportunity to provide our ideas to the bill, but gave us only 24 hours to do so, as they plan to offer their amendment by the end of this week. If they succeed in their plan, this amendment will pass in the next week, if not the following week, effectively ending debt settlement services as we know them.

We need your help right now. Business owners and the consumers they serve are urged to immediately contact the Senators in their home state to help stop this radical legislation. Of specific concern are Senators Hutchison (R-TX); Corker (R-TN); DeMint (R-SC); Vitter (R-LA); Bennett (R-UT); Bunning (R-KY); Johanns (R-NE); and Crapo (R-ID). Please contact your Senators and tell them to oppose the Schumer-McCaskill Debt Settlement Amendment. It will put an estimated 30,000 people out of work, and take away an important debt relief option for consumers at a time when they need it most.

Please do not delay. That means TODAY- THIS MORNING- go online and determine who your federal SENATORS are. You have 2 in your state. Call those people. You will make AT LEAST 2 calls. One to their local in state office, and a second to the D.C. Office. I would appreciate if you could flood as many calls as possible into each of the above Senators offices. Their numbers are easily locatable on Google. Calling the Senators who represent your state will also be very effective.

Attached is a sample set of bullet points. You should ADAPT it for your state and who you call. Although I would like it if you called as many Senators’ offices as you can. Definitely stress how you (1) employ so many people and (2) help so many people and (3) how this bill will cause so many jobs to be lost. Be creative as possible, the calls will be brief, but stress the job killing effect of the Schumer legislation, and how it was “secret” and done unfairly to hurt your company. – Source

Here are the attached bullet points the above mentioned.

Here’s a mini-script – these are the points we ABSOLUTELY need to get across TODAY:

Senator Chuck Schumer has proposed the Debt Settlement Consumer Protection Act, possibly as an amendment to the financial reform bill.

The bill was written in secret by a few New York-based activists and unfairly punishes the good debt settlement companies to get at a few bad apples. [Actually not true, click here.] The bill has had no public hearing and no Congressional review.

What you will notice is that the efforts of the industry remain to protect their income, business and jobs, but not a word about regulation needed to protect consumers. Not only did they miss the boat on this, they are standing at the wrong port.

The new act is the result of consumer outrage against rampant complaints against debt settlement companies. What does running to the attorney model do to address that?

So Let’s Look at How One USOBA Debt Settlement Company has Embraced the Attorney Model

Man oh man it’s been a rough couple of weeks for the debt settlement company Web Credit Advisors. After having been outed in the Senate hearing on debt settlement and included in the GAO report on debt settlement agencies that appear to be bending the truth, it looks like Web Credit Advisors may have some bigger issues. This is a good case to look at the model that many debt settlement companies are hanging their hat on, the attorney based model. Debt settlement firms feel this will give them an exception to the Debt Settlement Consumer Protection Act.

To begin with, Web Credit Advisors, Inc. is located at 17-10 River Road, Fair Lawn, NJ. 07410 – Source

In New Jersey, where Web Credit Advisors is located, that only a nonprofit corporation can be licensed as a debt adjuster.

A “debt adjuster” according to N.J.S.A. 17:16G-1c(1) provides that: “Debt Adjuster” means a person who either (a) acts or offers to act for a consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or otherwise altering the terms of payment of any debts of the debtor, or (b) who, to that end, receives money or other property from the debtor, or on behalf of the debtor, for payment to, or distribution among, the creditors of the debtor.

The exceptions to this restriction are:

Pursuant to N.J.S.A. 17:16G-1c(2) the following persons shall not be deemed to be debt adjusters:

(a) an attorney-at-law of this State who is not principally engaged as a debt adjuster;

(b) a person who is a regular, full-time employee of a debtor, and who acts as an adjuster of his employer’s debts;

(c) a person acting pursuant to any order or judgment of court, or pursuant to authority conferred by any law of this State or the United States;

(d) a person who is a creditor of the debtor, or an agent of one or more creditors of the debtor, and whose services in adjusting the debtor’s debts are rendered without cost to the debtor; or

(e) a person who, at the request of a debtor, arranges for or makes a loan to the debtor, and who, at the authorization of the debtor, acts as an adjuster of the debtor’s debts in the disbursement of the proceeds of the loan, without compensation for the services rendered in adjusting those debts. – Source

When reached for comment and asked if Web Credit Advisors was a non-profit corporation in New Jersey, Pamela Johnston, spokesperson for Web Credit Advisors said, “Web Credit Advisors’ debt adjustment is done by a law office who’s principal business is not debt adjustment as NJ requires. We use the attorney model in NJ.” So it appears they are not a non-profit company.

She went on to tell me the WCA compensation approach under the attorney debt settlement model.

WCA is one of the few debt management companies that offers a performance based agreement. WCA will work for a client on the contingency of its results. If a client owes $100,000 and we successfully settle it for $50,000 our fee will be exactly $12,500. (25% of the reduction of the debt is the fee) WCA will collect this fee over the term of the relationship, not in lump-sum fashion, as funds are available AFTER scheduled payments to creditors have been made. We have no maintainance fees, service fees, interest fees or junk fees of any kind. On occasion, WCA has chosen to extend credit WITHOUT secuity to it’s clients and make settlement payments for them under special conditions. We are aware of no other firm that makes these efforts on behalf of their clients.

WCA will work for a consumer if they so choose, under a flat-fee agreement, where allowed/permitted by law. (state law dictates, each state is different) The flat-fee agreement is offered for budgeting and simplicty purposes for it’s client that “wanted to know what the entire cost will be BEFORE signing the contract”. Under this agreement, if a client has $100,000 in debt WCA may contract with them for a “flat fee” of $15,000 or 15% of the total debt. This fee does not change regardless of WCA’s effctiveness (meaning if we settled 100,000 in debt for 20,000 the fee does not go up). Again, there are no maintainaince fees, service fees, interest fees or junk fees of any kind. This fee is also collected throughout the term of the relationship AFTER scheduled payments to creditors have been made and never in lump-sum fashion. WCA has extended unsecured credit to it’s client’s under this agreement, under special circumstances as well.

We use a licensed attorney in NJ, we are 100% sure that we are compliant and no further information revealing confidential third party contractual relationship information is available on a public level.

Pamela shared that they refer their debt settlement clients to attorney Fred Goetz, who interestingly is also a sales associate at Coldwell Banker. Go Fred! – Source

While the Web Credit Advisor position is that Mr. Goetz is not principally engaged in the business of debt settlement, he does say on his site and Facebook that one of his specialities is debt settlement and he promotes those services.

Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the Attorney

Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the AttorneyAs experienced debt settlement attorneys and paralegals, we specialize in negotiating with creditors to reduce the amount of debt the individual must repay. We will contact each one of your creditors and/or each collection agency to stop the late fees, penalties, and premiums building up on all accounts. We will establish agreements so that the credit card companies and collection agencies will contact the Frederic C. Goetz, Esq., LLC instead of the consumer. We also work to obtain the consumers credit report and work to remove any misleading, unsubstantiated, or incorrect items on our client’s credit reports. This is a very important service that can be utilized by the consumers to restore credit ratings and create a plan for future financial management. – Source

And under the new Debt Settlement Consumer Protection Act even Mr. Goetz as an attorney would not fly as an exception since he holds himself out as a debt settlement provider, not only on his own site but also for other companies as well, like Nationwide Debt Settlement. – Source

But even more worrisome in my opinion is the exchange of compensation between the attorney and the front-end sales team. Even Goetz says on his own site that he offers an affiliate relationship and acknowledges the for-profit company will be making debt settlement sales. He says on his site:”

Frederic C. Goetz, Esq., LLC is an attorney based “back end” debt settlement processing company, handling the direct negotiations and settlements with creditors on behalf of your clients to significantly enhance results. As one of the fastest growing debt settlement services providers in the debt settlement industry, our firm also offers all your company needs to begin or build your front end sales operation.

Frederic C. Goetz, Esq., LLC provides all of our affiliates the following services and we are free of cost:
- No start-up or training fees
- Attorney managed operation
- Compliance expertise
- Personalized account management
- Customized reporting
- Premier debt negotiators on staff
- Exceptional service approach to your clients

Source

So call me crazy, but it just does not seem to be a logical argument by Web Credit Advisors that they are exempt from New Jersey law since they hold themselves out as a debt settlement company in New Jersey but are not a non-profit nor does it seem logical to me that Fred Goetz is not engaged in debt settlement as his principal business when he himself states he is “one of the fastest growing debt settlement services providers in the debt settlement industry.”

Why the Web Credit Advisors Position is Even More Problematic

While I am not a lawyer and many debt settlement companies are rushing to embrace the attorney model where work is performed by an attorney, in my opinion, the Web Credit Advisors attempt to get around the New Jersey statute is flawed. Here is why.

According to the Advisory Committee on Professional Ethics and the Committee on the Unauthorized Practice of Law an ethical opinion was issued in regards to loan modification services sold by for-profit companies but with services delivered by a licensed attorney. It seems to me the situation is similar in regards to debt settlement services since both are financial relief services.

The opinion said that in the three possible models of tangling an attorney and for-profit company in the sale of debt relief services, or in this case, loan modification services, the homeowner either: (1) pays one fee to the company, a portion of which the company pays over to the attorney; (2) pays one fee to the attorney named by the company, a portion of which the attorneys pays over to the company; or (3) pays separate fees to the company and the attorney. – Source

The way the opinion reads, the possible relationships are not without peril. A New Jersey attorney may not pay fees or “anything of value” to the debt relief company for clients referred to the attorney. “Accordingly, a New Jersey attorney is prohibited from paying monies to a for-profit loan modification company that farms legal work to the attorney or recommends the attorney’s services.”

Under the second relationship in which the attorney is an in-house attorney the opinion is clear about that as well.

“A New Jersey attorney may not provide legal advice to customers of a for-profit loan modification company, whether the attorney be considered in-house counsel to the company, formally affiliated or in partnership with the company, or separately retained by the company.

A New Jersey attorney also may not share legal fees with a for-profit loan modification company or assist the company in the unauthorized practice of law.”

Under the third possible scenario a New Jersey attorney may use “an in-firm financial or mortgage analyst or contract with an analyst in the course of providing loan or mortgage modification services for homeowners who have been directly retained by the law firm. The client homeowner must retain the attorney directly and the solicitation of the homeowner for mortgage modification services must be done by the law firm in accordance with the attorney advertising rules.”

In sum, a New Jersey attorney who performs mortgage loan modification services in conjunction with a for-profit loan modification company imperils his or her license to practice law.

- Source

The Web Credit Advisors site is also mum on the relationship with Fred Goetz and seems to speak as if the services are delivered by Web Credit Advisors, who does not appear to be licensed debt adjuster or a non-profit group.

Their site says:

“Web Credit Advisors Inc was founded in early 2007 by former debt managers who were tired of witnessing the strong arm tactics used by the collection industry. We are slowly becoming an industry leader in helping consumers settle their own debt.

Our goal is to help families end financial hardships and resolve debt problems through education and guidance.

By utilizing our Self Help Guide and advisory services, Web Credit Advisors can help you create a customized plan that fits your budget and financial situation. We share your goal – freedom from debt.

When you contact Web Credit Advisors, you will be working with skilled and compassionate people who understand your situation and who are eager to help put you on the path towards a debt free life.

All communications are treated with the highest level of confidentiality and you will be treated with the greatest respect. We are here to help you become debt free.”Source

They also proclaim that the consumer only has to pay one fee for help, including debt settlement.

Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the Attorney

And their FAQ page makes no mention of an attorney relationship either. – Source

So if Web Credit Advisors is using the attorney model for debt settlement services how are the getting around the guidelines which make it problematic in New Jersey?

It seems that either the consumer pays a fee to Web Credit Advisors and is then referred to an attorney or Web Credit Advisors is receiving some benefit of value for referring consumers to a lawyer in New Jersey under his “affiliate” program. When I specifically asked Web Credit Advisors about their fee arrangement they fell back on “no further information revealing confidential third party contractual relationship information is available on a public level.” All of a sudden now they want to be silent.

And the standards for lawyers advertising their services don’t seem to like this relationship either. See sections 7.1-7.5.

Running to the attorney model for debt settlement companies seems to be a horrible idea. Not only does it still have the legal issues of fee splitting, but it appears it can place the lawyers license in jeopardy. Take for example Laura Hess and Andy Nelms who both created attorney based debt settlement companies and wound up disbarred. And mark my words, they won’t be the last.

As an aside, West Virginia also recently sued a debt relief company, CCDN, and cited it’s flawed attorney based model in the complaint. See Credit Card Defense Network CCDN Sued as a Debt Settlement Company by West Virginia.

The State also went after CCDN for the very same issue that I think could scupper all of the attorney based debt settlement companies, fee splitting. An attorney is not allowed to split fees paid for services with non-attorneys and the claim is that CCDN split fees paid for legal services with its non-lawyer marketing agents.

As a Favor to Web Credit Advisors, Hey GAO, Read This

Web Credit Advisors is still speaking back at the GAO for inclusion in their report on debt settlement. You can read my last article on that to get up to speed. They’ve issued the following statement.

Poor GAO can’t keep their facts straight. But that’s ok, they don’t have to because Congress makes it so that they don’t have to verify any of their information.

From the LA Times story – GAO stated that they followed the “If we can’t get you out of debt in 24 hours, we’ll pay you $100!” ad and ended up at a company in Florida – where they went to said company’s offices in Florida.” That is not Web Credit Advisors and has nothing to do with Web Credit Advisors. We suggest color coding as an organizational improvement for GAO distortions.

Mr. Kutz and GAO are wrong again and misrepresenting research on one company as belonging to another. Come on guys, get it straight. Web Credit Advisors has no relationship with any entity outside the U.S. and its only marketing initiatives are public relations and SEO.

Now – about the 100% argument and the subsequent disclaimer that GAO feels sales people should give over the phone…

My car goes from 0 to 60 in 8 seconds. Does the salesman need to remind me to have gas in the car, or hit the gas pedal? How about a disclaimer about how snow might impact the results?

Notwithstanding, the transcript with the WCA representative is blatantly clear – the rep states that 100% of people eliminate debt in up to 3 years. That 3 year comment is so obvious a disclaimer and warning that the customer should expect to have to stick with the program for up to 3 years. That makes his statement totally accurate.

Despite any industry statistic, WCA stats do not follow the norm and indeed WCA confirms that 100% of people who enter, follow instructions and complete the program get rid of their debt. Trying to distort the facts about a good company behind GAO’s information anonymity is wrong. Our sales script does not say this, our web site does not say this and we are one of the best debt settlement companies so classifying us as “your worst” doesn’t hold true.

You’ll see that our BBB rating was an A- because we operate a legitimate operation. The only reason the BBB rating is now an F is because BBB decided recently that the highest score a debt settlement company could obtain is a D-. So while you point out the F rating, please tell me any company that has higher than a D- and be forthcoming about your lack of perspective.

We expect you will continue to make things up so you don’t have to say that WCA is a reputable company and that GAO is wrong and made a mistake.

We know you’d never admit you were wrong, but you are really wrong about us.

Please come to our offices at our expense and we would be delighted to open up the hood on our operations. We have nothing to hide.

So as requested and as a favor to Web Credit Advisors, I’ve published their statement in its entirety for all to read. But somehow I don’t think taking pot shots at the GAO is a good tactic to use to dig themselves out of this hole.

Why Running to the Attorney Model for Debt Settlement Seems Like a Bad Thing to Do for the Attorney
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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.
  • Curious

    If and when this bill is passed, what will become of the contracts that are already in place? The article mentioned the bill being passed within 2 weeks which would put an immediate end to the front end companies that are writing these contracts, but what of the back end service providers?

    • http://GetOutOfDebt.org Steve Rhode

      Curious,

      I would imagine they will fold since they will not have any new income flowing in to pay for operations.

      Steve

  • http://debtbytes.consumerrecoverynetwork.com/page/3/ Michael@CRN

    Think,

    You absolutely nailed it!

    If there were an end to usurious interest rates, a large percentage of consumers would not need Credit Counseling, Debt Settlement or Bankruptcy.

    Until recently there has not been much political will to address the issue of usurious interest rates by credit card issuers.

    In this bank risk taking led recession, it has become more difficult for banks to curry favor.

    There is an amendment put forward by Senator Whitehouse to repeal Marquette which would leave it up to states to set interest rates caps as was the case pre-Marquette.

    This amendment needs every Americans support!

    http://www.creditslips.org/creditslips/Marquette%20Amendment_FILED.pdf

    Explanation of Amendment:
    http://www.creditslips.org/creditslips/Whitehouse%20Marquette%20Amendment%20Explanation.pdf

    Discussion:
    http://www.creditslips.org/creditslips/2010/05/amendment-to-repeal-marquette.html

    Ending the interest rate games used by creditors would provide the simplest, fairest and quickest method of protecting consumers and would further boost an economic turn around!

    Michael

  • Think

    I hope my previous comments shed light that the real problem is the terms of the banking loans and interest rate adjustments would solve most of these debt problems.

    By the way, I very much enjoy the commentary on your site.

  • Think

    As a bankruptcy attorney in Southern California, I have had a close relationship with the debt settlement industry. We do obtain clients who failed in debt settlement programs. More often than not, these individuals did not find success with debt settlement because their economic situation became worse and could no longer afford their monthly savings and bankruptcy became their last option.

    For the appropriate client, a debt settlement program works if the client’s financial situation stays the same or improves during the course of the program. If it becomes worse, bankruptcy more often then not becomes the end result. Many, but not all debt settlement refugees, have spoken highly of the company they were with. Some have felt they were robbed by the settlement company, while others had great success until economic hard times gave them no choice but to declare bankruptcy. Personally, in the appropriate situation, I have guided clients away from bankruptcy and have had success with debt settlement.

    I feel a lot of debt settlement companies out there do a disservice to the client who seeks help from an unrealistic television ad promising unrealistic outcomes with claims that they are supported by a government program or they have an attorney backed model that is a marketing fallacy. The major problem with this industry is the dishonesty in marketing.

    This being stated, I know of settlement companies that have positively changed the lives of their clients. I would like to separate these “attorney networks” from the bad companies, but I cannot as unfortunately they are in many ways worse. What I have seen, these “attorneys” having little to no review of the outcome of their “clients” and are participating in unethical fee sharing with enrollment groups to whom the success of the client means little to nothing. I do respect that the service can be life changing in a positive way for many individuals if they fit a specific budgeting situation and enroll with a result driven company or seek the service of an experience attorney.

    In going forward, considering regulation, I would suggest a limit on up front fees, a low monthly payment, and profitability for these companies directly related to the savings and benefits that the client receives. It is important to remember that a potential client who comes to you with $20,000 in debt is only in debt $20,000 if they have $20,0000 today. If they are only able to afford the minimum payment with a moderate interest rate the actual amount of debt is generally at least double.

    This is just my two cents and I have watched this industry evolve over the last decade to some who provide a fantastic service to the appropriate client to others whose gross misjudging of the adequate remedy to the client’s financial status has led to disaster. There exists horrible companies out there whose fee structure relies solely on the constant enrollment of clients with no regard to to the service provided, while there are ethical companies whose fee structure is dependant on the service they perform where I have seen incredible success.

    The worst of these companies are the same companies who have abused the loan modification industry and who evolved from the quick money of the mortgage brokers years prior.

    If the decision is to federally get rid of this industry, the solution is simple. Enforce usury laws that cap interest rates at 10 percent to lenders. A majority of clients I service, are not buried by the loan itself, but by the conditions of the loan. It is a fact that consumers who make monthly minimum payments on time and are avoiding the ridiculous interest payments and late fees to the lenders are known as “dead beats” within the industry because of the lack of profit from these individuals.

    Our founding fathers agreed that debt prisons should not exist and the act of charging an egregious interest rates on loans in effect puts the recipient of a loan in a debt prison. By not enforcing usury laws we have created a nationwide debt prison where, in certain circumstances, debt settlement, among others methods, provides the key to be released this state.

    Who are these debt settlement clients? Some have had personal or family medical hardships. Others have had long term unemployment or suffered the result of acquiring a lower paying job while their monthly expenses remained constant. Others just suffer from billions of dollars of effective advertising and, when given too much credit, the likely result occurred for just being human.

    In my experience, the overwhelming majority of clients that result to debt settlement enter a program because they are desperate to make good on their loans. If they could realistically get ahead, they would. They feel guilt of their current situation but reality has dictated the impossibility of living up to their current terms. Lenders will only adjust these terms after massive and sometimes horrible pressure fails. They would prefer the debtor make minimum payments for decades where little ground on the principal is accomplished then adjust their rates. Even though shy to admit it, the lenders prefer they receive a settlement from the client then the client declaring bankruptcy. Some settlement companies entice those that are more than able to make good on their debts to join a settlement program and this obviously upsets the lenders. Most in settlement programs attempt to keep up with their minimum payment years after they have made enough payments to cover the principal on the loan they received and just get fed up with constantly living life in an unrealistic debt ditch. In the end, debt settlement becomes a negotiation on how much the lending institution is actually going to profit off of the debtor.

    To give a couple of examples of clients who avoided bankruptcy with my firm, I recently had a client where we did the math and if they continued to make the minimum payment on a $4,000 debt, it would of taken her 2100 years (yes 2100 years is not a typo) to pay it off if she stuck to minimum payment schedule and she could afford little else. We adjusted the interest rate to 4% from 34% and closed the card. This was not an individual who was eligible for bankruptcy, but the lending terms were so egregious they defied logic unless you were the lending institution. She will be out of debt in two years on her new schedule. Another example is a client who came to me with $90,000 in debt. We have recently settled two accounts of his which total $75,000 of the debt for 15% each. Under our settlement agreement, the client will be making payments until next February and I will not receive the fee for these settlements until next July under the current payment schedule. Before next July, hopefully I will settle the remaining $15,000 of debt which most likely will delay my main fee which is a percentage of the savings. Outside of the settlement fee, I receive a $55 a month service fee. It would be hard to stay in business if I had to wait a year or longer for all fees based on my firm’s service. There is always a chance that the client’s economic situation will become worse during this period and have no choice but to result to bankruptcy Before putting this client into a settlement program we did intense budget evaluation to judge the client’s likelihood of success. To accomplish these current settlements, the client had to borrow from his family to receive the deals currently achieved. If the client’s current financial situation does not negatively alter, at worse case, this client will end his settlement process with avoiding bankruptcy and receiving a low interest monthly payment on the remaining $15,000, which will probably end up costing him $23,0000 over 5 plus years. The best result is that we will eventually be able to get into an agreement to settle the remaining $15,000 (where the balance will increase due to added fees) for somewhere between $3,000 and $7,5000 (it is important to note that over the last few years the client has already paid the lending institution almost double the amount of the original loan). This client did enter the program with the stated $90,000 in debt. Based on his interest rates and by making the minimum payments outside of a lottery victory this client was currently over $200,000 in debt over the next 23 years The lending institution at the end of the day will agree to the settlements for two reasons. First, they have already profited on the amount of the original loan. Second, this is a better deal for them than the client declaring bankruptcy. The are more likely to “deal” (they already have received a fantastic deal) with an attorney or experienced negotiator who understands the clients current real debt situation. As stated previously, debt settlement as a result is generally a negotiation on the amount of profit the lending institution generally receives.

    I hope the was a helpful review to the negatives and positives of the debt settlement industry which should continue to exist under increased regulation which mostly involves honesty in marketing. Sorry for the intense rambling and hopefully I was grammatically correct.

    • http://GetOutOfDebt.org Steve Rhode

      Excellent commentary. Thank you for the thoughts and time to post this.

      In my past I too have helped people settle debts but the issue here is not if in certain cases debt settlement is appropriate and works. The heart of the problem is as you observed, deceptive marketing and the enrollment of anyone with a pulse.

      Where the industry went off the rails was not to insist on real guidelines or limits which left the bad apples to run wild and tarnish the name of debt settlement for all. Bottom line as I see it, if the industry was not willing through trade associations to police itself, regulators will step in and do it.

      Steve

      • http://www.universaldebtsettlement.com jeff

        The trade associations do police themselves, but asking them to police the entire industry beyond its membership base is not the scope of any association in any industry that I know of. Regulation is needed, no question, and the associations have been working on that with state AGs and the FTC. Being a member of TASC myself, I can assure you they do monitor my business practices i.e. web content, secret shop, marketing materials, client agreements and disclosures. I am a small settlement firm and have happy clients because we do not over promise and under deliver. Giving consumers realistic expectations is the only way I will operate my business. I can honestly say, we are helping people and I would never take advantage of someone to make a profit. There are good companies and good people in this industry trying to make a difference in people’s lives. Because Debt Settlement companies are “for profit” does not mean they will do anything to make a profit. There are more problems in the Credit Counseling industry than the DS industry in spite of their “non profit” status, where that have found more loop holes than Swiss cheese to hide profits. In my opinion, Congress telling us what we can charge for our service is unconstitutional. If the program is properly disclosed with all the potential downsides, realistic expectations and clear fee presentation, it’s up for the consumer to decide if he/she wants to pay for the service.
        That is how I have been conducting my business from day 1. My growth has not been off the chart like other companies but my clients are happy, they are getting exactly what we promised, and I can go home and sleep at night.

    • Sunny

      Thank you for the insight on the attorney model done right. I am also located in So. California, and I currently work for a firm that is “scrambling” to save themselves. Although our reputation has been pretty good and we have successfully negotiated settlements for clients in the past who have been very happy, there have been changes to our company due to management expansion and disastrous marketing practices. My track record of ethical, consistent procedure (ie., making sure debt settlement is right for a client through an analysis of their financial hardship– if not, suggest talking to a bankruptcy atty.)is being jeopardized by our company’s desire to “bring in numbers.”

      Are you hiring? My email is [email protected]. Your law firm’s practice sounds like the most intelligent settlement practice I have come across. Thanks again.

  • Anonomous

    WE MUST STOP THE Debt Settlement Consumer Protection Act. It is intended to be offered as an amendment to the Restoring America Financial Stability Act without floor debate. This is a move calculated to “sneak” this bill into active legislation without allowing proper review and input by industry experts and consumers that need debt settlement as an alternative to bankruptcy. As currently written, this bill would extremely limit the availability of debt settlement as an option to financially-strapped consumers. It would make bankruptcy a singular option and cause even more financial chaos to the nation. There are over 1,000,000 consumers currently enrolled in debt settlement. Debt Settlement has saved tax payers over $20,000,000 in bankruptcy costs in CA alone. Over 3 BILLION of debt was settled by the industry as a whole.

    Please help expose the sneaky tactics of Senator Schumar and the potential damage his amendment will do to our American economy.

    Respectfully,

    Janet Harper
    Fort Collins, CO.

    How it will affect Americans…

    • Only credit card companies and collection agencies stand to benefit from S. 3264.

    S. 3264 directly harms the individuals it seeks to protect – consumers – by stripping them of what may be their only realistic option to settle their debt outside of bankruptcy and shifting all of the negotiating leverage to creditors. The only ones who stand to benefit from this legislation are credit card companies and collection agencies. Regulation does not equal elimination of settlement…

    • S. 3264 eliminates the only truly independent alternative to bankruptcy for consumers and will lead to an increase in bankruptcy filings.

    Debt settlement programs are often the only way for responsible consumers who want to pay back their debts but who cannot afford to repay the entire amount that they owe to avoid bankruptcy. Credit counseling programs, while right for some people, are supported financially by the credit card banks and do not provide independent advocacy. They are invariably more expensive, last almost twice as long and have much lower completion rates than debt settlement programs. Regulation does not equal elimination of settlement…

    • S. 3264 threatens tens of thousands of jobs across the country.

    The impact of S. 3264 would be to make consumers worse off and would hurt the economy. If passed it would immediately eliminate the debt settlement industry and with it 50,000 – 80,000 jobs and hundreds of companies nationwide. Congress cannot afford to pass S. 3264 at a time of record unemployment. The loss of a key debt-relief option for consumers and the loss of tens of thousands of jobs resulting from S. 3264 would have a severe impact on the economy. Regulation does not equal elimination of settlement…

    • S. 3264 fails to account for progress being made in the pending FTC rulemaking.

    The debt settlement industry has been actively engaged in a dialogue with the Federal Trade Commission, with the objective of crafting a thoughtful, comprehensive approach to enhance consumer protections. The adoption of this legislation would undo that progress.

    • Consumers need access to debt settlement as an option to manage their financial hardship.

    The debt settlement industry offers a solution to unmanageable credit card debts when other alternatives are not viable. Debt settlement programs are the only affordable program aside from bankruptcy for consumers who cannot afford to repay the entire amount they owe. They also help consumers set up a workable budget and develop the financial discipline necessary to get out of debt and back on track without declaring bankruptcy. Without a debt settlement option, consumers who could not afford credit counseling would be forced to file for bankruptcy – their only other option. Last year, Superior Debt Services alone helped consumers settle in excess of $44 million dollars of debt, saving consumers $28.6 million and returning $15.4 million to creditors and the economy. It is estimated that more than $3 billion of debt was settled by the industry as a whole. Regulation does not equal elimination of settlement…
    • Congress must not allow S. 3264 to be part of the broader financial regulatory reform.

    Any attempt to offer S. 3264 as an amendment to the Restoring American Financial Stability Act of 2010 or add it to a Manager’s amendment should be opposed in order to provide more time to consider the risks and consequences of the legislation. Because the legislation as written would have such an immediate and dire impact on consumer choice and jobs, it needs to be approached much more carefully than a hastily written bill that is totally lacking in administrative record or debate. Regulation does not equal elimination of settlement…

  • JSH

    I completely agree. Instead of hurting the good settlement companies, let’s force that bad one’s out of business. But this bill will make the industry go completely under. i work for a settlement company and we have no upfront fees., a great rating with BBB. We are actually going to a no fee model until debt is settled. But this bill will make it to where we can’t keep our doors open. Let’s pay any service provider 10 bucks to their service. Let’s pay these senators 340 bucks a month.

  • http://active-debt.com Sean Ryan

    Using Hess- Kennedy as a basis for saying the attorney model wont work is like using Bernie Madoff as an example of saying an investment company wont work. There are ways to get this done- it is being done now- The attorneys will be richer at the expense of consumers already in deep financial trouble

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