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Does the New Debt Settlement Industry Get It?

A tipster (send in your tips here) sent in a link to a recent article from CreditCards.com that was published on Fox Business, “Debt settlement industry in flux as new rules start.”

In the article is a section attributed to Andrew Houser from Freedom Debt Relief.

Cherry picking the good cases

Housser from the settlement industry trade group says the fallout of the new rules may be fewer consumers receiving help getting out of debt and more people either filing for bankruptcy or facing civil lawsuits and garnishment of their wages.

He says debt settlement companies that continue to operate are likely to only sign up debtors with cases they can win quickly so negotiators can collect their fees as fast as possible.

“In the new world, the post FTC-rule world, if you’re not getting results for customers, you’re not making any money,” Housser says. Debt settlers likely won’t sign up clients with “low probability of success” in negotiating settlements with creditors. He asks: “Am I really going to want to do all that work for free if there’s only a 25 percent chance of success? I think it’s only natural that companies will start to turn down cases with a lower probability of success because they won’t work for so little or no return.”

Says Housser: “On the positive side, the fact that we are not charging any fees until after the first settlement means that we will be able to get the first settlement earlier in the process, which should improve customer satisfaction and therefore retention. On the downside, the fact that consumers are paying no fees at all in the early months of the program may decrease their commitment to the process. Without ‘skin in the game,’ consumers may be less likely to stick with it.” – Source

I really hate to say this but WTF!

Debt settlement companies should only be enrolling people that have a good chance to settle their debts without lawsuits or wage garnishments.

The point that was missed is that consumers that have their debt settled quickly are the most likely to be successful in resolving the debt. And that’s a bad thing?

Debt settlers won’t be likely to sign up clients with a low probability of success says Houser. Amen say I. So the downside to the new laws is that people with a low probability of success won’t be enrolled in debt settlement programs. Am I missing something here?

The statement is made that by not charging advance fees more consumers will have a greater chance of success. So why were you not doing that until the government forced you to change?

While the nonprofit credit counselors may be all giddy at the moment and feel they have won some battle, they haven’t. Regulation is coming that will further control what they can do and the underlying issue is the credit counseling product is broken in that only people that can afford their regular monthly payments are best suited for it.

Your Mother

This is a situation in which we need to apply the “Your mother” logic. Would you enroll your mother in a debt relief solution where she had a lower chance of success and a higher change of being sued or a wage garnishment? If you would, you’re an idiot.

There is no downside in the new law as long as you are putting consumers first. Let’s see, the result of the new law is more people that should never have been signed up for debt settlement, aren’t?

Does the New Debt Settlement Industry Get It?
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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.
  • Cviale

    hi bobby, our entire focus shifted from looking at enrollment numbers to how do we keep our clients committed to the plan so we have an enormous amount of data surrounding what it takes to drive these numbers. 2 main areas, complete disclosure of all good and bad aspects of a dmpprior to enrollment including what it will take as a consumer to succeed on a plan. scare straight if you will. we put a great deal of work in our quality control prior to proposing a plan to a consumer which in turn leads to a very high proposal acceptance rate which builds consumer confidence. to often i have seen first hand sales oriented shopd lead to sloppy enrollments which in turn leads to proposal problems and changes to the consumers account after the client signed up and thought they were good to go. most agencies lose there clients in the first 3 months due to not being focused strong enough on the front end to get it right out of the gate for the consumer. 2nd area we have developed a very strong post counseling effort that drives our clients to truly change there spending habits. every call and session we are working to help our clients have the ability to save so they can handle any financial challenges they may hit during the program. those 2 areas i would say have made a big difference. hope that helped christopher

  • Cviale

    the 50-65% is not bs jason, my doors are open and everything about cambridge since mid 2004 is extremely transparent. I have worked with several attorneys general and the ftc to provide data to support the fact that a well run dmp is beneficial for consumers and our data has been vetted out. I am not speaking for the entire industry as just like with debt settlers there are bad and good players all i am saying is a well run dmp with solid customer care and disclosure of expectations up front does have an end result of the average length of time on these plans of 33 months. this takes into account the folks that drop out before completion and yes in cambridges early days when it ran an upfront fee model focused on enrollments and not the quality care needed the average lenght of time on the plan was only 17 months. The upfront fee model does not work it was simply in play to pay for the advertising and the commissions being paid out to the salespeople back then. flawed model period so this entire “buy in theory” is a bunch of bs. you can feel free to call me jason christopher

  • guest

    Andy is right its the same scammers doing the same thing. Look at johnson law group in nevada. they pushed out the attorney eldridge. the owners of advance client solutioons ken kestinbaum and paul constantino, with ceo dan damonte opend a company called consumer debt legal group with attys from johnson law. the attys who front that company mike lee and nick snow worked at johnson law.
    constantino and damonte are felons its the same crooks doing the same things. its the same people and same companys all involved. nothing changes.

  • guest

    Andy is right its the same scammers doing the same thing. Look at johnson law group in nevada. they pushed out the attorney eldridge. the owners of advance client solutioons ken kestinbaum and paul constantino, with ceo dan damonte opend a company called consumer debt legal group with attys from johnson law. the attys who front that company mike lee and nick snow worked at johnson law.
    constantino and damonte are felons its the same crooks doing the same things. its the same people and same companys all involved. nothing changes.

  • Jason Taylor

    I call BS on a 50-65% completion ratio for any credit counseling program. I also call BS on average lenght to completion being 17 to 33 months. If people could afford to pay that kind of payment in order to complete the program that fast THEY WOULD NOT NEED a credit counseling program.

  • Bobby Zangrilli

    Chris, this is good info. What else did you guys change to make your completion rates increase?

  • Christopher viale

    jason, the 20% figure of consumers completing a dmp plan is not even close to accurate. I created a best practices working group a couple years back which is made up of 11 good credit counseling agencies and the completion rates run in the 50-65 % range for those 11 agencies. to the earlier comment about skin in the game this notion in completely untrue and my agency is complete proof of that. prior to 2004 cambridge credit counseling use to charge a one month fee for its dmp program and back then we had an average lenght of time on the plan of 17 months and we would lose 20% of our clients in the first 3 months. The founders of cambridge firmly preached that the client “needed skin in the game to stay committed”. not only was that not true but the real reasons behind the one month fee became pretty clear during the restructuring phase of cambridge in 2004 “greed at the expense of desperate consumers”. since 2004 cambridge has operately a fully compliant and consumer friendly model and our average lenght of time on program has moved from the 17 month figure to 33 today. No skin in the game today

  • Steve Rhode

    A debt management program takes five years. A debt settlement program shouldn’t.

  • ETHICAL BUSINESS MODEL

    I recieve a check every year from USAA insurance for not having an accident. That’s an HONEST, ETHICAL Business Model

  • Jason Taylor

    So with your logic should credit counselor also not get paid until the consumer is completely out of debt? With only around 20% of clients completing those programs, they would sure miss out on a lot of money.

    What your saying is almost as bad as saying you shouldn’t have to pay for insurance until you have an accident.

  • Robert Stevenson

    haha… WOW. People like you are the reason crazy tyrannical leaders come to power.

    –> Wait till all debts get settled? Why is this so? No one is promising to settle ALL debts. The typical settlement contract states they will attempt negotiations. On your example, a company/business can use all its resources to settle and negotiate 9/10 debts, but still not get paid. This is so crazy I have to just stop thinking about it and writing. It is more crazy not in parituclar that it is about debt settlement, just your line of thinking and applying it to different areas. You are an interesting fellow.

  • Andy Faria

    I wouldn’t call this the New Debt Settlement Industry. It’s more like the Old Dog Trying to Learn New Tricks, Publicly

    Mr. Housser, a client paying fees in advance of a settlement is not ‘skin in the game’, it’s a ripoff, and you should know that by now.

    ‘Your Mother Logic’ … I’ve heard that before, I like it.

  • http://northeast-properties.com Andy Faria

    I wouldn’t call this the New Debt Settlement Industry. It’s more like the Old Dog Trying to Learn New Tricks, Publicly

    Mr. Housser, a client paying fees in advance of a settlement is not ‘skin in the game’, it’s a ripoff, and you should know that by now.

    ‘Your Mother Logic’ … I’ve heard that before, I like it.

  • Guest

    Debt settlement is still a scam, even after the new FTC TSR. Let me demonstrate specifically with an example: A typical consumer with 6-7 credit card debts signs up for debt settlement. The company settles the first 1 or 2 debts successfully, and the company collects their fee. Around the 3rd debt, collectors get very aggressive, and the bank sues the consumer. The consumer quits the debt settlement program and files bankruptcy. The debt settlement still got some fees, granted less then for settling all debts. They still got paid something, but they failed to accomplish getting the consumer with ALL debts settled. My proposal is that the FTC TSR be amended to require no fees in advance of ALL debts being settled. Then this industry would be legitimate.

  • Guest

    Debt settlement is still a scam, even after the new FTC TSR. Let me demonstrate specifically with an example: A typical consumer with 6-7 credit card debts signs up for debt settlement. The company settles the first 1 or 2 debts successfully, and the company collects their fee. Around the 3rd debt, collectors get very aggressive, and the bank sues the consumer. The consumer quits the debt settlement program and files bankruptcy. The debt settlement still got some fees, granted less then for settling all debts. They still got paid something, but they failed to accomplish getting the consumer with ALL debts settled. My proposal is that the FTC TSR be amended to require no fees in advance of ALL debts being settled. Then this industry would be legitimate.

    • Robert Stevenson

      haha… WOW. People like you are the reason crazy tyrannical leaders come to power.

      –> Wait till all debts get settled? Why is this so? No one is promising to settle ALL debts. The typical settlement contract states they will attempt negotiations. On your example, a company/business can use all its resources to settle and negotiate 9/10 debts, but still not get paid. This is so crazy I have to just stop thinking about it and writing. It is more crazy not in parituclar that it is about debt settlement, just your line of thinking and applying it to different areas. You are an interesting fellow.

    • Jason Taylor

      So with your logic should credit counselor also not get paid until the consumer is completely out of debt? With only around 20% of clients completing those programs, they would sure miss out on a lot of money.

      What your saying is almost as bad as saying you shouldn’t have to pay for insurance until you have an accident.

      • ETHICAL BUSINESS MODEL

        I recieve a check every year from USAA insurance for not having an accident. That’s an HONEST, ETHICAL Business Model

      • http://GetOutOfDebt.org Steve Rhode

        A debt management program takes five years. A debt settlement program shouldn’t.

      • Christopher viale

        jason, the 20% figure of consumers completing a dmp plan is not even close to accurate. I created a best practices working group a couple years back which is made up of 11 good credit counseling agencies and the completion rates run in the 50-65 % range for those 11 agencies. to the earlier comment about skin in the game this notion in completely untrue and my agency is complete proof of that. prior to 2004 cambridge credit counseling use to charge a one month fee for its dmp program and back then we had an average lenght of time on the plan of 17 months and we would lose 20% of our clients in the first 3 months. The founders of cambridge firmly preached that the client “needed skin in the game to stay committed”. not only was that not true but the real reasons behind the one month fee became pretty clear during the restructuring phase of cambridge in 2004 “greed at the expense of desperate consumers”. since 2004 cambridge has operately a fully compliant and consumer friendly model and our average lenght of time on program has moved from the 17 month figure to 33 today. No skin in the game today

      • Bobby Zangrilli

        Chris, this is good info. What else did you guys change to make your completion rates increase?

      • Cviale

        hi bobby, our entire focus shifted from looking at enrollment numbers to how do we keep our clients committed to the plan so we have an enormous amount of data surrounding what it takes to drive these numbers. 2 main areas, complete disclosure of all good and bad aspects of a dmpprior to enrollment including what it will take as a consumer to succeed on a plan. scare straight if you will. we put a great deal of work in our quality control prior to proposing a plan to a consumer which in turn leads to a very high proposal acceptance rate which builds consumer confidence. to often i have seen first hand sales oriented shopd lead to sloppy enrollments which in turn leads to proposal problems and changes to the consumers account after the client signed up and thought they were good to go. most agencies lose there clients in the first 3 months due to not being focused strong enough on the front end to get it right out of the gate for the consumer. 2nd area we have developed a very strong post counseling effort that drives our clients to truly change there spending habits. every call and session we are working to help our clients have the ability to save so they can handle any financial challenges they may hit during the program. those 2 areas i would say have made a big difference. hope that helped christopher

      • Jason Taylor

        I call BS on a 50-65% completion ratio for any credit counseling program. I also call BS on average lenght to completion being 17 to 33 months. If people could afford to pay that kind of payment in order to complete the program that fast THEY WOULD NOT NEED a credit counseling program.

      • Cviale

        the 50-65% is not bs jason, my doors are open and everything about cambridge since mid 2004 is extremely transparent. I have worked with several attorneys general and the ftc to provide data to support the fact that a well run dmp is beneficial for consumers and our data has been vetted out. I am not speaking for the entire industry as just like with debt settlers there are bad and good players all i am saying is a well run dmp with solid customer care and disclosure of expectations up front does have an end result of the average length of time on these plans of 33 months. this takes into account the folks that drop out before completion and yes in cambridges early days when it ran an upfront fee model focused on enrollments and not the quality care needed the average lenght of time on the plan was only 17 months. The upfront fee model does not work it was simply in play to pay for the advertising and the commissions being paid out to the salespeople back then. flawed model period so this entire “buy in theory” is a bunch of bs. you can feel free to call me jason christopher

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