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Credit Counseling Missing the Boat by Fighting With Debt Settlement

A tipster (send in your tips here) sent me an email outlining how a number of credit counseling groups are funding a campaign to try to “expose bad debt settlers.”

And while the campaign has been ongoing for over a year, changes in the debt settlement world these days have little to do with a campaign against specific debt settlement companies than the impact of the positive FTC Telemarketing Sales Rules that went into force at the end of 2010.

Since those new rules fell into place the number of complaints from consumers enrolling in debt settlement programs post-TSR is very small. The complaints I hear today are mostly from people still tangled in a current attorney model debt settlement program or an old advanced fee program.

For consumers that now do not have to pay for debt settlement services until the debt is settled, the drums of discontent have gone nearly silent.

When I talk to credit counseling friends they appear to be under the impression that the existence of debt settlement is the reason credit counseling industry sales volume is low. They believe they need to compete against debt settlement and do what they can to kill the industry and that will somehow make credit counseling a better solution.

None of those beliefs are true.

If anything, credit counseling volumes are low for a number of reasons. The most glaring is that as long as creditors control the monthly payments in a credit counseling program, most people that are struggling, can’t afford them.

Credit counseling needs to break away from being bound by creditor demands and instead assist consumers to put forward payments plans they can afford, rather than what creditors want. But in order to do that, the credit counseling companies will have to negotiate a reduction in the balance owed. They’ll actually have to settle some debt.

So credit counseling groups complain their client volumes are low, and so do the debt settlement folks. Rather than this being a function of the existence of either group of companies I think it is more a function of time and a bad economy.

America has been struggling through a bad economy for a couple of years now. At the same time creditors have cut back on extending easy credit.

At the beginning of 2009, outstanding revolving credit stood at $968 Billion. As of November, 2010 it has fallen to $805 Billion. That’s substantial.

The amount of consumer credit held by individuals has been in decline and bankruptcies have been on the increase.

Credit Counseling Missing the Boat by Fighting With Debt Settlement

All of these factors go a long way to cleaning out the pipeline of consumers who pursue debt relief options.

There will always be people in need of debt help. But the wave, or tsunami, of American’s that needed help in the past couple of years will most likely subside back down to a normal tide, rather than the tidal wave it has been.

Credit counseling is not exempt from additional criticism either. The major credit counseling trade associations should have embraced the telemarketing sales rules and volunteered to comply with them. They should have also worked hard to bring some transparency to the credit counseling industry, they don’t seem to have done either.

In credit counseling today, consumers have no way to know the effectiveness of a credit counseling program, the results achieved by an individual credit counseling company or the success rate of the credit counseling approach in general. They have no way to compare their situation against any debt relief solution, outside of bankruptcy, to know the reality of the path they select. And what makes bankruptcy different, mandatory reporting, something that credit counseling groups do not offer and the industry has not pushed for.

It’s time for credit counseling companies to stop wasting consumer money money lobbying for more change in the debt settlement world and stop creating a turf war that only ultimately harms consumers.

The battle by credit counseling should be to put the consumer first and that means embracing tools like debt settlement, that when appropriate, serve the best interest of the consumer. Debt settlement should do the same thing. Rather than tossing a consumer in an extended minimum payment program they should carefully evaluate if the consumer is better served by credit counseling or bankruptcy.

The time has come for the good guys in the individual groups to work together on behalf of the consumer and to stop battling over the confused consumer who simply wants to find the right, appropriate, and most effective solution for their debt problems.

Credit Counseling Missing the Boat by Fighting With Debt Settlement
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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

    I agree, the approach needs to be “debt relief” and not fragmented approaches. Things are slowly working that way, but very slowly.

  • Bobl

    Well said Steve. But truth be told, the real problem is that there are two separate industries. It shouldn’t come down to who can sell the consumer the best. Under the current debt industry model, the consumer really needs to decide ahead of time what is best- credit counseling, debt settlement, chapter 7 or chapter 13 bankruptcy, or do nothing. In a perfect model, a debt specialist should provide the proper guidance without sales spin.

    And if we are all honest, the proper answer for most consumers these days is probably chapter 7 bankruptcy. It’s the quickest and most thorough way of getting out of debt and a far less painful experience for most. And there are more and more people essentially judgment proof, who should do absolutely nothing at all. But few debt companies will give that advice because you can’t make money on those consumers.

  • http://www.bknetmarketing.com Bobl

    Well said Steve. But truth be told, the real problem is that there are two separate industries. It shouldn’t come down to who can sell the consumer the best. Under the current debt industry model, the consumer really needs to decide ahead of time what is best- credit counseling, debt settlement, chapter 7 or chapter 13 bankruptcy, or do nothing. In a perfect model, a debt specialist should provide the proper guidance without sales spin.

    And if we are all honest, the proper answer for most consumers these days is probably chapter 7 bankruptcy. It’s the quickest and most thorough way of getting out of debt and a far less painful experience for most. And there are more and more people essentially judgment proof, who should do absolutely nothing at all. But few debt companies will give that advice because you can’t make money on those consumers.

    • http://GetOutOfDebt.org Steve Rhode

      I agree, the approach needs to be “debt relief” and not fragmented approaches. Things are slowly working that way, but very slowly.

  • Debtn

    Steve- Please post the email that outlines the plans and the names of the companies and individuals behind this effort!

  • Debtn

    Steve- Please post the email that outlines the plans and the names of the companies and individuals behind this effort!

  • Cviale

    I agree with almost everything stated below and its probably safe to say the folks making comments on this page represent agencies that have the consumers best interest in mind. The problem is the bad players continue to evolve and take advantage of consumers. I was actively involved in a bad agency years ago and saw first hand what greed can lead to. Even after the rules are better defined its hard for some folks to walk away from the life style they have been living and will do what ever they think it takes to keep it going. The effort that i have been putting forward is to expose the tactics being deployed by the greedy. In no way shape or form do i agree with any type of upfront fee model’s. they simply dont work for the consumer period!!! these efforts are not about closing the door on debt settlement companies. Its clear that consumers need alternatives that are suitable for there situation and credit counseling only truly assists roughly 20-30% of the consumers counseled. but when your staff comes to you with examples of consumers being raked over the coals every day something needs to be done and if that something is pulling together an effort to help law makers and regulators understand whats happening then at least i feel that i am standing up for consumers. Like alex v. and a couple others have stated credit counselors and debt settlers with consumer driven models need to work together and some of that has started which at the end of the day will benefit consumers. My agency is a true 501c3 now and has been since mid 2004 and i am happy with that world as are many others and yes we rely on creditor funding so at times we are servant to the creditor demands but at the end of the day i know what i do works for the consumers we serve. If anyone wants to help in this cause to yes “expose the BAD debt settlers” feel free to reach out to me. [email protected] christopher

  • Cviale

    I agree with almost everything stated below and its probably safe to say the folks making comments on this page represent agencies that have the consumers best interest in mind. The problem is the bad players continue to evolve and take advantage of consumers. I was actively involved in a bad agency years ago and saw first hand what greed can lead to. Even after the rules are better defined its hard for some folks to walk away from the life style they have been living and will do what ever they think it takes to keep it going. The effort that i have been putting forward is to expose the tactics being deployed by the greedy. In no way shape or form do i agree with any type of upfront fee model’s. they simply dont work for the consumer period!!! these efforts are not about closing the door on debt settlement companies. Its clear that consumers need alternatives that are suitable for there situation and credit counseling only truly assists roughly 20-30% of the consumers counseled. but when your staff comes to you with examples of consumers being raked over the coals every day something needs to be done and if that something is pulling together an effort to help law makers and regulators understand whats happening then at least i feel that i am standing up for consumers. Like alex v. and a couple others have stated credit counselors and debt settlers with consumer driven models need to work together and some of that has started which at the end of the day will benefit consumers. My agency is a true 501c3 now and has been since mid 2004 and i am happy with that world as are many others and yes we rely on creditor funding so at times we are servant to the creditor demands but at the end of the day i know what i do works for the consumers we serve. If anyone wants to help in this cause to yes “expose the BAD debt settlers” feel free to reach out to me. [email protected] christopher

  • Mike Reilly

    Now that was well said! It will take many years to cut into the flesh of the CCC’s. Stay focused on the task at hand and build your businesses. Figure out better marketing methods, get the word out, enhance your technology to achieve better service levels, train your people and forge meaningful relationships that will foster growth for the business.

    Focus, focus, and focus….Steve’s right also, these dummies are fighting a battle that really doesn’t exist. I found for a short period of time I was getting all caught up in this, who’s getting sued, this one’s out of business etc..etc..Nothing but sucking up my time…focus, focus and focus. Don’t get caught up in trying to police or clean up and industry, it will do it all by itself in due time. Help the people we all got into this business to help, there are tons of them and 1000′s of new ones born every day. Help who you can help, no one company can help them all!

    Mike Reilly
    Emerge America

  • Anon

    Don’t kid yourself. There is a significant percentage of clients who could go either debt settlement or credit counseling and these customers have to decide if they want to tighten their belts enough to afford credit counseling or save an extra couple hundred a month possibly and deal with the negatives and risks of settlement.

    If you take someone from this group making up a significant percentage of debtors and send them to credit counseling firm, the credit counselor is going to recommend they slash their budget up to the bone so they can make the credit counseling payments. Often these are things the consumer could do but are often unwilling to give up in which case they may move on to look at another option: debt settlement.

    The debt settlement company will probably let them keep expenses they probably don’t need like cable TV, eating out, maybe even the jet skis and BMW etc, etc (assuming the customer disclosed everything) while the debt settlement sales person encourages them to enroll in debt settlement as long as their is some justification and some degree of hardship.

    This brings up a side note: any of the no advance fee settlement companies NOT paying their reps on commission???? And I am not talking about the sneaky little trick credit counselors did in attempt to keep their 501 C3s by scaling salaries based upon number of deals enrolled. Hell I will even ask the question are there any debt settlement companies that do not base their reps commission on the total debt enrolled? There are a couple at best.

    The Bankruptcy attorney is most likely going to encourage a Chapter 13 because that is how they get paid. There are clearly rules in the bankruptcy code that have to be followed but just about anyone can do a 13, the variation is how much is actually paid back and the specific repayment term somewhere between 3-5 years

    Even if the above firms were reputable, it doesn’t take a rocket scientist to figure out there are a LOT of customers that “fall in the middle” and all three types of firms would compete for the exact same client if given the chance.

    It would take a book to write about all the crazy stuff that has happened in the clusterfuck settlement and hornet nest credit counseling industry. One chapter would be looking at the number of credit counseling companies who started doing settlement or whose principles, family members, or “friends” started “separate” settlement companies themselves. There are plenty of consumer complaints online of customers who in many cases apparently saw an advertisement for “credit counseling” and wow, they wound up in a settlement program. Granted some just didn’t pay attention but read on….

    In this chapter, I will touch on just one example of how a very big for profit credit counseling company only advertises for credit counseling on TV, but they enroll people in BOTH attorney and non-attorney debt settlement. They use the attorney debt settlement to simply get around state laws where they may be licensed for credit counseling, but not debt settlement. Of course they say they just provide “support technology” for the law firm. This is BS- they market to find the client, enroll them to circumvent state laws and split the attorney fees. This is also how they get around complying with the specific bar rules in their national advertisements that require anyone receiving compensation from a lawyer to comply with. Either they have to follow the laws that apply to a attorney referral service in every state or the ad has to be for the law firms itself and disclose all of the individual lawyers if they are not part of the law firm directly among other things which vary from state to state. In a nut shell, a national advertisement would need to comply with all state laws combined.

    Regulators need to dissect the contracts between the non-attorney firm and the law firm. They are likely to notice the tricky ways the compensation changes hands based upon the debt amounts or the “legal fees”. The only way a attorney referral service can receive compensation is a flat fee per a lead, no matter if it produces legal fees or not for the attorney and the amount paid cannot be in direct relation to the amount of legal fees collected.

    Another side note: Most principles of credit counseling companies who wanted to benefit from settlement as they were losing money to it anyway {if you can’t beat them join them in a round about way} also wanted to retain their non-profit status and keep fair share flowing. Most creditors will not pay fair share if they know a company is also doing settlement and this is one reason for the separate settlement entities which were an attempt to fool creditors because people who structured these methods are not dummies by any means

    The surface has only been scratched boys and girls, hold on to your seat belts.

  • Anon

    Don’t kid yourself. There is a significant percentage of clients who could go either debt settlement or credit counseling and these customers have to decide if they want to tighten their belts enough to afford credit counseling or save an extra couple hundred a month possibly and deal with the negatives and risks of settlement.

    If you take someone from this group making up a significant percentage of debtors and send them to credit counseling firm, the credit counselor is going to recommend they slash their budget up to the bone so they can make the credit counseling payments. Often these are things the consumer could do but are often unwilling to give up in which case they may move on to look at another option: debt settlement.

    The debt settlement company will probably let them keep expenses they probably don’t need like cable TV, eating out, maybe even the jet skis and BMW etc, etc (assuming the customer disclosed everything) while the debt settlement sales person encourages them to enroll in debt settlement as long as their is some justification and some degree of hardship.

    This brings up a side note: any of the no advance fee settlement companies NOT paying their reps on commission???? And I am not talking about the sneaky little trick credit counselors did in attempt to keep their 501 C3s by scaling salaries based upon number of deals enrolled. Hell I will even ask the question are there any debt settlement companies that do not base their reps commission on the total debt enrolled? There are a couple at best.

    The Bankruptcy attorney is most likely going to encourage a Chapter 13 because that is how they get paid. There are clearly rules in the bankruptcy code that have to be followed but just about anyone can do a 13, the variation is how much is actually paid back and the specific repayment term somewhere between 3-5 years

    Even if the above firms were reputable, it doesn’t take a rocket scientist to figure out there are a LOT of customers that “fall in the middle” and all three types of firms would compete for the exact same client if given the chance.

    It would take a book to write about all the crazy stuff that has happened in the clusterfuck settlement and hornet nest credit counseling industry. One chapter would be looking at the number of credit counseling companies who started doing settlement or whose principles, family members, or “friends” started “separate” settlement companies themselves. There are plenty of consumer complaints online of customers who in many cases apparently saw an advertisement for “credit counseling” and wow, they wound up in a settlement program. Granted some just didn’t pay attention but read on….

    In this chapter, I will touch on just one example of how a very big for profit credit counseling company only advertises for credit counseling on TV, but they enroll people in BOTH attorney and non-attorney debt settlement. They use the attorney debt settlement to simply get around state laws where they may be licensed for credit counseling, but not debt settlement. Of course they say they just provide “support technology” for the law firm. This is BS- they market to find the client, enroll them to circumvent state laws and split the attorney fees. This is also how they get around complying with the specific bar rules in their national advertisements that require anyone receiving compensation from a lawyer to comply with. Either they have to follow the laws that apply to a attorney referral service in every state or the ad has to be for the law firms itself and disclose all of the individual lawyers if they are not part of the law firm directly among other things which vary from state to state. In a nut shell, a national advertisement would need to comply with all state laws combined.

    Regulators need to dissect the contracts between the non-attorney firm and the law firm. They are likely to notice the tricky ways the compensation changes hands based upon the debt amounts or the “legal fees”. The only way a attorney referral service can receive compensation is a flat fee per a lead, no matter if it produces legal fees or not for the attorney and the amount paid cannot be in direct relation to the amount of legal fees collected.

    Another side note: Most principles of credit counseling companies who wanted to benefit from settlement as they were losing money to it anyway {if you can’t beat them join them in a round about way} also wanted to retain their non-profit status and keep fair share flowing. Most creditors will not pay fair share if they know a company is also doing settlement and this is one reason for the separate settlement entities which were an attempt to fool creditors because people who structured these methods are not dummies by any means

    The surface has only been scratched boys and girls, hold on to your seat belts.

    • Mike Reilly

      Now that was well said! It will take many years to cut into the flesh of the CCC’s. Stay focused on the task at hand and build your businesses. Figure out better marketing methods, get the word out, enhance your technology to achieve better service levels, train your people and forge meaningful relationships that will foster growth for the business.

      Focus, focus, and focus….Steve’s right also, these dummies are fighting a battle that really doesn’t exist. I found for a short period of time I was getting all caught up in this, who’s getting sued, this one’s out of business etc..etc..Nothing but sucking up my time…focus, focus and focus. Don’t get caught up in trying to police or clean up and industry, it will do it all by itself in due time. Help the people we all got into this business to help, there are tons of them and 1000′s of new ones born every day. Help who you can help, no one company can help them all!

      Mike Reilly
      Emerge America

  • Bobby Zangrilli

    Credit counselors should realize that the 60-60 can only exist because debt settlement companies do. There’s a reason why the banks never offered a less than balance option until 2009, or 60 years after DMPs were introduced.

    Take away the debt settlement industry and 60-60 plans are taken off the table as well.

  • Bobby Zangrilli

    I’m pretty sure this is a groundbreaking moment – a trusted third-party standing up for debt settlement companies. I’m going to go edit the debt settlement Wikipedia page….today’s the 26th of January, 2011, right?

    Thank you, Steve!

  • Bobby Zangrilli

    I’m pretty sure this is a groundbreaking moment – a trusted third-party standing up for debt settlement companies. I’m going to go edit the debt settlement Wikipedia page….today’s the 26th of January, 2011, right?

    Thank you, Steve!

  • Andy Faria

    I don’t understand the battle either. Every legit DS company should buddy up with a legit CC company they believe in. They’re not in search of the same candidates and could work together in such a great way that would improve both industries.

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

    I don’t understand the battle either. Every legit DS company should buddy up with a legit CC company they believe in. They’re not in search of the same candidates and could work together in such a great way that would improve both industries.

  • Anon

    Credit Counseling companies want to push all the debt settlement companies out of business so they have more room for their 60/60 plan.

  • Anon

    Credit Counseling companies want to push all the debt settlement companies out of business so they have more room for their 60/60 plan.

    • Bobby Zangrilli

      Credit counselors should realize that the 60-60 can only exist because debt settlement companies do. There’s a reason why the banks never offered a less than balance option until 2009, or 60 years after DMPs were introduced.

      Take away the debt settlement industry and 60-60 plans are taken off the table as well.

  • AlexV

    AMEN! Brother.
    Steve, you could not have said it more eloquently. I am in full agreement that instead of battling one another we should you a simple form of COLLABORATION, to help the consumers.
    I think it is perfectly clear that the creditors have done a heck of a job in getting people addicted to the “REDIT drug” and now it is society’s problem.
    If we all work together and flush out the bad actors by DEMANDING transparency, consumers will ultimately win. I know this will not be an easy step specially for many credit counseling giants, but some will definitely step forward as some Debt Settlement companies have, this will give any consumer a better expectation.
    Too many times consumers are simply confused about choices, options and decisions which creates paralysis. We need to provide education to consumers and allow them to find a sound solution that may be Debt Settlement, or Credit counseling or even a Bankruptcy.
    I call for more transparency from any company that is willing to help consumers in this arena, so we can allow this industry to deliver the results that many of us know we are capable of achieving.
    Alex Viecco
    New Era Debt Solutions

  • AlexV

    AMEN! Brother.
    Steve, you could not have said it more eloquently. I am in full agreement that instead of battling one another we should you a simple form of COLLABORATION, to help the consumers.
    I think it is perfectly clear that the creditors have done a heck of a job in getting people addicted to the “REDIT drug” and now it is society’s problem.
    If we all work together and flush out the bad actors by DEMANDING transparency, consumers will ultimately win. I know this will not be an easy step specially for many credit counseling giants, but some will definitely step forward as some Debt Settlement companies have, this will give any consumer a better expectation.
    Too many times consumers are simply confused about choices, options and decisions which creates paralysis. We need to provide education to consumers and allow them to find a sound solution that may be Debt Settlement, or Credit counseling or even a Bankruptcy.
    I call for more transparency from any company that is willing to help consumers in this arena, so we can allow this industry to deliver the results that many of us know we are capable of achieving.
    Alex Viecco
    New Era Debt Solutions

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