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Do You Think the Attorney Model of Debt Settlement is Still a Loophole? – Chris

“Hey Steve,

I currently work in the Debt Relief Industry for a Company who provides Debt Management, Debt Settlement, and Bankruptcy.

As of right now our Company provides an Attorney Model Debt Settlement program. We charge 15% of the enrolled debt which is spread out evenly over the entire payment plan. We also conduct a face to face consultation with all pontential clients before enrollment into the program.

In our agreement we also have what we call “Bankruptcy Protection”, which basically means that if the client is unable to achieve success with the settlement process we are able to take them through a bankruptcy @ no additional cost.

I have been in the industry for 5 years and have sold many models of debt settlement; some good and some bad. The current model we provide seems extremely compliant and I feel good enrolling consumers into a process where they can succeed. By the way, I visit your site very often and I think you are a great voice in our industry!

My question to you is: Do you think based upon what I’ve told you that an Attorney model is still a “loophole”? Our company may be converting to a Non-Attorney Model with absolutely no advanced fee(s) but, comparing the two it seems like our current model is much better for the consumer. What do you think?

Chris”

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The Answer

Dear Chris,

I think there is no advantage for consumers to pay any money upfront under current regulations, no matter how evenly it is spread out.

It’s also interesting that you are currently conducting a face-to-face meeting, which appears to be nothing more than trying to get around the FTC telemarketing sales rules. So it might be argued that by fact you are currently loopholing to charge the advanced fees.

I’ve no idea who the company is you are with so my next statement is not directed towards you specifically. In contracts I’ve seen from attorney model firms that have a “bankruptcy option”, generally the consumer pays significantly more for the bankruptcy services. One case I remember the attorney model debt settlement company was holding back $3,000 of the fees paid for bankruptcy but the street value of the bankruptcy was less than $2,000. The consumer would have been better off getting refund for services not rendered and paying for bankruptcy themselves.

In my experience the underlying issue with the attorney model firms is the high fees when combined with the other heaped on charges each month, the lack of a refund policy, the incentive to sell rather than consult to find the most appropriate solution, the overcharging for related services, and the lack of real in-court representation for consumers that are sued.

Don’t get me wrong. I am not against debt settlement performed by a local attorney, for someone that lives in their state, that collects the money from the consumers, who holds the funds in their own legally regulated trust fund, and who must account for the work delivered and refund the unused portions to the consumer.

I think the path you are on with the change will wind up being a win-win for both you and the consumer.

Ultimately the best solution is going to be one that is fair and balanced. If you promise to deliver a service, and can’t or don’t then just refund the fees paid. The model in which companies try to make the claim they are in fact a law firm and can charge the money up front and not offer refunds is academically plausible but at the end of the day many people are left with no results and poorer.

Finally, your company might be the shinning beacon out there in your current attorney model but others have so abused it that regardless the quality of performance you deliver, the model is tarnished.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Do You Think the Attorney Model of Debt Settlement is Still a Loophole?   Chris
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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.
  • SeanDSLegalPlan

    At some point, as has been proven the case recently, these programs will be shut down; Their affiliates will lose all future payments and their clients will lose everything.

  • Mariemegge

    Frustrating…so many companies, attorneys and banks are always trying to find those “loopholes” to steal from consumers. Why charge your fees up front, and why charge based on the amount of overall debt? Fees should be paid after services have been rendered, and they should also be performance based.

  • http://www.donaldsonwilliams.com Mariemegge

    Frustrating…so many companies, attorneys and banks are always trying to find those “loopholes” to steal from consumers. Why charge your fees up front, and why charge based on the amount of overall debt? Fees should be paid after services have been rendered, and they should also be performance based.

    • Anonymous

      At some point, as has been proven the case recently, these programs will be shut down; Their affiliates will lose all future payments and their clients will lose everything.

  • Chris

    Hi Alex,

    Thank you for your reply. You obviously seem to be very knowledgeable about the Debt Relief Industry as a whole. You also seem to have resentment for company’s who do not operate the same as yours.

    After reading your reply and visiting your website it seems like you are one of the “good guys” and are truly trying to provide a great service for qualified consumers. I think that you’re missing something though: Comparing my Company’s “Attorney Model” and your Company’s “Success Model”, it seems that my Company’s Model will not only be cheaper for the client in the long run, but will also reach settlements faster…?

    Let’s do some math: Let’s say that a consumer has $30,000.00 in credit card debt spread out over 6 accounts evenly($5,000.00 each). Now let’s say that this particular consumer chooses to go with the option in which your Company charges 30% of the savings you achieve and also is looking at enrolling with my company who charges 15% of the enrolled balance spread evenly over the payment plan.

    Now for a common denominator we’ll say that my company and your company are able to settle each account for 40% of the enrolled balance. This means that with your Model the consumer will end up paying back a total of $17,400.00 and with my Model the consumer will pay back a total of $16,500.00.

    This also means that because the fee that you charge(30% of the savings) is due when the settlement is reached that unless the consumer(who is more than likely already strapped for cash)can come up with a lump sum of cash, than my Model will achieve settlements faster than yours. You say that Attorney Models think that they are exempt from the TSR and are “Loopholers”, but I believe that my company is compliant with every aspect of the TSR.

    Our Company is extremely transparent and our goal has always been to help consumers in financial hardship to eliminate their debt in the best and most effective way possible. Again, I appreciate your comment and advice and I can tell you are one of the “good guys”, but it seems like you dismiss companies with a business Model that differs from yours even if their goals are the same. I do agree that all Attorney Models do not operate like mine… All I’m saying is that we are not ALL bad and I think there can be room for both the Attorney Model and the Success Model in the future of Debt Settlement!

    Thanks again, Alex!

  • AlexV

    Hello Chris and Steve,

    I believe Steve is right on by describing how the FTC looks at firms that are marketing debt services and using a Law Firm as a front. Just because the hammer has not come down does not mean it won’t!
    Chris we have been in the DS space for over a decade and have been success based for every one of those years, we welcomed the TSR in an attempt to clean up this industry and we all have to remember that the “SPIRIT” of the TSR is as important as what it states.
    Consumer have been taken advantage of for several years by companies charging up-font fees and delivering very little if anything at all. This is not a new problem, in fact, it has been a problem of large magnitude. So much so that the legitimate companies have completely been overshadowed by the bad players and the bad media.
    New Era Debt Solutions charges the fees based on either model to give consumers the choice 1. 15% of the debt amount only collected upon success or 2. 30% of the saving, again only collected after the settlement. We have heard the concerns people have had about the suggestion that the companies will sit idle and let settlements happen.
    Well I would have to say it all depends on the company ‘Culture” and “Focus”. For example, we pay our people based on success of settlements this keeps them motivated to secure the best settlement for the consumer and allows the negotiator to earn more based on the success for the consumer. The consumer wins and the company wins and even the bank wins because they receive the money sooner.
    I know this must be a new thought for many companies but we have operated with that format from the beginning. It made the most sense to get the best results, while everyone focused on enrolling as many people as possible we focused on enrolling QUALIFIED clients since we were paid based on their success there was no point in enrolling an unqualified consumer.
    The TSR has now enforced the obvious, business need to properly qualify the consumers in order to collect the funds and better yet you better provide good service otherwise you may never receive a cent from the consumer.
    On the other hand the attorney models out there seem to believe they are exempt from the TSR and from providing service. NOT all but certainly most are still charging the large retainer and monthly fee to simply park the clients and as soon as the negotiations become more complicated they will pull the BK card.
    NOT COOL for the consumers! If we all put ourselves in the consumers shoes, I think this would all be a mute point.
    Consumers (You and Me) deserve to have a legitimate service and be offered a product that is suited for our needs, not just a product for the sake of paying some salesperson funds so they can make their car payment.
    I can tell you that the cost of acquiring consumers today is still very high due to the “loopholers” and we all need to make that a priority otherwise consumers will be left with little or no choices.
    I encourage you guys to switch to performance base and if needed give consumers a choice of the fees but bottom line is deliver a GREAT product to consumers!
    Sincerely
    Alex Viecco
    Vice President/Co-Founder
    New Era Debt Solutions

  • Chris

    Also, to address some of the things in your original comment:

    - Our Company’s Bankruptcy Protection requirement is that the client must have a total of $3,000.00 accumulated between savings and fee in order to qualify for the Bankruptcy we provide. We obviously realize that for most people this is a higher than usual price so, we always offer to refer the client to a local Attorney who will more than likely be cheaper. We find that a good portion of clients are so happy with our transparency and service that they want to stick with us to file.

    - As far as the face to face consultations: I don’t think we are using it as a loophole to charge advanced fees but rather to properly educate our prospective clients prior to enrolling into our services. We do not use “runners” or any thing of the sort but rather men and women who are trained thoroughly on the services our Company provides as well as the Debt Relief Industry in general.

    - Our current refund policy is a full refund inside of 30 days in the program and after 30 days all fees would be non-refundable. Although we will typically go beyond what is in our contract and offer unsatisfied customers either a partial or full refund for the fees they have paid. This particular policy I can imagine you will see as being flawed, to which I agree.

    Again, I am not saying that your advice is not good but, if you do the math it seems that with our current model the client will achieve settlements as fast if not faster than a success model, will end up paying much less in the long run for services, and will have a company who is actually trying to achieve the best deal rather than the fastest deal.

    Thanks again, and I look forward to your reply!

  • Chris

    Also, to address some of the things in your original comment:

    - Our Company’s Bankruptcy Protection requirement is that the client must have a total of $3,000.00 accumulated between savings and fee in order to qualify for the Bankruptcy we provide. We obviously realize that for most people this is a higher than usual price so, we always offer to refer the client to a local Attorney who will more than likely be cheaper. We find that a good portion of clients are so happy with our transparency and service that they want to stick with us to file.

    - As far as the face to face consultations: I don’t think we are using it as a loophole to charge advanced fees but rather to properly educate our prospective clients prior to enrolling into our services. We do not use “runners” or any thing of the sort but rather men and women who are trained thoroughly on the services our Company provides as well as the Debt Relief Industry in general.

    - Our current refund policy is a full refund inside of 30 days in the program and after 30 days all fees would be non-refundable. Although we will typically go beyond what is in our contract and offer unsatisfied customers either a partial or full refund for the fees they have paid. This particular policy I can imagine you will see as being flawed, to which I agree.

    Again, I am not saying that your advice is not good but, if you do the math it seems that with our current model the client will achieve settlements as fast if not faster than a success model, will end up paying much less in the long run for services, and will have a company who is actually trying to achieve the best deal rather than the fastest deal.

    Thanks again, and I look forward to your reply!

  • Chris

    Thank you for your advice Steve. I am actually a big fan of the Success Model and am looking forward to it if our Company decides to change. One big thing that I have noticed about companies that provide the success model is not only that they charge more(20%), but also that most companies are still charging a percentage of the enrolled debt balance rather than a percentage of the savings the company achieves with the creditor. This raises a few problems for me:

    1.) The client in a success model ends up paying more to the company in the long run.

    2.) Once the client achieves the first settlement, they have to have the funds available to pay the creditor along with the total fee for that particular creditor. This means that if a client has a debt for $5,000.00 and settles for 40%, the client would have to pay $3,000 in total.

    3.) Because most success models still charge a percentage of the debt enrolled rather than a percentage of the savings there is no incentive to get the client the best deal. Rather it is in the companies interest to get the client the fastest deal and hopefully work out an installment settlement with the creditor rather than a lump sum.

    It seems like the best possible way of regulating the industry would be to not only cap the fee at a certain/fair percentage and make it so they have to base that percentage on the saving rather than the amount enrolled. Now, I know there a success model companies out there charging less than 20% and there are also companies who are charging based on the savings rather than the enrolled balance. I have called almost every major company providing the success model and 18 – 21% of the enrolled balance seems to be the par price.

    I guess I just feel like under the current standard that FTC compliant success models are charging fees; The Attorney model which charges 15% of the enrolled balance spread evenly throughout the payment plan is a much better option for the typical debt settlement consumer.

    Again, thank you for your advice and I will keep you updated on our Company’s future!

  • Chris

    Thank you for your advice Steve. I am actually a big fan of the Success Model and am looking forward to it if our Company decides to change. One big thing that I have noticed about companies that provide the success model is not only that they charge more(20%), but also that most companies are still charging a percentage of the enrolled debt balance rather than a percentage of the savings the company achieves with the creditor. This raises a few problems for me:

    1.) The client in a success model ends up paying more to the company in the long run.

    2.) Once the client achieves the first settlement, they have to have the funds available to pay the creditor along with the total fee for that particular creditor. This means that if a client has a debt for $5,000.00 and settles for 40%, the client would have to pay $3,000 in total.

    3.) Because most success models still charge a percentage of the debt enrolled rather than a percentage of the savings there is no incentive to get the client the best deal. Rather it is in the companies interest to get the client the fastest deal and hopefully work out an installment settlement with the creditor rather than a lump sum.

    It seems like the best possible way of regulating the industry would be to not only cap the fee at a certain/fair percentage and make it so they have to base that percentage on the saving rather than the amount enrolled. Now, I know there a success model companies out there charging less than 20% and there are also companies who are charging based on the savings rather than the enrolled balance. I have called almost every major company providing the success model and 18 – 21% of the enrolled balance seems to be the par price.

    I guess I just feel like under the current standard that FTC compliant success models are charging fees; The Attorney model which charges 15% of the enrolled balance spread evenly throughout the payment plan is a much better option for the typical debt settlement consumer.

    Again, thank you for your advice and I will keep you updated on our Company’s future!

    • AlexV

      Hello Chris and Steve,

      I believe Steve is right on by describing how the FTC looks at firms that are marketing debt services and using a Law Firm as a front. Just because the hammer has not come down does not mean it won’t!
      Chris we have been in the DS space for over a decade and have been success based for every one of those years, we welcomed the TSR in an attempt to clean up this industry and we all have to remember that the “SPIRIT” of the TSR is as important as what it states.
      Consumer have been taken advantage of for several years by companies charging up-font fees and delivering very little if anything at all. This is not a new problem, in fact, it has been a problem of large magnitude. So much so that the legitimate companies have completely been overshadowed by the bad players and the bad media.
      New Era Debt Solutions charges the fees based on either model to give consumers the choice 1. 15% of the debt amount only collected upon success or 2. 30% of the saving, again only collected after the settlement. We have heard the concerns people have had about the suggestion that the companies will sit idle and let settlements happen.
      Well I would have to say it all depends on the company ‘Culture” and “Focus”. For example, we pay our people based on success of settlements this keeps them motivated to secure the best settlement for the consumer and allows the negotiator to earn more based on the success for the consumer. The consumer wins and the company wins and even the bank wins because they receive the money sooner.
      I know this must be a new thought for many companies but we have operated with that format from the beginning. It made the most sense to get the best results, while everyone focused on enrolling as many people as possible we focused on enrolling QUALIFIED clients since we were paid based on their success there was no point in enrolling an unqualified consumer.
      The TSR has now enforced the obvious, business need to properly qualify the consumers in order to collect the funds and better yet you better provide good service otherwise you may never receive a cent from the consumer.
      On the other hand the attorney models out there seem to believe they are exempt from the TSR and from providing service. NOT all but certainly most are still charging the large retainer and monthly fee to simply park the clients and as soon as the negotiations become more complicated they will pull the BK card.
      NOT COOL for the consumers! If we all put ourselves in the consumers shoes, I think this would all be a mute point.
      Consumers (You and Me) deserve to have a legitimate service and be offered a product that is suited for our needs, not just a product for the sake of paying some salesperson funds so they can make their car payment.
      I can tell you that the cost of acquiring consumers today is still very high due to the “loopholers” and we all need to make that a priority otherwise consumers will be left with little or no choices.
      I encourage you guys to switch to performance base and if needed give consumers a choice of the fees but bottom line is deliver a GREAT product to consumers!
      Sincerely
      Alex Viecco
      Vice President/Co-Founder
      New Era Debt Solutions

      • Chris

        Hi Alex,

        Thank you for your reply. You obviously seem to be very knowledgeable about the Debt Relief Industry as a whole. You also seem to have resentment for company’s who do not operate the same as yours.

        After reading your reply and visiting your website it seems like you are one of the “good guys” and are truly trying to provide a great service for qualified consumers. I think that you’re missing something though: Comparing my Company’s “Attorney Model” and your Company’s “Success Model”, it seems that my Company’s Model will not only be cheaper for the client in the long run, but will also reach settlements faster…?

        Let’s do some math: Let’s say that a consumer has $30,000.00 in credit card debt spread out over 6 accounts evenly($5,000.00 each). Now let’s say that this particular consumer chooses to go with the option in which your Company charges 30% of the savings you achieve and also is looking at enrolling with my company who charges 15% of the enrolled balance spread evenly over the payment plan.

        Now for a common denominator we’ll say that my company and your company are able to settle each account for 40% of the enrolled balance. This means that with your Model the consumer will end up paying back a total of $17,400.00 and with my Model the consumer will pay back a total of $16,500.00.

        This also means that because the fee that you charge(30% of the savings) is due when the settlement is reached that unless the consumer(who is more than likely already strapped for cash)can come up with a lump sum of cash, than my Model will achieve settlements faster than yours. You say that Attorney Models think that they are exempt from the TSR and are “Loopholers”, but I believe that my company is compliant with every aspect of the TSR.

        Our Company is extremely transparent and our goal has always been to help consumers in financial hardship to eliminate their debt in the best and most effective way possible. Again, I appreciate your comment and advice and I can tell you are one of the “good guys”, but it seems like you dismiss companies with a business Model that differs from yours even if their goals are the same. I do agree that all Attorney Models do not operate like mine… All I’m saying is that we are not ALL bad and I think there can be room for both the Attorney Model and the Success Model in the future of Debt Settlement!

        Thanks again, Alex!

  • Steve Rhode

    “Loophole” and “Loopholer” are terms that have become widely used to describe entities that engage in practices to avoid the underlying intention of the FTC consumer protection rules under the telemarketing sales rules.

    Since the FTC did not have the authority to regulate the practice of law but did intend to regulate how consumers are sold debt relief services, a “loophole” is effectively created that law firms may perceive to be a window to continue the practice of selling advanced fee or front loaded debt relief services.

    An abundance of evidence was presented during the long FTC rule making process that could not support that consumers were not disadvantaged by the advanced fee approach when in general the majority of consumers did not receive the services for which fees were paid but not refunded.

    The face-to-face meeting as a way for national firms to charge fees was not the intention of the FTC. As Allison Brown of the FTC said about the attorney model: Attorney Models – Not a loophole approach in mass marketed debt settlement services using affiliates and distant marketers. If a local attorney is a “small town player” sitting down face-to-face with a local consumer and has established a traditional attorney client relationship then that is a different matter. But, if an attorney model debt settlement company is using marketers, telemarketers and runners to sell debt relief services, these attorneys and/or firms are NOT exempt under the FTC TSR. You can watch her full presentation here.

  • Fruitloophole

    Why do you keep saying loophole? Its in the TSR, if you do this, you have to do that. If you do this, you can do that. Its not a loophole, its instructions. Conducting Face to Face meetings is following the guidelines laid out by the TSR. A loophole is circumventing or exploiting a hole in the contract/law. This is plainly laid out.

    FTC really only cares about marketing and lying to consumers. If you are adhering to the TSR, but still lying or cheating clients, you will get attention much faster than those following the guidelines of the TSR.

  • Fruitloophole

    Why do you keep saying loophole? Its in the TSR, if you do this, you have to do that. If you do this, you can do that. Its not a loophole, its instructions. Conducting Face to Face meetings is following the guidelines laid out by the TSR. A loophole is circumventing or exploiting a hole in the contract/law. This is plainly laid out.

    FTC really only cares about marketing and lying to consumers. If you are adhering to the TSR, but still lying or cheating clients, you will get attention much faster than those following the guidelines of the TSR.

    • http://GetOutOfDebt.org Steve Rhode

      “Loophole” and “Loopholer” are terms that have become widely used to describe entities that engage in practices to avoid the underlying intention of the FTC consumer protection rules under the telemarketing sales rules.

      Since the FTC did not have the authority to regulate the practice of law but did intend to regulate how consumers are sold debt relief services, a “loophole” is effectively created that law firms may perceive to be a window to continue the practice of selling advanced fee or front loaded debt relief services.

      An abundance of evidence was presented during the long FTC rule making process that could not support that consumers were not disadvantaged by the advanced fee approach when in general the majority of consumers did not receive the services for which fees were paid but not refunded.

      The face-to-face meeting as a way for national firms to charge fees was not the intention of the FTC. As Allison Brown of the FTC said about the attorney model: Attorney Models – Not a loophole approach in mass marketed debt settlement services using affiliates and distant marketers. If a local attorney is a “small town player” sitting down face-to-face with a local consumer and has established a traditional attorney client relationship then that is a different matter. But, if an attorney model debt settlement company is using marketers, telemarketers and runners to sell debt relief services, these attorneys and/or firms are NOT exempt under the FTC TSR. You can watch her full presentation here.

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