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Trials and Tribulations of Running a Legitimate Debt Settlement Company in Today’s Environment

Trials and Tribulations of Running a Legitimate Debt Settlement Company in Today’s EnvironmentThe following guest post was contributed by Alex Vieco of New Era Debt Solutions. Alex is an experienced debt settlement company executive and his company is a member of the AACC that works hard to create fair and balanced solutions for consumers with debt issues.

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I was recently asked about some of the challenges of running a DSC today. Although I am pretty upset at the people that have come through this industry and have totally damaged the reputation of the industry, I can only focus on the future and the fact that consumers still need the help.

Plenty of wrong doing, money hungry people have come and gone. Sadly they have even enjoyed a very lavish lifestyle while taking funds from innocent consumers, leaving the legitimate companies to pick up the pieces.

You may be thinking “well what has all of that done for this industry?” A lot!

The challenges faced by most legitimate operators today are numerous. It ranges from high lead and marketing cost to spending thousands on legislation and trying to educate the media and nay-sayers about the benefits of Debt Settlement.

So why the high marketing costs? Well let’s go back to an unforgettable day when I saw our lead prices increase by a whopping 110% in 1 day! It was 1995 and a new player came on the scene one that was ready for enrollments with a call center of 200 people from day one. This included a standing order of any and all leads at this new escalated lead price.

How could they do this? The answer lies in the “Advance Fee Model”. The next statement out of my mouth was “no way will they last”. I was absolutely wrong! Not only was I wrong but the industry became a big pool of advance fee companies and their affiliates. Cash flow coming in without really having to provide much service; it must have been HOG HEAVEN for them.

Some companies actually were settling some debt, although at a very low volumes. Consumers started to complain at record levels and the attention from the BBB and AG’s everywhere started to occur. Well, needless to say a united voice needed to be created to make the industry more legitimate. In the process not only was there one organization created, but a second one too. Companies needed to chose a trade organization in order to keep up with the pending issues faced by the industry. Many of those issues were due to the “Advance Fee Model” and the consumers not receiving the services that many companies offered.

So why the history lesson? Because this history is relevant to the environment right now. Today a company needs to bid for leads in one of the MOST competitive markets on the internet. The need for traffic directed to these terms has been at an all time high since the collapse of the mortgage industry. Many of the lead companies started to become affiliates and sell “Advance Fee” programs because it would yield higher pay outs (from 60-90%) than simply selling a lead and then have another company service the client, this was as easy as 1,2,3.

Today we face a similar challenge since the NEW “Advance Fee” model is also known as the “Attorney Model” these NEW models continue to charge up-front fees and are heavily competing in the same arena for the leads. This is still keeping the cost of marketing higher than it needs to be. That also puts those companies in an unfair advantage position by allowing them to collect money up-front AND monthly service fees while legitimate companies are incurring the cost of servicing the consumer with NO money collected upfront.

Many companies that have agreed to work within the FTC’s TSR have complied by NOT charging ANY fees prior to settling. They are doing what they can to comply this includes: disclosures, more time spent on qualifying consumers, and servicing a NON-Paying consumer to deliver a result. All the while the company is hoping recover expenses and make a profit.

Regardless of the state your business is in they will need to make sure you are operating a legal business model which includes: Payroll, Payroll Taxes, Insurance, Workers Compensation, State Taxes, Federal Taxes, Unemployment Benefits, Legal, Licensing, Technology, Technology Updates, Security Cost for securing the consumer files, Utilities, Maintenance, Leases, and of course the constant cost of Marketing.

Many companies are getting their first taste of actually performing the service for consumers of settling debt. Unlike credit counseling that is pretty automated, actually settling debt at low percentages for consumers takes work, time and effort. You need to coordinate the conversations with the creditors and the consumer and more importantly you have to manage the client’s temperament and expectations. Not always an easy task when they hear the false promises of settling your debt more a mere few pennies on the dollar or the promise of stopping creditor calls.

The process has not changed very much but yet the rules have changed tremendously. Unfortunately the current rules put a strain on a legitimate company’s profitability and existence. The biggest problem we see is in the proposal in some States about limiting the fees charged, not because fee limits are bad but mainly because I DON’T believe a true analysis has been done on the actual cost of delivering a quality product to the consumer.

Can a company lower their cost of operation by providing fair service with average workers? I suppose. Can companies reduce their cost of operation by automating the process while giving little service? I am sure they can. Do WE want to lower our standards simply to lower our cost of operation? NO! I believe the consumers have the right to receive EXEPTIONAL Service. Our history has shown that consumers are even willing to pay slightly higher fees for a service that was beyond their expectations. There is an old saying: You get what you pay for.

By us always putting the consumers first we have been able to deliver great service. We do this by hiring and training great people! Great people take time to develop and you need people that are caring and nurturing. Can everyone or should everyone use our format? No. It is simply one model and one that has stood the test of time. One that delivers to consumers the value they are expecting. Let’s face it, consumers with debt problems will often be stressed out and need hand holding. No surprise since they are dealing with issues they have never expected and have never learned about.

Finances can be very intimidating to consumers and to make things worse the constant barrage of communication by creditors, collectors and marketing companies only confuse them even more. With all the information on the internet, how would a consumer know what is the right information? This is why many consumers might want to chose a full service company, they should be allowed to chose. This is why a full service company needs to be responsible, transparent, and truly help consumers.

Today’s environment is riddled with challenges and many more to come as we start seeing the State by State requirements which will include amongst other things bonding and licensing. Consumers keep getting options taken away but I am a firm believer in choices, consumers should be allowed the options to choose for themselves.

Sincerely,
Alex Viecco
Vice President/ Co-Founder
New Era Debt Solutions

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  • Mike Reilly

    Alex, I agree with Robert, nice job!

    Here’s a question for everyone and the answers should vary, what do you think (based on your business structure) is a reasonable client acquisition cost? What could you live with at the very top of the market and what level (without getting silly) would be ideal?

  • Robert Stevenson

    Alex V, very nice read. I completely agree with the Advanced Fee Model Companies (LHDR type) really inflating the marketing cost. Companies that are performance based will naturally have a lower profit margin and cash flow issues since the fees will take longer to collect. This allows the advanced fee companies to “bid” or pay higher for leads since they have deeper pockets.

    What’s even more disturbing is this thought…. ***What if some of the Advanced Fee Companies decided to use that model only for 6, 12 or 18 months to fill their pockets and have steady stream of revenue, then decide to switch to a performance based model (while escaping any FTC or other actions)?

    When they come into the performance based model as they should have originally, they know have more capital for larger marketing budgets, SEO services, etc. Quite frankly, I realize this may not be common as most companies doing Advanced Fees probably don’t want the risk. But marketing cost remain inflated and it’s tough for us honest guys to get through the storm.

    –> Fee Caps
    I’ve said it time and time on this site that fee caps limit a free market. Mr Rhodes once asked me “Do you have any other argument?”… I should have replied that how does competition hurt consumers? What I mean is by capping the prices in this market you will limit the competition. Want to limit the bad guys?? Well, you tried that with the FTC… It got rid of the bulk, but people are still collecting up front fees… Want to price cap our industry? You’ll cut the last leg of competition out of the industry yet the “LHDR” type models will remain or figure a different model.

    Sure, guys like USDR or Michael (I’m not sure I referenced them correctly) can get through prices that low… but does that mean the rest of us can? Of course, you’ll here them argue to death because they select the right consumer which lowers cost, etc, etc… I am not doubting these arguments. However, if we are to have competition which will lead to more choices for consumers, we should not be capping the fees on an already capital intensive business.

  • Robert Stevenson

    Alex V, very nice read. I completely agree with the Advanced Fee Model Companies (LHDR type) really inflating the marketing cost. Companies that are performance based will naturally have a lower profit margin and cash flow issues since the fees will take longer to collect. This allows the advanced fee companies to “bid” or pay higher for leads since they have deeper pockets.

    What’s even more disturbing is this thought…. ***What if some of the Advanced Fee Companies decided to use that model only for 6, 12 or 18 months to fill their pockets and have steady stream of revenue, then decide to switch to a performance based model (while escaping any FTC or other actions)?

    When they come into the performance based model as they should have originally, they know have more capital for larger marketing budgets, SEO services, etc. Quite frankly, I realize this may not be common as most companies doing Advanced Fees probably don’t want the risk. But marketing cost remain inflated and it’s tough for us honest guys to get through the storm.

    –> Fee Caps
    I’ve said it time and time on this site that fee caps limit a free market. Mr Rhodes once asked me “Do you have any other argument?”… I should have replied that how does competition hurt consumers? What I mean is by capping the prices in this market you will limit the competition. Want to limit the bad guys?? Well, you tried that with the FTC… It got rid of the bulk, but people are still collecting up front fees… Want to price cap our industry? You’ll cut the last leg of competition out of the industry yet the “LHDR” type models will remain or figure a different model.

    Sure, guys like USDR or Michael (I’m not sure I referenced them correctly) can get through prices that low… but does that mean the rest of us can? Of course, you’ll here them argue to death because they select the right consumer which lowers cost, etc, etc… I am not doubting these arguments. However, if we are to have competition which will lead to more choices for consumers, we should not be capping the fees on an already capital intensive business.

    • Mike Reilly

      Alex, I agree with Robert, nice job!

      Here’s a question for everyone and the answers should vary, what do you think (based on your business structure) is a reasonable client acquisition cost? What could you live with at the very top of the market and what level (without getting silly) would be ideal?

  • Sara

    Thanks for this blog.

    http://www.bestdebtcare.com/de

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