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Word on the Street on the Future of Debt Relief

The following guest post was contributed by Angelo Anzalone of Active Debt Solutions.

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Success based debt Settlement, the Attorney Model, Non Profit CCC’s and DMP’s, Do it yourself kits, Debt Validation, Debt Elimination, Bankruptcy – the list of available options seems endless and although we can argue all day about the legitimacy and success rate of these options they are here and available to consumers. When I think about where the industry is headed it’s a complete guessing game with way too many variables to see a clear path.

The new buzz word is “Hybrid Programs”. The non profits want desperately to get into the debt settlement space but are afraid of the strong arm of the banks that pay them fair share funding, the Fair share handcuffs as Steve has referred to them. Ultimately, unless the non profits stand up to the banks that pay them, dipping their toes in settlement will be very tricky. If the non profits were not ruled by creditors they would have been into debt settlement a long time ago and I applaud the few that have made the break and chose the for-profit approach. We saw the push for the 60/60 plan and the Less than Full Balance approach by the nonprofits as a way to “earn a blessing” by the banks that pay them fair share and one can’t argue the ethical concerns – accepting a 60% settlement and spreading payments out over 60 months on a charged off account is not in the consumer’s best interest when most accounts are settled between 25%-35%. How does a company in good conscience accept a 60% settlement on a charged off account when that account can be settled for much less?

Fact: Capital One and Discover balances typically double within 12-18 months followed by an aggressive lawsuit, regardless of the balance or financial situation of the consumer. In my opinion, consumers with Discover and Capital One accounts are the ones that are best suitable for a hybrid plan. Unless there are enough funds to settle either of those accounts first (and in most cases at 50%) then a DMP is where they belong. Again, accumulation of funds is the major factor but Capital One and Discover do not belong in a traditional 36-48 month settlement program. Another factor in placing Capital One and Discover accounts in a DMP are the new FTC reporting guidelines that state that “settlement fees must be calculated using the amount saved at time of settlement” and no longer base fees off the balance at time of enrollment. For example, a Capital One account with a $1,000 balance increases to $1700 and you negotiate a 50% settlement ($850), you technically saved the consumer $150 and at 20% of savings made a whopping $30….certainly not worth the liability.

A few major hurdles that I see the industry facing in order to survive:

Compliance/ Bonding/Licensing – The current requirements for bonding and insurance are flawed. What exists is a system that over-insures smaller companies and under-insures large ones. Bonding should be indexed according to client base and the $5,000 deductable should be raised. Finding an A rated major insurance carrier to provide coverage with a $5,000 deductible is near impossible (UDMSA). Higher deductibles and allowing lower rated carriers to provide bonds will open the available pool of providers, in turn lowering costs that can be passed on to the consumer i.e., lower fees.

Attorney Model/ LHDR – We are beating a dead horse here. I completely understand that the FTC is understaffed and overwhelmed but I’m extremely disappointed that the FTC has not cracked down on the attorney model. We can scream, kick and claw all we want but they have deep pockets – LHDR is rumored to have over $8 million set aside to fight the FTC, my guess is these guys and other similar attorney models are here to stay; which is truly the saddest part because they are simply ruining people’s lives with their lies and deception and nothing is being done about it. There is always an extreme disadvantage when a sector of the industry is playing by a completely different set of rules. LHDR client agreements show they collect over 30% of the consumer’s debt in fees.

There is no level playing field and we are all sadly mistaken if we think that the upfront players will be gone any time soon.

Data/Transparency: There seems to be no standardized reporting method in this industry. Lawmakers and regulators welcome actual performance data to shed some light on the effectiveness of debt relief solutions for both Settlement and DMP’s. Similar to a mutual fund using its historical returns to entice investors, settlement claims should be substantiated using a standard reporting method. We are seeing claims of settlements with fees included and claims without fees included, settlement claims based off enrolled debt instead of balance at time of settlement so all of this confusion creates the temptation to inflate claims for the sake of getting that phone to ring. Everyone agrees that providing good and comprehensive data to regulators can change minds yet any attempt to collect this data is ignored. I’m sure there are those who just said “that’s because the industry is a scam and there is no data” and while I won’t argue this when it comes to the advance fee settlement/attorney model, anyone who has been providing success based settlement services knows better.

The truth is, nothing will change until DMP’s and Settlement companies are given a level playing field and report using a standard method. For example, in the minds of the DMP’s if a consumer makes payments to creditors for 90 days and drops out that consumer is considered a success because of the “education provided to them taught them to do it on their own”. This does not sit well with settlement companies because if a consumer enrolls 6 accounts and 4 are settled then the consumer feels confident to settle the last remaining accounts on their own, that would have to be reported as a failure.

Those that had been strong advocates for the advance fee ban didn’t see the mass exodus or the reduced lead cost that was anticipated, instead there’s more confusion as companies struggle between right and wrong. Those that made the change over to the success fee model are seeing revenue from their previous model come to an end and they are not seeing the revenue from settlement they anticipated. Why? Many are accepting higher term settlements in an effort to collect fees right away. Settlement is a waiting game and accepting higher settlements locks up accumulation funds and in the event of a summons, companies are forced to accept much higher settlements, meaning lower fees and higher fall off. My concern is the wave of companies that will be closing down over the next year and of course what happens to those consumers. The Life Raft rescue plan that Steve has initiated will help some but not all.

In a perfect world, the industry would be as regulated as the financial planning or insurance industries – certain employees should require licensing. There would be a standard reporting method for both settlement and non Profits. The national affiliate driven attorney model would be banned and trust/dedicated account companies like Noteworld or GCS should require proof of licensing from the debt relief company before allowing distribution of funds in that state. When these changes take place that will be the day that consumer can truly make an educated decision on which option is best.

Angelo Anzalone
Active Debt Solutions

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  • Robert Stevenson

    @10989f7460f2358f04630b2442c0892c:disqus I have some successful friends who dial, but it’s simply not my style. It’s a huge disadvantage, but it really doesn’t strike my passion. But yes, you’re right that $60+ leads is suicide Which I assume @AFaria:disqus is also referring to… The big dogs (Freedom’s, etc) are assuredly still paying this price. Add that with the LHDR type companies eating up the space, you get to an inflated costs.

    However, I wouldn’t recommend “buying” leads, but generating them via Display Network (like seen on this site) or PPC. The market for these leads are $50+. And I mean some days it can be $100 or $50. You veterans know what I mean…

  • Mike Reilly

    I gotta tell you guys, this buying leads “thing” at wildly high prices doesn’t compute with me at all and I think this is where most need to go back to the basics. especially those looking to hang around.

    Andy, Robert, Angelo…based on everything you guys know about debt relief, if I provided you with (highly filtered) raw data for pennies ($0.10 -$0.12) and put them on a system that connected you to them one after the next and all you did was properly introduce your organization, ask some basic qualifying questions (not a sales presentation) which, if qualified led to high quality package arriving at their door, (something with real meat to it) all in about $4.50-$5.00 each, how many leads do you think you could generate in an hours time? If the package was killer, how many folks would call you guys once they received and reviewed the info? Can you teach that to others while paying them $9.00 $10.00 per/hr? Multiply that by 5 or 10 (people) and then by 4 to 5 hours then 20 -22 (days) and what do you have, I’ll tell you….lots of high quality internally generated leads, the best of the best! Figure out how to deal with paying your consultants (over time) and your numbers on cost of acquisition are unbeatable.

    Buying leads at $25 – $40 – $60+ in this environment is financial suicide especially when there being sold over and over. Start with one person and put the time into training them and you’ll never go back. The quality alone is worth the effort and infrastructure.

  • Andy Faria

    I get it, time to strike and all that. Both good and bad business people have grown rich since the beginning with no skills other than timing. But now is not the time to strike in debt relief. Yea the blood is in the streets, but how much of it will be yours, before you see a justifiable return?

    I’m going to give you a hypothetical situation. Lets say for the next year or two you stop marketing altogether. You take your entire marketing budget and you invest it in something better. Let’s just say you invest it in gold for the sake of this hypothesis. You cut expenses to the bone and you diligently work the performance based clients you have already have. You keep some revenue coming in and keep your clients happy, all the while banking your ad dollars and you watch it grow.

    Now fast forward a year or two. LHDR and those guys may not be completely gone yet, but things will have certainly changed. If that change is for the better than you use the nest egg you have saved and you burst back on the scene better than ever. With systems in place and capital to compete in a time where you get a better roi. Compare that with pouring money into competing for leads over the next year or two and all the other points that Angelo made. Which one do you think leaves you poised to be around in the longest? “

  • Robert Stevenson

    entire? Well, not entire.. Because if it did then lead prices would be so low someone would be capitalizing. But if by entire you mean like 50-80%? YEs, I agree.

    I looked you up Andy, people said the same thing to me in 2008 about real estate. It got worse and worse with banks falling apart left and right. However, I found my niche in REO’s and made more money in 2009-2010 than I could’ve imagined. Real Estate is a different beast than debt relief for the obvious that everyone owns property. In either case, markets go up and down. There will be blood on the streets, but I’m learning in my short life that’s the perfect time to strike.

  • Andy Faria

    Everything you said is true, great piece Angelo.

    Add in the fact that demand is down and probably won’t increase for years, and we’re left to wonder how long will the good guys continue to attempt to defy the odds and stay in business?

    The advance fee ban was the right thing to do based on what was going on, but it has actually made survival harder if not impossible for those that are following the rules. I hate to say this because I have quite a few friends in the industry, but I’m expecting the entire industry to tank.

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

    Everything you said is true, great piece Angelo.

    Add in the fact that demand is down and probably won’t increase for years, and we’re left to wonder how long will the good guys continue to attempt to defy the odds and stay in business?

    The advance fee ban was the right thing to do based on what was going on, but it has actually made survival harder if not impossible for those that are following the rules. I hate to say this because I have quite a few friends in the industry, but I’m expecting the entire industry to tank.

    • Robert Stevenson

      entire? Well, not entire.. Because if it did then lead prices would be so low someone would be capitalizing. But if by entire you mean like 50-80%? YEs, I agree.

      I looked you up Andy, people said the same thing to me in 2008 about real estate. It got worse and worse with banks falling apart left and right. However, I found my niche in REO’s and made more money in 2009-2010 than I could’ve imagined. Real Estate is a different beast than debt relief for the obvious that everyone owns property. In either case, markets go up and down. There will be blood on the streets, but I’m learning in my short life that’s the perfect time to strike.

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

        I get it, time to strike and all that. Both good and bad business people have grown rich since the beginning with no skills other than timing. But now is not the time to strike in debt relief. Yea the blood is in the streets, but how much of it will be yours, before you see a justifiable return?

        I’m going to give you a hypothetical situation. Lets say for the next year or two you stop marketing altogether. You take your entire marketing budget and you invest it in something better. Let’s just say you invest it in gold for the sake of this hypothesis. You cut expenses to the bone and you diligently work the performance based clients you have already have. You keep some revenue coming in and keep your clients happy, all the while banking your ad dollars and you watch it grow.

        Now fast forward a year or two. LHDR and those guys may not be completely gone yet, but things will have certainly changed. If that change is for the better than you use the nest egg you have saved and you burst back on the scene better than ever. With systems in place and capital to compete in a time where you get a better roi. Compare that with pouring money into competing for leads over the next year or two and all the other points that Angelo made. Which one do you think leaves you poised to be around in the longest? ”

      • Mike Reilly

        I gotta tell you guys, this buying leads “thing” at wildly high prices doesn’t compute with me at all and I think this is where most need to go back to the basics. especially those looking to hang around.

        Andy, Robert, Angelo…based on everything you guys know about debt relief, if I provided you with (highly filtered) raw data for pennies ($0.10 -$0.12) and put them on a system that connected you to them one after the next and all you did was properly introduce your organization, ask some basic qualifying questions (not a sales presentation) which, if qualified led to high quality package arriving at their door, (something with real meat to it) all in about $4.50-$5.00 each, how many leads do you think you could generate in an hours time? If the package was killer, how many folks would call you guys once they received and reviewed the info? Can you teach that to others while paying them $9.00 $10.00 per/hr? Multiply that by 5 or 10 (people) and then by 4 to 5 hours then 20 -22 (days) and what do you have, I’ll tell you….lots of high quality internally generated leads, the best of the best! Figure out how to deal with paying your consultants (over time) and your numbers on cost of acquisition are unbeatable.

        Buying leads at $25 – $40 – $60+ in this environment is financial suicide especially when there being sold over and over. Start with one person and put the time into training them and you’ll never go back. The quality alone is worth the effort and infrastructure.

      • Robert Stevenson

        @10989f7460f2358f04630b2442c0892c:disqus I have some successful friends who dial, but it’s simply not my style. It’s a huge disadvantage, but it really doesn’t strike my passion. But yes, you’re right that $60+ leads is suicide Which I assume @AFaria:disqus is also referring to… The big dogs (Freedom’s, etc) are assuredly still paying this price. Add that with the LHDR type companies eating up the space, you get to an inflated costs.

        However, I wouldn’t recommend “buying” leads, but generating them via Display Network (like seen on this site) or PPC. The market for these leads are $50+. And I mean some days it can be $100 or $50. You veterans know what I mean…

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