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It’s Been A Year Since The TSR – What’s Changed With Debt Settlement?

A year ago this month the Federal Trade Commission (FTC) barred debt settlement companies that used telemarketing from accepting up-front fees. Although it’s been an entire year since this change we are still see companies trying sneak in those up-front fees with businesses trying to exploit loopholes.

The whole purpose of the Telemarketing Sales Ruling was to help consumers from having to pay up front fees for services to reduce debt that were never delivered. However, legal retainers are not affected by the law so many debt settlement firms are partnering with lawyers to charge their up-front fees.

However, when consumers sign up with these attorney-based firms the probability of them actually speaking to or seeking the help of an attorney is slim. In fact, Illinois attorney general, Lisa Madigan, filed a civil complaint against Legal Helpers Debt Resolution LLC for their failure to have consumers speak with an attorney and for deceptive practices implying that their services were offered by a United State government program.

Apparently Legal Helpers also charged 15 percent of a client’s debt over the first 18 months to cover costs of their settlement plan along with a $900 “legal flat fee” over the first six to nine months to cover attorney representation if they’re sued by creditors. It’s been reported the “firm has about 12,000 clients and represents about $500 million in debt. That’s an average debt of almost $42,000 per client…and would equate to up-front fees of $7,150″ – Source.

It’s been reported that within the past year the Better Business Bureau (BBB) has received almost 2,500 complaints about debt relief firms.

The FTC has made no specific exemption for attorneys, said Joel Winston, associate director of the division of financial practices for the Washington-based agency.

“To the extent that there are firms who think that somehow the claim ‘I’m providing legal services’ exempts them from the rule, they’re mistaken,” he said. Winston declined to say whether all so-called “attorney-model” firms are violating the fee ban. He said the FTC had not brought any enforcement actions against firms for violating the up-front fee ban – Source.

As of right now there is no federal licensing requirements for debt settlement companies and many companies have made the switch to an attorney-based company relatively easily since the telemarketing rule came into effect. Some are even meeting face to face with consumers because of the “no telemarketing” rule. This however, does not always mean a company has the consumers’ best interests in minds because they meet with you face to face and hide, I mean operate, behind an attorney.

Some of these companies are so desperate to hook new clients and consumers that they’re even advertising on Craigslist for attorneys in specific jurisdictions. A complaint was filled last year by West Virginia’s attorney general this past May against Morgan Drexen after saying they “would pay one lawyer in West Virginia a monthly fee of $500 for the first 300 West Virginia clients she served and $2 for every additional client, according to a copy of the attorney’s contract with Morgan Drexen” – Source.

Some firms began shifting to an attorney model before the FTC rule took effect because of loopholes for lawyers in state laws, said Scott Johnson, chief executive officer of USDR Inc., a settlement firm. Morgan Drexen has operated under its current business model since the company’s inception in 2007, according to the company’s assistant general counsel Erich Schiefelbine – Source.

Since the telemarketing rule came into effect the United States Organizations for Bankruptcy Alternatives (USOBA) has declined from more than 200 firms to around 30 while the American Fair Credit Council (formally the Association of Settlement Companies) has fallen to around 35 firms from their once 220 firms.

“They haven’t left the industry, they’ve left the trade associations because they don’t want to abide by a performance- based service fee,” said USDR’s Johnson.

However, on the plus side, according to Federal Reserve data, U.S. consumers held around $792 billion in outstanding revolving debt in July of 2011 which is significantly less then the $970 billion from 2008. According to CreditCards.com it breaks down to almost $16,000 in debt on average for households that carry a balance – Source.


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Amanda Miller
  • Kenneth Silagy

    I see a lot of post that indicate there are no good companies that are debt settlement companies and I beg to differ. We are one that works in Pa. we have been doing this for 15 years and are A+ rated with the BBB. In the 15 years of working we have had only 3 complaints over that time and all were resolved. We do not collect a large up front fee and only get paid after a settlement has been made. We go by the rules and keep our nose clean. We also use a POA to stop the calls to the consumers. We come from a financial advisor background. We are financially licensed advisors like an asset accumulation advisor (Federal Licensees). We are at http://www.yourdollarsense.com

    President
    Kenneth R. Silagy

  • a pro

    How can any of you call yourselves business men….  Reading your posts are difficult due to spelling errors.  You all look like idiots

  • Jonathanharstad

    I stood in front of Joel Winston of the FTC at a conference and asked him what he wanted us to do when we had info about a company breaking the regulations of the TSR, or any other company scamming consumers. Bob Linderman of Freedom Debt Relief would barely let Joel answer the question. He cut Joel off and said (as the speaker of TASC/AFCC) “If you know of any companies breaking the law, we would love to kow as well…” The industry is pathetic. The regulations are unenforced and companies still have free reign. All the TSR did ws put out the companies that were under capitalized. Now only the big money companies can screw somebody in debt!

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

      I agree 100%, the industry is pathetic. Debt relief isn’t evolving, it’s regressing (if thats even possible)

    • Mike Reilly

      Jonathan and Andy, name one financial service that’s properly regulated, one that has no bad actors and during its booming growth spurts’ wasn’t thinned out but amended regulation?
      As long as you do it right, you end up reading about those who didn’t!

      • Jonathanharstad

        Mike, go to http://www.SettleFirst.com

        now, tell me we didnt do it right… Ill put a healthy number on it. But when degenerates like the attorney model companies and the outright crooks who convince consumers to go with them because they “are attorneys who can protect” them… well, the playing field is NOT even. So, for people like myself and any other company who was operating years prior to TSR implementation, we were sqeezed out because a bunch of f***offs couldnt do business the right way. SO here you go, you’re reading about somebody who DID do it right, and for nearly10 years and on several different levels. I closed my company because i refused to do what was needed to capture a new customer. Bottom line, if you disagree, call 10 random companies who are on the attorney model and tell me how many of them DONT charge a “retainer” fee. And for the rest of the companies, they are throwing some bullsh** product in front of an upfront charge. Reality is, there arent “just a couple rogue companies” – the whole industry (maybe minus a few good guys) is rogue.

        I have yet to find the good guys, but i wont stop searching…

      • 1 year = 365 days

        Entity Name:SETTLE FIRST CORPORATIONEntity Number:C3276745Date Filed:02/03/2010Status:ACTIVEJurisdiction:CALIFORNIAEntity Address:6 HUTTON CENTRE DRIVE, SUITEEntity City, State, Zip:SANTA ANA CA 92707Agent for Service of Process:JONATHAN RAY HARSTADAgent Address:6 HUTTON CENTRE DRIVE, SUITE 1400Agent City, State, Zip:SANTA ANA CA 92707

      • Mike Reilly

        Johathan, if you collect your fees based on performance, it all about debt under management, not very difficult to understand. If money is collected up front…well the business is not worth much…that’s just the way it is.

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

        Mike, I can’t name one, can you?

        In ds though, the bad actors are the norm and the good guys are the rarity. No matter how much the good guys shine they will always be obscured by the cloud of dust the others are kicking up. The solution is so much more than thinning the herd, it’s chopping about 90%.

        Can you name another industry (that isn’t considered pathetic) that is overrun with crooks openly doing business as this? The rules in place are great, but where is the enforcement?…  Where are the cease and desist letters?…  How long will they be allowed to operate?

        For as long as they are allowed to operate they take money directly out of your pocket, just as they do their victims. People that may be perfect candidates for your great program are signing up for three years of upfront fees instead… every day. Doesn’t that piss you off Mike?… How do you describe an industry like that? … (other than pathetic) …

      • Jonathanharstad

        Mike you must have misunderstood me. I wasnt saying i didnt like the TSR. I love it. It was well overdue and very much needed. However, it did nothing good for the masses; its no different than the BBB giving everyone an F. How would the consumer know who is decent if we ALL had F ratings? OK, example so you more easily understand what i was saying: Which one would you allow to help you assuming you were on the same level as one of the prospects this industry has daily:  “Yes sir, we can help. First, we do a budget analysis, then we determine what you can afford each month and structure a savings plan. we dont charge you a penny until we get a settlement worked out for you. This will certainly impact your credit, and you may be sued, but thats the choice you will have to make as an acceptable risk versus maintaining a past due status as you are right now for the next however many years… ” OR WOULD THIS ONE SOUND BETTER: “Stop paying your creditors. we are attorneys, and if they sue you, we are your  attorneys and we can help with that too. Dont get help with somebody who isnt an attorney when for just a little bit more of a fee hyou can ave an attorney do it all for you. You have an attorney negotiating your debt. Attorneys can protect you.” Exactly. Thats all i am saying. Now that you know where i stand, and my opinion is a bit more clear, can we agree this industry is pathetic? Dude, i stood face to face with Tami Brown of Turnkey Consulting at the TASC show in April.  She was the guest speaker and HOST at the TASC show in Vegas. She is also the president of HER OWN organization that supports attorney models. So you understand, that is like Obama being the speaker at George Bush’s election party…  TASC is mxied up with attorney models and they had to change their name so that they didnt appear to be mixed up with attorney models because attorney models arent FTC compliant. And as if thats not confusing enough, thats the TRADE ORGANIZATION that is supposed to be helping consumers find a reputable company. Does TASC/AFCC even do anything for consumers or is it all just a bullsh** scheme to have 250 companys pay you 1400 for a ticket to go to vegas? thats over 300k in one sitting, and all we got was a t shirt and a binder with a bunch of propaganda on HOW TO BREAK THE LAW… It probably cost them $80 per prson and that includes the food. SO, all we did was pay for a year of salaries for TASC employees (how many are there?  there 3?) and gave them a write off in Vegas for a week and a bunch of leftover cash in hand. This industry is full of holes. Trust me when i say i helped push the movement over the last 10 years. I have seen it all, done it all, enjoyed very little of it and believed in it even less.  Everybody plays debt settlement. Few settle debt.

      • Mike Reilly

        Gentlemen believe me, I get it!
        While a year seems like a
        long time… it’s not. Major case law is being established, the ambulance chasers
        (an ugly phrase but it fits the bill) have entered the game and many (good and
        bad players) have moved on. This reminds me of what happened when Wall street
        was overrun with bad actors back in the 80s, while the regulators did their
        best to enforce, the private sector (law firms) campaigning to attract
        potential victims took a big bit out of the problem by way of law suite’s and/or
        class actions. There wasn’t a day that went by, you pop on the TV and see two
        or three ads like…. DID YOU LOSE MONEY BASED ON THE ADVICE OF YOUR BROKER?
        Sure
        I hate the fact that consumers are being lured away from my services toward
        loopholers, it really bothers me, that’s one of the reasons why I’ve decided to
        join, participate and support SAFTI (State and Federal Transparency Initiate).
        Unlike the AACC, SAFTI is developing good traction and it’s not a “by
        invitation only” club which was doomed from the start. For more on that see
        their website or speak with Matt Hearn directly. For those who haven’t I think
        you’ll like what’s going on.

        Bottom line, change takes time and for those good guys that couldn’t
        hang in…well all I can say is, the rest of us will do our best to fight the
        fight.

         

      • Mike Reilly

        By the way, don’t misread my comment on the AACC, all great companies, in my opinion it seems like it has become just a knee jerk reaction to an event in time and nothing more than a source for this site to refer individuals to…which is ok by me. 

      • Jonathanharstad

        I respect yor opinion. And we are on the same team. However, I have chosen a different path and my path will be felt throughout the industry. You can take that to the bank. Mention my name to Matt Hearn. He will confirm :)

  • http://www.NewEraDebtSolutions.com Alex Viecco

    Until the FTC takes a strong stand on the “Up-Front Fees” portion of the TSR.  Attorneys Models will continue to charge some outrageous fees.
    Today I actually saw a contract that actually added up to a WHOPING 42% in fees.  It is no wonder the industry has a black eye.
    There are of course attorneys that do perform this service in a legitimate and compliant format and I want to tip my hat to them as they are really looking out for the consumer as the “TRS” was intended to do.
    I certainly hope something happens from a Federal Level to denounce the practices of people charging the advance fees.
    I am confident that the industry has had a much needed flush but unfortunately many have simply chosen to go the route of the loopholes.
    Thanks for the article and the update.
    Alex Viecco

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