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CFPB Suit Against Debt Relief Company Should Make Industry Very Afraid

Yesterday the Consumer Financial Protection Bureau filed suit against American Debt Settlement Solutions, Inc. and Michael DiPanni. If you are in the debt relief industry you need to become painfully familiar with this suit because it will make you soil your pants.

For the first time the CFPB has laid out its hand on what they feel is an abusive practice. What the CFPB goes after is something that the majority of debt relief companies, including nonprofit credit counselors do on a daily basis.

According to the statute, Section 1036(a)(1)(B) of the Consumer Financial Protection Act, an act or practice is abusive if it “takes unreasonable advantage of . . . a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.” The CFPB also said the actions were abusive because consumers reasonably relied on the company to “act in their interest by enrolling them in a debt-relief program that they can be reasonably expected to complete, and which will therefore result in the negotiation, settlement, reduction, or alteration of the terms of their debts.”

But the CFPB says the actions of American Debt Settlement Solutions took an “unreasonable advantage of consumers’ lack of understanding of how long it will take [American Debt] to settle their debts and therefore how much money they will spend before realizing any benefits from enrolling in [American Debt’s] debt-relief program.”

This new path of action could be easily applied to debt relief companies that can not support their plan has a reasonable chance of success and does no harm to the consumer.

For example, is enrolling someone in a debt management program and sacrificing future retirement savings an abusive practice? The case could be made it is if the consumer is not fully aware and informed about the consequences of their actions.

Let’s Look Closer at the Suit

In this action, the CFPB did not wait to bring states onboard, they took action themselves and filed the suit.

ADSS is a Florida for-profit corporation that is located, resides, and does business in this district at 7601 N. Federal Hwy., #2108, Boca Raton, Florida 33487. At all times material to this Complaint, ADSS has provided and offered a consumer financial product or service that is covered by the CFPA. 12 U.S.C. § 5481(5), (15)(A)(viii)(II). Accordingly, ADSS is a “covered person” under the CFPA. 12 U.S.C. § 5481(6). At all times material to this Complaint, ADSS has transacted business in the Southern District of Florida.

So what does that statute say and cover?

(5) Consumer financial product or service
The term “consumer financial product or service” means any financial product or service that is described in one or more categories under—

(A) paragraph (15) and is offered or provided for use by consumers primarily for personal, family, or household purposes; or

(B) clause (i), (iii), (ix), or (x) of paragraph (15)(A), and is delivered, offered, or provided in connection with a consumer financial product or service referred to in subparagraph (A).

(6) Covered person
The term “covered person” means—

(A) any person that engages in offering or providing a consumer financial product or service; and

(B) any affiliate of a person described in subparagraph (A) if such affiliate acts as a service provider to such person.

(15) Financial product or service

(viii) providing financial advisory services (other than services relating to securities provided by a person regulated by the Commission or a person regulated by a State securities Commission, but only to the extent that such person acts in a regulated capacity) to consumers on individual financial matters or relating to proprietary financial products or services (other than by publishing any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, including publishing market data, news, or data analytics or investment information or recommendations that are not tailored to the individual needs of a particular consumer), including—

(I) providing credit counseling to any consumer; and

(II) providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure; – Source

DiPanni is ADSS’s owner and at all times material to this Complaint is, or has been, charged with managerial responsibility for ADSS. He has approved, ratified, endorsed, directed, controlled, and otherwise materially participated in the conduct of ADSS’s affairs. Given his status as an officer or managerial employee, DiPanni is a “related person” under the CFPA. 12 U.S.C. § 5481(25). Because of his status as a related person, DiPanni is deemed a “covered person” for purposes of the CFPA. Id. At all times material to this Complaint, DiPanni has transacted business in the Southern District of Florida.

ADSS’s Debt-Relief Services

ADSS began doing business in late 2008. Since then, it has sold or offered to sell debt-relief services to consumers.

In exchange for a fee, ADSS has promised to renegotiate, settle, reduce, or otherwise alter the terms of at least one debt between consumers and one or more unsecured creditors or debt collectors pursuant to a settlement agreement, debt-management plan, or other contractual agreement executed by a consumer.

ADSS has marketed its debt-relief services via the Internet at http://www.americandebtss.com and received telephone calls from consumers in response to its Internet marketing efforts.

As part of the consumer-enrollment process, ADSS has required that consumers complete detailed worksheets describing their monthly income (including income sources), expenditures, and debts. ADSS has then reviewed these worksheets with consumers before they enter into any debt-relief program.

ADSS has enrolled consumers in debt-relief programs varying in length from 24 to 48 months by entering into contracts with them.

Under the terms of ADSS’s contracts with consumers, consumers have paid ADSS an “enrollment” fee in an amount calculated as a percentage – typically 15 percent – of the amount of the consumers’ enrolled debts. Since its inception, ADSS has collected the balance of this “enrollment” fee in the first three to six months of a consumer’s enrollment.

Under the terms of ADSS’s contracts with consumers, consumers also pay ADSS a “service” fee that is assessed on a monthly basis for the duration of the debt-relief program. This monthly service fee is typically $99, of which a portion is applied to pay a payment processor.

At all times material to this Complaint, ADSS’s practice has been to request or receive enrollment fees, processing fees, debt-relief service fees, or other types of fees in advance of settling at least one of a consumer’s debts.

ADSS entered into a contract with a payment processor to receive services for the management, processing, and administration of payments. Under this contract, the payment processor has managed the savings account (“Dedicated Account”) of each consumer who is enrolled in an ADSS debt-relief program. Since its inception, ADSS has required and relied on assistance from the payment processor to collect and disburse monies through the consumer’s Dedicated Accounts.

Upon enrollment in an ADSS debt-relief program, ADSS has directed consumers to stop paying their creditors. ADSS has directed consumers instead to sign up for a Dedicated Account with the payment processor and to make monthly payments by ACH transfer into that account.

ADSS has represented to consumers that, when a consumer’s Dedicated Account reaches a sufficient balance, ADSS would instruct the payment processor to transmit funds to the consumer’s creditors to help satisfy the consumer’s debts.

At all times material to this Complaint, ADSS has directed the payment processor to disburse payments to and from consumers’ Dedicated Accounts.

At all times material to this Complaint, ADSS has provided to the payment processor a copy of each contract that it entered into with consumers for its debt-relief program.

At ADSS’s direction, the payment processor has: (1) withdrawn funds from the consumer’s bank account through ACH transfer and deposited them into the Dedicated Account, and (2) transmitted funds from the Dedicated Account to itself and to ADSS for the payment of processing and servicing fees, including the fee ADSS has charged consumers for its debt-relief services. The payment processor has managed the routine transfer of consumers’ funds out of consumers’ accounts to pay ADSS’s debt-relief fees before making any payments to creditors. ADSS and the payment processor have also communicated directly about ADSS’s fee structure.

When consumers have closed their Dedicated Accounts, the payment processor has typically refunded to consumers any money remaining in their Dedicated Accounts. Consumers typically have not received any refunds of fees paid to ADSS or the payment processor.

At all times material to this Complaint, ADSS has represented to all consumers that it will renegotiate, settle, reduce, or otherwise alter the terms of debts that consumers enroll in its program. For example, ADSS’s form contract with consumers makes the following representations:

  • “Eliminate your unsecured debt sooner than you ever thought possible.”
  • “Reduce your current monthly expense on debt service.”
  • “[B]e off the debt treadmill and on the road to recovery.”

Since its inception, ADSS has failed to renegotiate, settle, reduce, or otherwise alter the terms of a single debt for approximately 89 percent of the consumers who enrolled in its debt-relief programs.

In the welcome package provided to all consumers, ADSS has provided a list of “frequently asked questions,” including, “How long does it take for my first settlement?” In response, ADSS has stated: “the first settlement could be in 90 days, or as much as six months.”

Since its inception, ADSS has only rarely renegotiated, settled, reduced, or otherwise altered the terms of debts for consumers within three to six months of their enrollment.

Since its inception, ADSS has known that it was nearly impossible for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700. Nonetheless, it has been ADSS’s practice to enroll consumers in its program with debts under $700 without disclosing this limitation.

Since its inception, it has also been ADSS’s practice to enroll consumers in its program even when ADSS knows that the consumers’ incomes are inadequate to complete the debt-relief programs in which they are enrolled.

Since ADSS’s inception, consumers have deposited more than $9.9 million into their Dedicated Accounts, and ADSS has directed the payment processor to make payments totaling less than $2 million to creditors in settlement of their debts. Most consumers have paid fees to ADSS but closed their Dedicated Accounts before their creditors received any payments in settlement of the consumers’ debts.

With respect to Dedicated Accounts that were established on or after October 27, 2010, the effective date of the TSR, and from which no creditors received payments for settlements achieved through ADSS’s debt-relief program, ADSS collected fees totaling approximately $43,665.95.

ADSS has collected fees on or after July 21, 2011, the effective date of 12 U.S.C. § 5536(a)(1), from consumers who, according to the information they provided to ADSS, had inadequate income to complete the debt-relief program in which they were enrolled.

The Defendants are facing the following counts:

(ADSS’s Violations of the TSR and the CFPA – Advance Fees)

In the course of telemarketing debt-relief services from approximately October 27, 2010 to present, ADSS requested or received fees from consumers for debt-relief services before renegotiating, settling, reducing, or otherwise altering the terms of at least one of such consumers’ debts. ADSS requested or received payment of these fees prior to consumers’ making at least one payment pursuant to any settlement agreement, debt-management plan, or other valid contractual agreement between consumers and their creditors. (Seems to apply to credit counselors as well.)

(ADSS’s Violations of the TSR and the CFPA – Deception)

Section 310.3(a)(1)(ii) of the TSR prohibits a seller or telemarketer from failing to truthfully disclose all material restrictions, limitations, or conditions to purchase, receive, or use the goods or services that are the subject of the sales offer before a customer consents to pay for goods or services offered.

In connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, in numerous instances, ADSS has represented, directly or indirectly, expressly or by implication, that it likely will renegotiate, settle, reduce, or otherwise alter the terms of consumers’ debts.

In truth, ADSS failed to disclose the material restriction, limitation, or condition that it is nearly impossible for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700.

In numerous instances, in connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, ADSS has represented, directly or indirectly, expressly or by implication, that it will likely renegotiate, settle, reduce, or otherwise alter the terms of consumers’ debts within the first three to six months after consumers enroll in a debt-relief program with ADSS.

In truth, ADSS is not likely to renegotiate, settle, reduce, or otherwise alter the terms of debts within the first three to six months after consumers enroll in a debt-relief program with ADSS.

In truth, ADSS is not likely to renegotiate, settle, reduce, or otherwise alter the terms of debts for consumers who enroll in its debt-relief programs.

(ADSS’s Violations of the CFPA – Abusiveness)

Section 1036(a)(1)(B) of the CFPA prohibits “unfair, deceptive, or abusive acts or practices.” 12 U.S.C. § 5536(a)(1)(B). An act or practice is abusive if it “takes unreasonable advantage of . . . (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” 12 U.S.C. § 5531(d)(2).

In numerous instances, in connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, ADSS has enrolled in its debt-relief programs consumers whose financial conditions make it highly unlikely that they can complete the programs.

ADSS knows that the financial conditions of these consumers make it highly unlikely that they will complete the debt-relief program in which ADSS enrolls them, especially given ADSS’s knowledge that ADSS is unlikely to settle their debts within the first three to six months of enrollment. Before enrolling consumers in its debt-relief programs, ADSS has secured from consumers a detailed worksheet describing their monthly income (including income sources), expenses, and debts. Using this information, ADSS can determine whether a consumer is able to afford the monthly payments required by the debt-relief program.

Despite receiving financial information showing that some consumers could not afford the monthly payments under the debt-relief program in which they were enrolled, ADSS nonetheless collects “enrollment” fees from these consumers in the first three to six months of their enrollment. This practice causes certain consumers to spend their last savings paying ADSS fees for a service from which they will not benefit.

Instead of negotiating any debts with creditors during the first three to six months of a consumer’s enrollment – as it represents to consumers that it will – ADSS collects its “enrollment” fees during this period. As a result, consumers with inadequate income to complete the program drop out after paying significant fees and without receiving any benefit.

This practice takes unreasonable advantage of consumers’ lack of understanding of how long it will take ADSS to settle their debts and therefore how much money they will spend before realizing any benefits from enrolling in ADSS’s debt-relief program.

Consumers also reasonably rely on ADSS to act in their interest by enrolling them in a debt-relief program that they can be reasonably expected to complete, and which will therefore result in the negotiation, settlement, reduction, or alteration of the terms of their debts. Consumers also reasonably rely on ADSS to act in their interest by settling their debts as soon as possible and, in particular, within three to six months of enrollment as represented by ADSS.

Therefore, ADSS’s acts or practices violate sections 1031(a) and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1)(B), and are abusive.

And What is the CFPB Seeking?

Wherefore, the Bureau requests that the Court:

  1. permanently enjoin Defendants from advertising, marketing, promoting, offering for sale, or selling any debt-relief product or service;
  2. permanently enjoin Defendants from assisting others engaged in advertising, marketing, promoting, offering for sale, or selling any debt-relief product or service;
  3. permanently enjoin Defendants from committing future violations of the CFPA, 12 U.S.C. §§ 5531, 5536, and the TSR, 16 C.F.R. pt. 310;
  4. award restitution against Defendants in the amount of all
    unlawfully collected fees;

  5. order disgorgement of ill-gotten profits against Defendants;
  6. award civil money penalties against Defendants;
  7. award attorneys’ fees and costs against Defendants; and
  8. award additional relief as the Court may determine to be just and proper. – Source
CFPB Suit Against Debt Relief Company Should Make Industry Very Afraid

Boom goes the dynamite.

This case could be a blueprint of how the CFPB plans to go after others in the debt relief world who are abusing consumers.

At the very least it should make all debt relief companies take stock of their actual performance and making logical and clear decisions about what is best for the consumer rather than just the company.

For years I’ve been warning about the fiduciary duty of debt relief companies and yesterday it all came true.

CFPB Suit Against Debt Relief Company Should Make Industry Very Afraid
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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.
  • http://GetOutOfDebt.org Steve Rhode

    CFPB announces final rule covering debt relief industry and despite what some commenters observed, it does appear the CFPB is shifting responsibility to the debt relief companies to make sure consumers make choices that do not put them in risky positions. “is engaging, or has engaged, in” that poses risks to consumers. The Bureau further believes that past conduct may pose risks to consumers, even if the identical conduct is not likely to recur, to the extent that such conduct indicates weak compliance systems that might lead to other potential law violations or harms to consumers.”

    For more on this see http://getoutofdebt.org/52918/here-it-comes-cfpb-supervision-of-debt-relief-and-credit-counseling

  • Guest

    Dear Steve,
    This is Mary.
    When I saw this I was not surprised as to the real identity of the person/persons involved. This is another Kimelman scam and I will send you my proofs by mail tomorrow, God willing.. But for the purpose of this website, I will also post it here. American Debt Settlement Solutions, Inc. is “owned by “Corporationwiki” which is a domain “owned” by Yaron Kimelman. It is an internet scam and this business is not located in Florida. There is also no Michael DiPanni who is guilty of this fraud/scam/crime. They have a nasty habit of making up phoney names for the owners of their companies or they have an identity disorder. They could get away with their crimes for 20 years but their mistake was pranking me on my cell phone and then hacking your website to get to my email addresses to hack me.
    The phone number provided by the Better Business Bureau for this internet scam company is 561 241 6922. This number is “owned” by BellSouth Telecommunications Inc. This internet company is owned by Eitan Kimelman.. I forgot to check but he probably uses his regular undated PUC out of Colorado.
    I will file a copy of these documents with my local police department for safekeeping for when Yaron KImelman threatens me on the internet again (see his threats under ” I know the guys behind debt resolution ??” Connecticut Scam) . . .and when Eitan KImelman threatens me with his lawyer.

  • http://DamonDay.com/ Damon Day

    Oh no!!! An anonymous attack from someone who wants to scare consumers away from having a conversation with me.

    What a perfect excuse to invite people over to see why sales people shudder at the prospect of you speaking with me before you enroll into their program.

    Damon Is Awesome

  • http://GetOutOfDebt.org Steve Rhode

    Interesting statement out of CFPB on this case as reported by CFPB Monitor site from the law firm Ballard Spahr.

    “This is the first time that it is identifying such debt-relief conduct as “abusive acts or practices” that the CFPB can prohibit through its enforcement powers under Dodd-Frank.

    Director Cordray stated that the CFPB was “taking action to halt a debt-relief company we believe has been preying on financially vulnerable consumers.” He promised that the CFPB would continue to “crack down” on this type of behavior.”

    You can read their full post at http://www.cfpbmonitor.com/2013/06/04/cfpb-uses-enforcement-powers-in-attempt-to-shut-down-debt-relief-company-in-florida/

  • Debt Free Mike

    The whole debt relief , resolution industry would not even exist if people were not deadbeats. Pay your bills on time, don’t spend more than you can afford to pay back and there will be no need for this industry. Steve, you are in this to make money I have been following your posts for some time and you must be selling leads to BK attorneys since you always link back to bankruptcy attorneys on your posts and you have big blue button on your blog titled “Find a Bankruptcy Attorney”.

    • http://DamonDay.com/ Damon Day

      Are we speaking English? Do you have Chinese translation feature on your browser or something? It isn’t about settlement vs BK vs CCCS vs whatever the hell else.

      That is the problem with the whole damn industry. Everybody tries to sell the consumer something that they claim is better than the other thing someone else is selling. Nobody is flipping trying to help the consumer. It is total bullshit.

      Of course everyone has to make money. That is how this world works. The question is what are you selling to people? Does it help them or hurt them? “Everything else don’t mean shit.” – Curly in City Slickers

    • http://GetOutOfDebt.org Steve Rhode

      I do not sell leads to bankruptcy attorneys and while there is a button to help people find bankruptcy attorneys there are also buttons to find debt settlement and credit counseling assistance.

      I’m glad you live in a world of absolutes, but if you have spent time viewing all sides of the issues you would not look at consumers as deadbeats because the vast majority have run into something that was unexpected like job loss, injury, unusual life event etc.

      But your point seems to amplify what I am saying here in that even a get out of debt solution must include some component for emergency fund saving and retirement saving to help prevent someone from being one blown tire from a financial disaster.

      I’m very clear how the site makes money and lay it all out in the site terms which you can read http://getoutofdebt.org/terms/

      So is it your position that consumers are deadbeats and deserve to be taken advantage of?

    • http://GetOutOfDebt.org Steve Rhode

      I think this video on the site covers my approach well. I recommend that people speak with a debt settlement company, credit counselor and bankruptcy attorney. Is there something you disagree with in the video?

      http://youtu.be/YjbnvGXI5wg

    • http://www.zipdebt.com/ Charles Phelan

      What collection agency do you work for, Mike? :-)

      • http://GetOutOfDebt.org Steve Rhode

        I guess the other commenters had no further responses.

        Your comment didn’t make sense till I went back and read Mike’s again. Good observation.

      • http://www.zipdebt.com/ Charles Phelan

        I recognized the mindset, black-and-white, and totally oblivious to the fact that millions of people are still out of work, etc.

  • http://GetOutOfDebt.org Steve Rhode

    You know I’d like to take a step back and refocus the most important point of this article. It is not the action against one company but the new definition the CFPB has made publicly. It’s what I led with in the story.

    What ever happens between the CFPB and ADSS, which looks like a mutually agreed consent order, has nothing to do with either the debt relief industry at large.

    The issue and warning is if individual companies are running afoul of the new definition of abusive.

    “takes unreasonable advantage of . . . a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.” The CFPB also said the actions were abusive because consumers reasonably relied on the company to “act in their interest by enrolling them in a debt-relief program that they can be reasonably expected to complete, and which will therefore result in the negotiation, settlement, reduction, or alteration of the terms of their debts.”

    It creates a newly defined level of responsibility on all companies to make sure that not only is the debt relief program in “the best interest” of the consumer but that both the companies experience and the consumers ability leaves them with a “reasonable expectation” to complete the program without harm.

    If you are working for a company that exercises a professional level of care where the financial implications of the program and the consumers situation are aligned, including the consumers ability to properly save for an emergency fund or retirement, while in the debt relief program and the consumer has met with a bankruptcy attorney and still decides to go through with your program with fully informed consent then it certainly minimizes future risk under the abusive approach.

    And why is the standard for retirement savings so important, because it is an easily measured result if any smart litigator wanted to prove financial harm. “The program prevented my client from continuing his retirement savings or withdrew from his retirement and that led to a future financial harm of $X.” It’s a real easy number to get an expert witness to testify and support.

    Is lost retirement value abusive when the debt relief company put their need to make the sale ahead of the consumers best interest. Time will tell.

    However, if any debt relief company is providing advice about the benefits and application of bankruptcy in an effort to avoid bankruptcy or talk people out of bankruptcy, then you will have a growing exposure.

    If nobody has any process of procedure to correct to fall in line with what is best for the consumer and not abusive then publicly say who your company is and let’s applaud you.

    If you do have processes, policies, or procedures to correct, either ignore this or take action now to clean it up.

    • long time industry observer

      We may be forgetting that the “final decision” regarding the debt resolution plan that a consumer chooses is the “consumers decision”.

      Everyday there are consumers who are presented with a truthful and thorough explanation of all of the debt relief options available to them, (they may have even used the debt options calculator here) and they will still choose the debt settlement option, knowing it may not be the “best option” when all the downsides are considered.

      They choose this because it offers the lowest monthly payment (one they can afford) and they do not want to:

      - declare bankruptcy (for whatever reasons)
      - get a second job
      - hold a yard sale
      - quit smoking
      - not be able to have a pizza delivered every Friday
      - not be able to register their kids in sports
      - drive a decent car
      - etc. etc.

      Bottom line, they do not want to change their current lifestyle, even when they know they should, this is a very real human trait.

      I’m sure many, many debt relief consultants (with all options) have experienced this behavior but go ahead and deliver your debt settlement rant Damon.

      • http://GetOutOfDebt.org Steve Rhode

        I understand that but you can’t rule in or out what bankruptcy would mean for them unless they meet with a bankruptcy attorney.

        I doubt you do the retirement consequence math for consumers on a daily basis. But do you?

        How often do you refer consumers first to a bankruptcy attorney before signing them up.

        I think the point that is lost is not if the consumer decides against it but if you have weighed their situation and done what is the best interest of the consumer. If it is clear any one option is not the most preferential in some measurable way then there is an identifiable exposure.

        You’d probably be safe if the contract said the consumer refused to meet with a bankruptcy attorney and acknowledges path X will result in an estimated loss of $Y retirement savings and leaves them less safe without an adequate emergency fund.

        The CFPB definition in this example of abuse does not say “because the consumer elected to do it anyway, it says, “act in their interest by enrolling them in a debt-relief program that they can be reasonably expected to complete.”

        So if you enroll someone in a debt relief program they can not be reasonable expected to complete then how does consumer choice make any difference.

        By the way, please notice that I’m not ranting about debt settlement and my comments have all been about debt relief in general. These issues apply to credit counseling as well in my opinion.

      • long time industry observer

        I guarantee you that the vast majority of consumers will if neccessary gladly sign a disclosure document that says they have been offered but refuse a meeting with a bankruptcy attorney, have been advised and understand the program they choose may negatively impact retirement and savings and whatever else.

        Many consumers have made up their mind to not consider bankruptcy even if it may be the best financial choice for them. Their reasons may be long time family beliefs or the publicity concerns or their own moral and lifestyle concerns and they will not be swayed. Many others do not qualify for BK but still desparately need help of some kind

        Consumers needing help are in a very uncomfortable financial bind due to uncontrolled spending, they have researched all options, have used the calculators etc., etc., but they still do not “want” to change their personal and family lifestyle and will do whatever they think is best to preserve that lifestyle (right or wrong).

      • http://GetOutOfDebt.org Steve Rhode

        You will guarantee me? Great. Since you are confident in your position, let me know the name of your debt relief company and I’ll ask my friends at the CFPB to review the matter for you to confirm.

        Please forward me a copy of your disclosures you use that covers these issues of informed consent and potential financial harm and I’ll run them past the CFPB.

      • long time industry observer

        Why do you have to turn everything into a fight? You and Damon Day both challenge every reader comment that you don’t agree with and I’m sure have stifled many potentially good discussions.

        “I guarantee you” is a figure of speech commonly used to express an opinion. Why do you also immediately assume that I currently operate or work for a debt relief company? I do not but considered entering this business some years ago, I have an interest in debt relief and have followed the industry ever since.

        I hope you do have friends at the CFPB and that as you often say they monitor this website…this industry needs regulation at the federal level. Many both inside and out of the industry would welcome this IMHO.

      • Bob Dylan

        Steve acts like a typical government regulator. They like to play God and don’t want people/consumers making decisions on their own without going through 50 steps they believe are necessary. Everyone is “prey” and vulnerable. There’s no personal resonsibility on people to take information presented to them, research, dgiest…. it’s all on the EVIL sales people. Steve & Damon both sell fear because it’s what keeps them in business.

        Debt settlement is bad because up front fees… Problem solved… Well they have low completion rates…. Completion rates are rising… well as Damon says completion rates aren’t what matter… Please contuinue to pay him and his serves because he’s objective and you need him because sales people are EVERYWHERE…. but he’s not. He’s just protecting you from all the bad people.

        I’ll sell you something Damon & Steve… A diet and a treadmill

      • http://GetOutOfDebt.org Steve Rhode

        And Bob Dylan is your real name?

      • http://DamonDay.com/ Damon Day

        I am trying to figure out where you are from Bob.

        Because here on planet earth were we all live, there are a few things that are pretty much accepted as fact.

        1. Sales people sell shit for a living.

        2. It isn’t fear mongering if it is true.

        3. When people clearly get their ass whipped in a debate, they attack the person who just whipped their ass in a desperate attempt to deflect said ass whipping.

        I really appreciate the endorsement though, because any consumer with half an ounce of common sense is going to be pushing women and children out of the way to go to my website to find out why all these sales people are so afraid of my message.

        Let me make it easy. They can just click DamonDay.com

        It is funny, I challenge consumers to call as many sales people as they want, and then call me. They can then appreciate what a real consultation is actually like.

        So I have no problem with consumers calling a lot of sales people, yet sales people don’t want consumers to call anyone else. They just want the contract signed.

        And I am the one people should be afraid of right? Ba ha ha ha
        Thanks for the free advertising, please continue :-)

      • http://GetOutOfDebt.org Steve Rhode

        I really don’t think this is a fight. It is really a discussion with a difference of opinion.

        Even if you are not in the debt relief industry, if your opinion is that “abusive” behavior can be disclaimed away, then the suggestion is still valid. I welcome you to stand behind your position and send me an agreement you think would accomplish the task and I’ll run it past the CFPB and try to get an opinion about it. All I’m offering to do is help validate your position. That’s certainly not argumentative.

        It would be a great test and example of the CFPB could use to give us some feedback.

        If you are not in the debt relief industry then when you said, “Everyday there are consumers who are presented with a truthful and thorough explanation of all of the debt relief options available to them,” you actually have no first hand experience with what companies are actually doing? Is that a correct statement?

        My opinion is different because my background in the medical field gives me different point of view. In that field the duty is to do no harm. A doctor that saws off a healthy leg of a patient just because they requested it does not escape a malpractice claim because the patient signed a form. The standard of care would show the doctor acted negligently if they simply benefited financially from doing it.

        The disclosure you hypothesize sounds a lot like the informed consent process in medicine. But even a signed informed consent has its limits.

        “An informed consent can be said to have been given based upon a clear appreciation and understanding of the facts, implications, and future consequences of an action. In order to give informed consent, the individual concerned must have adequate reasoning faculties and be in possession of all relevant facts at the time consent is given. Impairments to reasoning and judgment which may make it impossible for someone to give informed consent include such factors as basic intellectual or emotional immaturity, high levels of stress such as PTSD or as severe mental retardation, severe mental illness, intoxication, severe sleep deprivation, Alzheimer’s disease, or being in a coma.”

        In cases where an individual is provided insufficient information to form a reasoned decision, serious ethical issues arise.

        With the debt relief options you mentioned before the position the consumer could disclaim those away seems not so clear cut. For example, in the medical world a patient cannot adequately waive or disclaim something that is unknown to him/her. So if the debt relief example, if the debt relief salesperson is advising the consumer about options like bankruptcy to get them to disclaim bankruptcy to make the sale, not only is there an ethical issue but also one of UPL.

        As an example of this, while I talk about bankruptcy on the site I direct consumers to talk to a local bankruptcy attorney licensed in their state about their specific situation. Is the salesperson doing that or getting the consumer to disclaim bankruptcy?

        Back to informed consent again.

        “Doctors typically require patients to sign a consent form detailing the risks of any given treatment or procedure. But signing a form alone does not necessarily prove that the patient gave informed consent. The doctor must actually discuss the procedure and risks with the patient. And the patient must understand, to the extent possible, the risks he or she faces.

        Whether or not a patient gave his or her informed consent to a treatment is crucial in the law of medical malpractice. If a doctor does not get a patient’s informed consent, and the patient would not have opted for the treatment if he or she knew about the risks, the patient may be able to sue the doctor for medical malpractice.” http://www.nolo.com/legal-encyclopedia/medical-malpractice-informed-consent-29872.html

        There have been a sting of suits and class actions where the claim is made the sales person ran the consumer through an online agreement and did not fully inform the consumer about the actual consequences. Just because the consumer checked the right boxes does not mean they understood the consequences.

      • http://GetOutOfDebt.org Steve Rhode

        Here is an example of a recent case that was critical of the sales process and disclaimers.

        “Upon information and belief, the defendants’ “enrollment specialists,” or sales agents, are paid on commission based on the number of consumers they enroll and the fees they generate for World Law; therefore, consumers are heavily pressured to enroll in the defendants’ program. Upon information and belief, the defendants’ “enrollment specialists” have no significant training, experience or expertise in the areas of credit counseling, debt settlement, or bankruptcy law. Instead, the defendants’ agents are primarily directed to sell World Law’s debt settlement program without analyzing the consumer’s financial situation and without determining whether a debt settlement program is appropriate for the consumer’s particular financial circumstances.

        If a consumer expresses an interest in World Law’s debt settlement program, the enrollment specialist sends the consumer a contract called a “Client Services Agreement” by e-mail if the consumer has a computer or computer access, and the consumer is instructed to electronically sign the agreement immediately. As a result, most consumers are not given an opportunity to fully review World Law’s contract before signing it, and consumers rely upon the oral representations made to them by World Law’s enrollment specialists.” See http://getoutofdebt.org/52312/world-law-debt-global-client-solutions-and-others-sued-in-nc-tro

      • T Craig

        this should not have happened the industry needs to be regulated federally using similar guidelines as UDMSA states, because no enrollment specialist (saleperson) as in this case should be able to advise a consumer on a financial matter when only trained with the employer’s inhouse training program. Standard requirement in most other consumer financial industries.

      • http://GetOutOfDebt.org Steve Rhode

        It’s a concept that appears to be lost on many.

        It begs the obvious question, why are the national debt relief associations not promoting this concept?

      • http://DamonDay.com/ Damon Day

        Of course I challenge every comment I don’t agree with. Especially when it is about some indefensible bullshit that quickly falls apart as soon as I invite my good friends logic and common sense to the discussion.

        You start taking advantage of families and making their bad financial situations worse, I am going to call you out every time.

        If someone can’t put on their big girl pants and defend their baseless position, then don’t I have a responsibility to enlighten them to their ignorance? They are supposedly out their trying to help people. Maybe they don’t know how misguided they are and I am doing them a favor.

        If I piss in their company kool aid enough times, it might just start tasting bad enough for them to stop drinking it.

      • http://DamonDay.com/ Damon Day

        I guess you can keep telling yourself this if it helps you sleep at night.

      • http://DamonDay.com/ Damon Day

        Um, my position is that a consumer should look at all options before making a decision. I am not anti debt settlement. I am anti bullshit. There just happens to be a lot of it in the debt settlement industry.

        Are you going to seriously tell me that an emotional consumer that doesn’t fully understand the options can’t be manipulated into making a choice that they wouldn’t have made if the options were presented differently?

        So your view is if a sales person can successfully manipulate them then it is the consumers own fault and the debt relief company has no responsibility to help them make the best choice? After all, they are calling you because they don’t know what to do aren’t they?

        Don’t give me the “it is the consumers responsibility bullshit” That is such a sleazeball move. Not that I would expect anything different. Same bullshit, different day.

  • Taking out the Trash

    The team over at Rescue One Financial (www.rescueonefinancial.com) may be the next to go down in flames by the CFPB! Unbelievable they have made it this long blatantly deceiving and abusing consumers while others turn a blind eye… This will be a big wake up call for those that prey on the weak!

    • http://GetOutOfDebt.org Steve Rhode

      You know, if any one feels they have been deceived by any company, including Rescue One, they can file a complaint with the CFPB at http://www.consumerfinance.gov/complaint/

      They do take each complaint seriously.

  • http://www.zipdebt.com/ Charles Phelan

    This is a fascinating discussion so far. Most of the comments seem to attack the messenger (Steve), claim that an attorney might be biased in favor of bankruptcy over debt settlement (gasp), or say that sales reps might lie to a consumer in order to make a sale (truly shocking news). Lost so far in this discussion is a blindingly obvious point. Very few third-party debt settlement firms publish transparent data about their performance results. There is a reason for this. The data would show that most consumers do not get the desired results from 36-48 month programs. Yes, some complete the process, but most do not. It’s that simple, really. This particular company failed to negotiate even *one* settlement for 89% of the people that paid them fees. That means it was a scam, period. They were non-compliant in terms of fees, true, but the takeaway message from this CFPB action is that debt settlement companies must *perform* as advertised. If your completion rate is low, perhaps it’s time to take another look at your business model!

    • Bob Dylan

      Charles, can you elaborate by what you mean when you say “The data would show that most consumers do not get the desired results from 36-48 month programs. Yes, some complete the process, but most do not.”.

      Specifically, what is your definition of some people and most? For example, is it safe to say that you mean HALF ore more of people do not complete the process?

      • http://www.zipdebt.com/ Charles Phelan

        Who cares? Your question is tangential to the point I was making. If the industry’s overall results were good, then more companies would publish their performance data. They don’t. Why?

      • Bob Dylan

        You aren’t as smart as you look or write for that matter. You conveniently side step the question for reasons I can’t imagine. However, the questions is relevant as it’s the main reason behind your claim.

      • http://DamonDay.com/ Damon Day

        The industry always likes to talk about completion and compliance as if it means something. They use completion as a measure of success, but again just because a program is completed doesn’t mean it was a smart thing for the consumer to do.

        It is clear that non complete is failure and I would argue that many of the “completes” are also failures in that the opportunity cost to complete was greater than the benefit of completion.

        So complete does not equal success. Therefore as abysmal as the completion numbers are, what I would call actual success is even lower.

    • http://DamonDay.com/ Damon Day

      Ya, what Charles said :-)

  • Vowels

    Only those that are defying the law should be afraid and they obviously are not. Those who are complying have nothing to fear and there are plenty of compliant companies around. The small rouge companies shouldn’t define the industry.

    • Jim Kutkowski

      You should all be shaking in your shoes, bottom line is you have a lousy product and people are getting the memo.

      • Michelle G.

        interesting comment from a bankruptcy attorney competing with debt relief providers for clients…just saying!

      • http://GetOutOfDebt.org Steve Rhode

        I don’t get it. How is that an even comparison. Bankruptcy attorneys already have state Bar licensing, advertising ethics and a fiduciary responsibility to their client. Plenty of attorneys have been disbarred for violating those trusts.

        If anything the CFPB action brings debt relief companies more in line with similar responsibilities attorneys already face.

      • http://DamonDay.com/ Damon Day

        Interesting comment coming from a debt settlement sales person competing with attorneys for clients…just saying!

      • Michelle G.

        BK attorneys also act as the salesperson for their services and I am sure they lie as much as any other salesperson including yourself Damon when you’re selling the services to consumers that you make your living from…welcome to the real world!

      • http://DamonDay.com/ Damon Day

        Oh, no wonder you are afraid to tell anyone who you are. Since you just openly admitted you lie to people to sell your bullshit program.

        Actually there is a reason I charge a fee for my consultations. That way I can actually focus on helping the client without having to worry about selling them something in order to feed my kids. My consultation is the service, not the sales pitch for the service. Get it?

        Everyone has to make money, I just figured out a way to do it by selling a service that consumers actually need. Advice and information on why to stay the hell away from people like you :-)

        Do I make as much money as someone selling a bullshit 10K debt settlement program to a consumer who shouldn’t be in it? Nope, but I sleep very well at night knowing that I have saved a few more families from an ignorant sales person with a fancy title masquerading as a financial consultant.

      • Michelle G. Roberts

        “you just openly admitted you lie to people to sell your bullshit program” – where do you get that from my post Damon?

        My point in my post is that in the real world (any industry) the person who stands to benefit from signing up a potential client “may” lie to make the sale…this has been going on for thousands of years.

        You sell “Advice and information on why to stay the hell away from people like you” and charge a fee for this advice and information, isn’t it helpful to you and your sales efforts if you paint all debt settlement providers with the same color? Not just the bad actors who the authorities are now catching up with.

        Your responses when challenged are so predictable and comical Damon, this happens everytime, I guess this is good for business for you?

      • http://GetOutOfDebt.org Steve Rhode

        Michelle. I think there was just a moment of confusion. I believe Damon was thinking about Melissa, a commenter from a heated thread over at http://getoutofdebt.org/51477/how-can-i-find-out-if-i-can-offer-debt-settlement-in-the-different-states-roger

        Which resulted in this article which has some relevance in the discussion at hand about fiduciary responsibility and the conflict between sales and duty.

        http://getoutofdebt.org/51580/dear-melissa-the-conflict-between-debt-relief-sales-and-consumer-needs

      • http://DamonDay.com/ Damon Day

        Nope, I am not confused. I was talking to Michelle. I took some liberties as to assume she was a sales person or at least financially vesting in what debt settlement sales people do.

        Since she won’t tell us who she is, I am afforded whatever assumptions I would like to make :-)

      • http://DamonDay.com/ Damon Day

        Well I assume you are a sales person. Since your world view is that all sales people lie to get what they want, it isn’t a big leap to conclude that you must therefore do the same.

        My view isn’t so much that most sales people lie, it is simply that they are ignorant to what they are actually doing. While that is different, the end result for the client is unfortunately the same bad advice.

        Yes it is helpful for me to paint all debt settlement providers with the same brush because all of the providers that do the advertising (the ones consumers will find) simply have happy and eager sales people waiting to take orders and make sales.

        There are some good people in the industry, but since consumers are never likely to find them on their own, I can easily paint the industry with a broad brush and that will match up to about 99% of consumer experiences.

        Maybe I am so predictable because I am the only one of us that says anything that actually makes sense?

        Something to ponder.

        Oh, and yes, this is great for business so please keep going :-)

      • Michelle G. Roberts

        Incredible! LOL!

      • http://DamonDay.com/ Damon Day

        Thank you very much. I will be signing autographs in the back until 8:30 :-)

      • Vowels

        Your opinion is biased because you are a Bankruptcy attorney at pays your bills. The truth is, when properly qualified and performed within legal guidelines, debt settlement has a better completion ratio vs. chapter 13 bankruptcy.

        This is not an opinion, this is based off actual data and the numbers don’t lie… but sales people do and I have to believe you suggested bankruptcy to someone who could have simply settled accounts and avoid BK…does that make your product a lousy one?

      • http://DamonDay.com/ Damon Day

        “properly qualified” ?
        Can you please provide us with the name of a debt settlement sales person and an actual company that knows how to do this and actually does it?

        You know since sales people lie as you just told us.

        As is typical, you are mixing up compliance with fiduciary responsibility. They are not the same.

      • Its just me

        Angelo Anzalone – Active Debt Solutions – 866-720-7483

        Its quite simple actually, if a consumer cannot complete a settlement program within 36 months they are referred to a bankruptcy attorney for chapter 7.

        In answering Steve’s comment below…true, but thats a small amount of the 13′s and we do not know the number of 13′s that converted to a 7. I can a more updated list baking my claims if you like.

        I have mad respect for you both but you guys talk in absolutes and label the entire industry a scam when there are in fact some honest companies out there. Like I’ve said in the past – bash the scum, not the industry.

        Peace :)

      • http://GetOutOfDebt.org Steve Rhode

        Here is what the Department of Justice says. “The ratio of chapter 7 to chapter 13 filings is somewhat lower because the closing figures are based on the
        chapter at closing and many cases that are filed under chapter 13 or chapter 11 are converted to chapter 7.”

        “About one-third of chapter 13 debtors complete their repayment plans, and many others make payments for a period of time before their case is dismissed.”

        According to the bankruptcy attorneys I interviewed for the stats piece a number of them told me just about the same thing, “Based on feedback from bankruptcy attorneys, and looking at the total number of bankruptcy cases filed by chapter, it appears that nearly 90% of bankruptcy filers are able to repay what they can afford or discharge their debt through bankruptcy.”

        This included the conversions to 7s.

        I don’t think I said anything about the entire industry being bad. Yes, there are some good players and I recommend companies in my posts.

      • http://DamonDay.com/ Damon Day

        Angelo, While I appreciate your respect, I just can’t overlook the fact that you are proving the point I have been trying to make for years.

        Even guys that think they are helping out consumers, and really wanting to help can be blinded to their own industry hype.

        Your standard of qualification is if a consumer can potentially complete a settlement program in 3 years then that is better than a chapter 7.

        With all due respect, whether or not they can complete a program is not the same as whether or not that program is what they should be doing.

        I paint with a broad brush because that is how the industry actually works. And any objective person can clearly see that I am correct simply by applying some common sense.

        There is no getting around that once the need to generate revenue is in conflict with what is in the client’s best interest, there is a problem.

        There is no way to fix that, it literally comes down to the character, education, and motivation of the sales person. All of which the consumers has no way of knowing.

        The only thing we know is that the sales person is paid to sell, and not to educate, and that puts the consumer in a really bad spot.

        So at the end of the day is the sales person going to sell, or educate the person, potentially lose the sale and eventually get fired?

      • http://GetOutOfDebt.org Steve Rhode

        Actually that’s not quite an accurate statement. While the completion rate for a chapter 13 is not real high, a number of people filed a 13 to stop some action, like a foreclosure, and then took care of that and the vast majority of 13s that terminate early convert to a chapter 7 with a 95% discharge rate of all debts with no tax liability. For more on this see http://getoutofdebt.org/7233/

      • Jim Kutkowski

        Others use Chapter 13 strategically, OK, I’ll use Chapter 13 to catch my mortgage up and then convert to Chapter 7.

    • http://DamonDay.com/ Damon Day

      I think I understand compliance in the way industry types like to tout it as such a great standard of care.

      Suspect 1 puts a gun in your face and takes your money.

      Suspect 2 tricked you into giving him the money without breaking any laws.

      Suspect 1 is a bad guy because he broke the law and is not compliant.

      Suspect 2 is a good guy because he remained compliant and didn’t break any laws.

      Therefore compared to suspect 1, suspect 2 is a great guy to do business with.

      The only problem I see with this argument is that even the compliant bastard stole your money

  • Need more information

    1) What exactly is the “something that the majority of debt relief companies, including nonprofit credit counselors do on a daily basis” that the CFPB is charging the defendant with? The monthly fee? Debt settlement providers are not permitted to collect a fee until they settle the consumer’s first debt, of October 27, 2010. I think we can agree that’s the rule right?

    2) Which are the debt settlement companies and nonprofit credit counselors that violate the FTC rules? Name names, Steve. Are any of your marketing partners on that list of violators?

    3) A complaint filed with a court is an opening salvo in a lawsuit. It’s not a verdict or a settlement. Of course, every syllable in the complaint may be true in this case, but we don’t know that yet Isn’t it the place of a responsible author and publisher to at least attempt to get the defendant’s side of the story? If not, why not? What if the CFPB’s version of the facts is wrong?

    4) The alleged monthly fee violation is the smallest part of the CFPB’s complaint. The most serious allegations are, in my view, the defendant’s alleged lying to customers about the company’s settlement rate and when the first settlements occur. Deception is never a good long-term business policy nor does it help consumers make educated decisions about their debt resolution options. Would you agree deceit in any form is bad for consumers, Steve?

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