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Why Most Debt Settlement Companies and Credit Counselors are Bad Medicine

A couple of years ago I wrote an article asking, pleading really, for any debt settlement company (DSC) to explain to me how they could ever possibly “do whatever is in the best interests of the consumer” when they are unable to give any legal advice in what are inherently legal matters.

For example, as a matter of law they cannot discuss bankruptcy, let alone offer it. I went on to itemize a number of other similar concerns wherein legal advice is required to determine “what is best for the consumer”. These included things such as: when is income exempt, lawsuit response considerations, and post judgment problems, among others. What I heard in response was mostly crickets.

The time has come to call it what it is. If you are sick you go see a doctor, not a pharmacist. Only a fool would say, I know I should go see my oncologist, but my pharmacist makes me feel so much better. Only a crooked pharmacist would say I know what you need, don’t bother with your oncologist. But that is what happens when consumers opt to be a customer of a DSC rather than a client of a lawyer. I’m going to upset a lot of friends by saying this, but friends, it is what it is. Debt settlement companies and credit counselors are bad medicine no matter how you look at it. Let me tell you why.

First, the grand daddy of all debt relief options is bankruptcy. Yet DSC’s and credit counselors can’t discuss bankruptcy. And for good reason: they are not qualified to, let alone licensed to. Bankruptcy and its potential to entirely eliminate all debt (in some cases) is clearly an option every financially troubled consumer should at least review.

The failure to review bankruptcy with an experienced, licensed professional is just another example of poor decision making. Anybody who holds themselves out as a financial advisor to consumers deep in debt, so deep that they can’t pay their bills, and does not insist that consumer get bankruptcy advice, is a fraud. You are not a consumer advocate. You are a consumer abuser. You should be ashamed and should not be providing any debt relief advice or service.

Second is the collection lawsuit. Once again, the DSC or credit counselor cannot assist the consumer in any way. It seems to me that discussing a collection lawsuit with your DSC is like going to a physic when you get a toothache.

The DSC has never represented anyone in court, and again, is prohibited by law from giving the consumer any legal advice on the subject. Unfortunately, that does not stop many from doing so. Too many DSC’s tell consumers that judgments are acceptable by making such outrageous statements as: “you do owe the money don’t you?”, or “actually the judgment will be good for you”. You know something is wrong when your DSC is telling you the same thing as the collector! Although the decision of whether or not to contest a collection lawsuit is a legitimate topic of discussion, IT MUST BE DONE WITH A LAWYER. No legitimate financial advisor would dispute this. You’re a fraud if you fail to immediately advise anyone sued by a creditor to consult an attorney experienced in defending such cases.

The collection lawsuit causes another problem for the DSC and credit counselor. It allows the creditor to completely frustrate the DSCs ability to effectively represent the consumer. The DSC is absolutely powerless. When sued, the consumer’s only options are to ignore it, represent him or herself, or hire an attorney.

The DSC or credit counselor they hired to negotiate for them can only call and throw money (your money) at the collection attorney in an effort to avoid judgment. That is not a strong negotiating position. Worse, the DSC is absolutely powerless to assist in any post judgment enforcement such as levies, garnishments, etc. Again, each and every time a consumer gets hit with a legal maneuver like a bank lien, any financial advisor worth his salt is going to tell you to consult a lawyer. If they do not, they are a fraud.

But it gets worse if you can believe it. The DSC cannot stop the collector from contacting the consumer. Part of what makes the consumer sick is the calls they are going to get once they default (and lets be real, DSCs cannot be effective unless there is a default on the obligation).

In net effect, the DSC is going to get the patient sicker. They like to sell this as: “it’s going to get worse before it gets better” or “good medicine tastes bad”. I say BS. This bad “side affect” is totally avoidable. A lawyer can stop all contact from debt collectors. In California a lawyer can stop ALL calls, nasty grams, email, whatever, from anyone. Even creditors and original lenders. Why get sicker when it is totally avoidable? Not only is the grief completely avoidable, but the failure to utilize this rule (the law prohibiting collection contact when represented by an attorney) is to completely ignore one of the very best things the consumer has available to them. The collectors cannot help themselves and they will call, with or without a lawyer. If the consumer is represented by a lawyer when this happens, the consumer now has a claim that can result in money in the consumers pocket or even debt elimination. Using a DSC for debt settlement is like getting a tattoo removed with a butcher knife because your doctor has no laser!

These are among the most obvious, but there are many others. DSCs and credit counselors are a business and do not owe the consumer a fiduciary duty. It is buyer beware. If you get screwed there is not much the consumer can do. Report them to the BBB? Sue to get your money back? Good luck.

Lawyers are a much easier target if they screw you. Lawyers are personally responsible, cannot hide behind some corporate shadow, and can be disbarred. It seems a word about the commonly referred to “attorney model” for debt settlement is in order here. To be sure, if a consumer is a “client” as opposed to a “customer”, the consumer is better off, but that is not the end of the analysis. They are better off because they have better remedies against bad lawyers than bad DSCs. Also, the “attorney model” lawyer, properly organized and licensed, can stop calls and defend collection lawsuits. “Can” does not equal “will” or “do”, but at least it is possible. The lack of true attorney involvement is cause for concern. Another problem with many “attorney model” DSCs is that they are many times “one trick ponies”. Truth is anyone who only does one type of debt relief (be they a DSC, credit counselor, Debt Settlement Attorney or even a Bankruptcy only attorney) generally promotes their single service as the only or “best” solution. This is not always in “the best interests of the consumer” and should be avoided as much as possible.

Lastly, let’s get down to actually settling the debt. The DSC must rely on the creditors and collectors to cooperate to settle an account. They cannot force the creditor to do anything. They have none of the major consumer law rights behind them. Rights like bankruptcy, FDCPA, statutes of limitations, do not contact rights, etc. As a result DSCs have a weaker bargaining position.

I literally get sick every time I hear some debt settlement companies say they work with creditors. They often times say they have “special relationships” with creditors that they leverage to your advantage. Hogwash. Creditors would like nothing more than to squash DSCs like the cockroaches they think they are. Do they deal with them? Sure. Banks who say they don’t settle with DSCs are liars too. But banks only deal with them if it is to the banks advantage, not the consumers.

On the other hand, an attorney who can actually follow through on the “bankruptcy threat”, who will sue the creditor for violating the law, who will be in court on the collection case, who the creditor can’t get around to contact the client directly, is in a far superior negotiation position.

Moreover, after a settlement, the DSC cannot give you any advice as to the 1099-C that may come or what to do if the debt goes “zombie” and the cancerous account returns again!

I’m sure there are good and decent DSC operators and credit counselors out there. But given the history of fraud and abuse in the debt relief industry, the inability to provide any legal advice, and the carnage that can be done by defaulting on debt without some real protection, the debt settlement company and credit counselor risks are too great and the advantages too nominal.

I don’t go to my good friend the pharmacist for advice on how to treat my cancer. Until any DSC or credit counselor can explain to me how they overcome these issues “in the best interests of the consumer”, it is this juris doctor’s opinion that they are bad medicine.

Gregory M. Fitzgerald, Esq.

This article is not legal advice and should not be interpreted as such. It is provided for informational purposes only. You should consult legal counsel about your specific circumstances and law before making any decisions about your legal rights and how to protect them.

Gregory M. Fitzgerald is a California licensed attorney located in Anaheim Hills, California (CA Bar #153082). For over 20 years he has represented consumers with a particular emphasis on consumer rights in the field of debt and debtor harassment. He is a founder of Fitzgerald Campbell, A Professional Law Corporation. He is admitted to practice before all California state courts and all Federal District Courts within California. He is a member of the Western San Bernardino County Bar Association, the Orange County Bar Association, and Consumer Attorneys of California. He formally sat regularly as a Judge Pro Tem in the Orange County Superior Court. He can be contacted at 714-769-9151, 855-7-IN-DEBT, [email protected], or via the web at www.debtorprotectors.com.

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  • http://freshstartsolutions.com.au/ Fresh Start Solutions

    All the
    things you have discussed here are really so important and should be noted.

  • http://GetOutOfDebt.org Steve Rhode

    If 50% are, then 50% are not. That’s not skewing the view. If we stick with 50% are then there is this bit, “While this adoption is significant, still, roughly half of the firms responding to the surveys each of the past two years indicated that they still did not work with debt settlement companies as part of their collection strategy.” So for the past two years it has remained at about 50%?

  • Fitz

    I wanted to say thanks for the kind words and well wishes on the new office. I appreciate that Angelo. Anyone who knows me knows that I’m all about helping folks out the best I can. I also think that Angelo’s pre paid debt defense plan arose out of seeing a need in the debt settlement field rather than just another way to bang the consumer for a buck. I don’t see anything wrong with seeing a true need and honestly filling it, even for a profit. Damon has done that. Steve too. They should be applauded. The same cannot be said for a majority of DSCs.

    I do think progress has been made however in that more and more consumers are aware that they can fight back, that they do have rights, that they do have options. It has been a long road and there is still much to do. To me it is all about good advice and service. Proper qualifying, planning and execution
    are the keys to true debt relief. Scammer DSCs never cared about any of this, and legit DSCs just don’t have the tools.

    I have to say I actually laughed out loud when I read Angelo’s two word “attorney advertising” smack down of my finely crafted DSC take down.
    Good one Angelo! My fantasy football smack board buddies woulda loved it! In my business you can’t take yourself too seriously and a great one liner is gold. That all being said, no one from the debt settlement industry is going to address the merits of my piece. Other than Angelo’s honest answer, all we’re going to get is more crickets. Maybe a hater, but no substantive reply will be
    forthcoming.

    One last thing: while it may be true that fewer debt settlement industry “insiders” visit this site, it is not because Steve is unfair to them. When you shine a light on cockroaches, they disappear.

    • Neg Seo Expert

      Greg-
      My inbox is full of Damon Day crap so I thought I would take a minute to give the 3 of you some left field opinions. When I read all of your article the same thought keeps resounding which is none of your commentary is perfect for the consumer. Neither is Damon’s, Angelo’s or Steve’s for that matter. It appears that the solution of CC, BK or DS for a person in debt is not what is the best for them but rather what makes the most sense for them. What is best and what makes the most sense are 2 different things. They are both opinion based and biased.
      Go over and read my commentary on Steve’s negative SEO post and you will notice my attitude and posture. I think as other’s have pointed out debt settlement companies don’t fear Steve or this site they just don’t recognize it as a worthy journalistic site. They know the title of the article regarding their company will have the word SCAM in it and it will show up on the first page of google causing consumer confusion. With a 10 year career of SEO knowledge I would never recommend to any client that they use this site to get a link unless it was pre-determined that Steve would not put SCAM in the title of the article. Steve uses the word SCAM to drive traffic to the site. He has not refuted that or provided proof via a consumer survey showing that the word SCAM is not the reason why consumers click to the articles. I also gave him a short survey list to use and he basically ignored it because he has a goal of profiting from the site. It is his livelihood.
      I had to research exactly what you do and I am very confused. Confused is the wrong word more like concerned. With increasing consumer protections and law firm debt relief basically being a front it seems that some debt relief/BK attorney’s have turned to FDCPA lawsuits. The same money is made just the collector pays not the consumer and therefore the lawyer avoids being in the spotlight for consumer protection issues and is no longer held liable personally as you stated. It concerns me that someone from the law profession basically saw an ability to reduce the potential for personal liability and instead circumnavigated the status quo to earn a fee from a collector on behalf of a consumer. You mentioned no one will address the merits of your piece. Where did you get the idea everything you type has merit? Usually you have to back up things with facts not hypothesis. Steve’s article today regarding MD has a list of 70+ creditors that had deals with MD for settlements. In my experience knowing debt settlement owners they all worked to get those arrangements. MD’s list is short compared to Freedom’s list and some other large operations. The short winded collectors you work with don’t hate DSC’s the DSC had to spend money to get the client in the program and they didn’t have to do countless hours of collections to get the consumer to a point of making a deal. Please get a collector in here to say they HATE DSC’s. It wont happen any day of the week and if they say they do hate them let’s go through their intake numbers to see if working with a DSC would have produced larger collection revenue or not.
      Given the history of lawyers chasing ambulances, filing frivolous lawsuits, acting as if they are better than, knowing the ins and outs to getting someone to pay up or else threats etc consumers using attorneys for FDCPA lawsuits provides nominal benefits. The deck is rigged. Sounds pretty far off right? Discounting the experiences of several million people and their use of a DSC or a CC is not sound advice from a attorney who has merit.
      Is it 5 o’clock yet I feel like we all need a beer.

      • http://GetOutOfDebt.org Steve Rhode

        You say, “I also gave him a short survey list to use and he basically ignored it because he has a goal of profiting from the site. It is his livelihood.”

        To be factual what I did say in response to your comment at http://getoutofdebt.org/52848/how-bad-guys-use-google-as-a-weapon-to-silence-investigative-reporters#comment-950995699 was, “While I appreciate your suggestions I don’t write to attract any particular type of reader. People can provide feedback about liking or not liking an article in the comments section, just as you have.” And, “It occurred to me overnight as I thought about your comment, it sounds like you think I have some sort of business plan or target the article that appear on the site for readers. I don’t.

        Bottom line is I write articles that interest me and I have no desire to increase the financial value of the site or company.”

        If we are being factual here you will notice the posts in the rate and review section of the site that ask people for feedback actually says “Scam, Complaint, Review, or Praise?” and asks readers to “Please share your experience with this debt relief company and provide your review and feedback, in the comments section below.

        The goal of this page is to allow people to share information that may be important to help others to make a more informed decision regarding their experience with this debt relief company.”

        That’s a long way off from giving the impression I just wrote an article and used the word SCAM in the title.

      • http://GetOutOfDebt.org Steve Rhode

        You said, “Please get a collector in here to say they HATE DSC’s. It wont happen any day of the week and if they say they do hate them let’s go through their intake numbers to see if working with a DSC would have produced larger collection revenue or not. ” While this is not related to hate, it did remind me of the April 2013 article in insidearm.com that talked about why 50% of collectors surveyed said they did not “engage debt settlement providers.” Article at http://www.insidearm.com/persolvo/top-reasons-some-arm-companies-dont-work-with-debt-settlement-providers/

        “While this adoption is significant, still, roughly half of the firms responding to the surveys each of the past two years indicated that they still did not work with debt settlement companies as part of their collection strategy.”

      • Fitz

        that’s an easy call, beer for me. C-ya tomorrow with a few thoughts

      • Neg Seo Expert

        FITZ I have to run some errands and play 18. Hit me with what you got.

      • Fitz

        Your day sounds alot better than mine already! I must admit to being somewhat disappointed Neg Seo Expert. I didnt see much meat on your post. I’ll try to be brief.

        I’m not entirely sure what your point is about “making sense vs. what is best”, but offer: isn’t it possible that the two are not mutually exclusive? That is, something can make sense and be the best also?

        Nor am I sure what the SCAM/seo stuff re: Steve’s site has to do with the merits, or lack thereof, of my piece. I will let Steve defend his site.

        Sorry dude, but the entire bit about lawyers and FDCPA and “avoiding the spotlight” makes absolutely no sense. You did say you were confused. I agree.

        Your point re: addressing the merits of my piece. I never said everything I write has merit. Asking someone to “address the merits” is an invitation to discuss, pro & con.

        The love/hate between collectors and DSCs: I cannot be more eloquent than Steve’s posting of InsideARM’s own research. That said, there is certainly an advantage to collectors working with DSCs and vice versa. Question remains: is that to the advantage of the consumer? My opinion: sometimes yes, sometimes no.

        Again, I’m not following you on the last paragraph. If you are taking an historical perspective of the entire attorney industry, you are correct, there have certainly been bad actors. I am not an apologist for attorneys. But arent you doing exactly what you fault Damon of doing: attributing the sins of prior DSC scammers to todays DSCs? Its a very weak argument all the way around, and fails to discuss the merits, or lack thereof, on anything I wrote.

        I trust you are killin it on the course. If your in SoCal, perhaps we can play some day.

      • Neg Seo Expert

        I can email you separately regarding Golf. Stayed out of the hazards but the flat stick was grumpy today.

        Please go read the Inside ARM article and hopefully Steve will release my comment earlier from the spam box that sheds more light. I know he didn’t delete it.

        Regarding my last paragraph i replaced the DSC with attorney’s and repeated your comment. I’m sure there are good and decent DSC operators and credit counselors
        out there. But given the history of fraud and abuse in the debt relief
        industry, the inability to provide any legal advice, and the carnage
        that can be done by defaulting on debt without some real protection, the
        debt settlement company and credit counselor risks are too great and
        the advantages too nominal.

        It was merely to show that what you typed substituted with attorney’s didn’t really portray a balance of the good attorney population there for saying DS and CC has nominal benefits is grouping all without exception. Let’s also say people usually don’t like lawyers until they need one if you know what I mean.

  • http://DamonDay.com/ Damon Day

    While I think this article is spot on, it should come as no surprise that debt settlement companies are going to want to argue for the status quo. Here is a comment about this article on another thread made by Angelo Anzalone, who owns a debt settlement company.

    http://getoutofdebt.org/52848/how-bad-guys-use-google-as-a-weapon-to-silence-investigative-reporters#comment-983073329

    Quoted from other comment thread…
    Angelo Anzalone
    If Im not mistaken this is this the same Greg Fitzgerald who attended the last AFCC conference soliciting settlement companies to handle their legal accounts and FDCPA violations.

    I know Greg, we enjoyed some deep dish pizza and have worked with together in the past so I don’t have one bad thing to say about him. He is one of the few attorneys who isnt so quick to solicit BK because he understands how to negotiate settlements for consumers who wish to avoid BK.

    I do know that he recently left the Seideman Law Firm to open his own practice and I wish him well. My thoughts on his article though… attorney advertising.

    I am wondering what part of this article Angelo disagrees with and is claiming is just attorney advertising?

    • http://GetOutOfDebt.org Steve Rhode

      I would be interested in Angelo’s response to that as well.

    • Angelo Anzalone

      Let me start by saying that I agree with most of what Greg wrote. I have always been vocal about rooting out those causing harm and like I said, Greg is one of the few attorneys Ive come across over the past 6 years who isnt so quick to solicit BK. He actually gets it.

      Unfortunately, for every Greg Fitzgerald out there, I can show you 50 attorneys with blinders who see BK 13 or BK 7 as the only option with no idea how to negotiate settlements. Id say there’s an equal ratio of unqualified settlement companies to clueless BK attorneys so I respectfully disagree that only an attorney is qualified to determine suitability.

      Greg wrote – “I’m sure there are good and decent DSC operators and credit counselors out there.” That’s music to my ears Damon, I think it hysterical that Greg can acknowledge this and I can and have always acknowledged there are reputable attorneys like Greg out there yet you’re the only fool still speaking in absolutes. That’s been my argument with you from the beginning. Is Greg part of the “scam” because he acknowledges there are good and decent DSC operators out there?

      Which part of the article is advertising? All of it, its a well written article with many accurate statements but lets not kid each other, at the end of the day the article was written to deter consumers from going with a settlement company and to use an attorney. Not that there’s anything wrong with it but how is that not advertising?

      • http://GetOutOfDebt.org Steve Rhode

        Thank you for responding.

        I think the underlying problem is that while your point may be true that a vast number of bankruptcy attorneys talk down settlement, there is no substitution for speaking with a local bankruptcy attorney licensed in the state the consumer lives in for specific advice about what bankruptcy would mean for them.

        Here is the Catch-22. The majority of credit counseling and debt settlement websites I’ve reviewed over the past years contain misinformation and just plain wrong information about bankruptcy. But neither a credit counselor or a debt settlement company can legally advise the consumer about bankruptcy without running into UPL. I think that’s a point Fitz made in his article.

        Ultimately, in my opinion, the best solution is for a consumer to speak to a licensed bankruptcy attorney in their state, a debt settlement company, and a credit counselor so they can then make a fully informed decision about what is best for them in their situation.

  • http://DamonDay.com/ Damon Day

    Well said Fitz.
    I love my wife, but I think I just developed a man crush. ha ha

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