Debt Relief Industry

Cunning and Deceptive Debt Settlement Companies Need to Fail

With the march gathering speed and the troops rallying to protect consumers against the big bad debt settlement companies and their enormous upfront fees my thoughts drift back to a time in October, 2009 when the then cocky trade group United States Organization of Bankruptcy Alternatives (USOBA) made the statement “an industry survey showing that an advance fee ban would drive the vast majority of debt settlement companies from the market and would cause some 85% to stop offering debt relief services to existing consumers.”Source.

What was USOBA trying to tell us then. Were they trying to scare regulators and legislators to leave the industry alone or it would fail. If that’s what their intention was at the time, that was pure arrogance on their part and only emboldened efforts to rein in the industry.

Angry Man by Steve Rhode
Illustration Credit: Steve Rhode

Right now debt settlement companies are bivouacking either in one of three camps. They either know they are going to go out of business with regulation and legislative change, they are in denial that change will really come, or a few feel they can survive the storm darkening the skies on the near horizon.

A Debt Settlement Company Should Be Like a Proctologist

Debt settlement can serve a purpose for the right consumers. And while the fraternity of high flying party boys that drove the current industry in a brain addled crack frenzy is in for a needed fall, we still need a few good companies to deliver debt settlement services when it is appropriate for a certain group of consumers.

A Couple of Real Proctologists

A Couple of Real Proctologists

Think about it like this, proctologists might have a shitty job and not rank really high on the chick cool factor but when you need one you want the best one you can find. I don’t know what makes a kid want to grow up to be a proctologist but I’m glad they decided to do it. And apparently it can be fun job, as evidenced by the happy guys above.

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What we don’t need are the mass of people that lied to and mislead consumers to enroll them in deceptive debt settlement programs in order to economically rape them of a few months of up-front fees.

People that debt settlement might be most appropriate for would be about 10% of those who are currently enrolled by the ‘pump them and dump them’ debt settlement companies of today. So the loss of 85% of debt settlement companies, as stated by USOBA, is probably a really, really good thing. And thank you USOBA for making it clear that banning big advance fees would accomplish the goal of putting most companies out of business.

USOBA and The Association of Settlement Companies (TASC) want to keep pushing the Kool-Aid that debt settlement companies need thousands of dollars in upfront fees to survive. That’s just a lie that serves them but it’s not reality. Debt settlement companies can do well with a fair and reasonable upfront fee of several hundred dollars, a fair and reasonable refund policy, a small monthly maintenance fee, audited performance claims, and then a performance fee of 15% or so based on actual savings of settled debt. Let’s make the debt settlement companies work hard to get big savings for consumers and earn their money through performance, instead of sexy promises like today.

Mark my words, the frat boys of USOBA and TASC will keep making that argument that big upfront fees can’t be cut to their collective detriment and to the bitter end because, in my opinion, the members that pay so much money into those trade associations want it that way and enjoy the status quo. It is a totally self-serving position but in the long run it will be as effective as the kid that screams and has a tantrum to eat candy every night for dinner. It’s just not going to happen.

The hardest thing for a big upfront fee debt settlement company to do right now is to have the balls to agree to eliminate most of those abusive upfront fees. These companies have built their operational structure on a certain model of income and they can’t make a transition from a cash today, service tomorrow, delivery model. Those companies need to go.

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The companies that will survive this industry transition will be those that face reality right now, immediately get lean, significantly eliminate legacy operational overhead costs, slash staff, and prepare to coast through a transition period till they can settle debt to earn money again. Just because these are not easy decisions to make does not mean they can’t be made. It just means they are tough to make.

It’s Time to Clean House

My vote is to clear the decks of the vast majority of debt settlement companies and let’s support the existence of for-profit debt relief companies that operate under one fair and reasonable federal legislation that protects consumers from the abuse consumers have been subject to in the run amuck debt settlement culture of the last few years. Let’s send the scammers packing.

We need a debt settlement industry with members that are proud to disclose who they are, embrace transparency, embrace accountability and who meet to discuss better ways to help consumers, not screw them for maximum profit.

We need a debt settlement industry that would want to invite me to attend their convention and let me in behind the scenes. The current industry would not want to do that because they would not want to expose their deceit and profit mongering.

So if you work for one of the debt settlement companies that has enjoyed printing money by screwing consumers and you think change is not on the horizon, listen to this clearly, start looking for a new job right now. Change, it is a coming. I guarantee it is.


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About the author

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.


  • Hello Joe,

    I am not sure if you were speaking to me or to Steve, but I will go ahead and respond. I typically don’t agree with government regulation. I think that free market principles are typically the better course of action. However, when thousands of companies work together, either knowingly or through ignorance, to rip off consumers, then I don’t mind the government stepping in to put a stop to it.

    If you don’t like it, then blame TASC and USOBA for fostering an environment that allowed companies to rob consumers blind. They not only didn’t do anything about it, but they promoted and participated in the plundering themselves. I don’t agree with the current bill. I think they should simply pass a ban on the front loaded fee model and leave everything else alone.

    You asked an interesting question. You said what is wrong with an advance fee if you are not a scammer? Well by my definition, if you are a company that front loads your fees (charges all of the fees before getting all of the settlements) then you are a scam. So from where I sit, there is no such thing as a company that uses a front loaded fee model that is not a scam. The reason I call that model a scam, is because it is presented as something that is beneficial to the consumer, but in reality, it is nothing more than a way for a settlement company to make all of their money upfront to the detriment of the client and the client’s creditors.

    Please explain to me how it is beneficial to the consumer or the creditor to charge all of your fees upfront?

    You also said “what is wrong with making a decent profit?” The answer is nothing. But why must you insist on making all of your profit before providing the service? Why can’t you take your profit after providing the promised service to the client?
    .-= Damon Day´s last blog ..TASC Throws USOBA on the Sword, Runs to Next Industry to Plunder =-.

  • I bet you are the type of guy that would like the government to step in and take care of the job. Whats wrong with making a decent profit? Yeah, there are scammers in every industry but whats wrong with taking an advance fee if you are not a scammer? I would bet money you are a democrat ! I disagree with your rhetoric buddy! This country is built on capitalist values, and when you let the big government come in and start regulating everything, we are getting steps closer to a socialist country.

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