Robert Linderman wants you to know he isn’t a scammer.
Oh sure, he may be general counsel for Freedom Debt Relief, California’s largest debt-settlement company, and he may be vice president of the Assn. of Settlement Companies, an industry group.
And he readily acknowledges that there are some bad apples in the debt-settlement business, taking people’s money without doing much if anything to get them out of a financial hole.
Linderman wanted me (and in turn you) to know that this isn’t what happens to most people who contact debt-settlement companies affiliated with his association.
Be that as it may, the Better Business Bureau gives Freedom Debt Relief an “F” because of nearly 240 complaints filed by clients over the last three years and “concerns with the industry in which this business operates.”
It just seems that Freedom Debt Relief is one of the least likely to make a pitch about respectability for the industry, considering their problems and being investigated by the New York Attorney General.
Most members of the Assn. of Settlement Companies charge up to 20% of a person’s initial debt load, paid out over a year and a half, regardless of whether any progress is made in resolving the case. Freedom charges 15%.
That means Carstens’ $12,000 problem cost him $1,800 to fix, above and beyond the $6,000 he paid his creditors. A $100,000 debt would cost $15,000, even though Freedom specifies in its contract that “we cannot and do not make predictions, promises or warranties as to the outcome of our efforts.”
Linda Sherry, a spokeswoman for the advocacy group Consumer Action, said she advises people to steer clear of debt-settlement companies because of the payment structure.
“They shouldn’t be charging for services that may not get provided,” she said. “Why should they get any money if your debt isn’t settled?”
While Freedom Debt Relief says they look forward to regulation they also seem to want things to remain as they are.
Don’t judge all debt-settlement firms by the actions of an unscrupulous few, Linderman said. “We’re aware of the problem and we’re trying to solve it.”
A good place to start would be to change the business model so that people pay only if a settlement company gets results. No results, no 15% or 20% commission.
Linderman, not surprisingly, said the industry prefers the current system. And he said customers should too.
“We could mitigate consumers’ risk with a contingency model,” he said, “But we don’t think we would get as good a result from creditors, who might have more influence over the proceedings. A settlement that might have been 40 cents on the dollar under the current model might be 60 cents on the dollar under a contingency model.”
Linderman’s argument that consumers would be worse off if they only paid a percentage for actual debt settled, is ridiculous. Why should consumers pay Linderman’s company or any debt settlement company based on the amount of debt included in a debt settlement program rather than by performance? The amount of debt included has no relationship to the amount of debt actually settled. Consumers paying upfront don’t understand that the vast majority of debt paid to include is actually never settled by most debt settlement companies.
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