In a move that flies in the face of protecting consumers at large, the United State Organization of Bankruptcy Alternatives (USOBA) has enlisted the help of the following Republican Members of Congress to attempt to sway the Federal Trade Commission from issuing upcoming rules that will impact upfront fee debt settlement companies.
The cover letter the Congressmen appears to clearly attempt to influence the Federal Trade Commission at the direction of USOBA.
Congress Members That Signed the Letter to the FTC on Behalf of USOBA
- Pete Sessions (R) Texas
- Jeb Hensarling (R) Texas
- Marsha Blackburn (R) Tennessee
- Dan Burton (R) Indiana
- John Carter (R) Texas
- Michael Conaway (R) Texas
- Mary Fallin (R) Oklahoma
- Ralph Hall (R) Texas
- Ron Paul (R) Texas
- Sam Johnson (R) Texas
- Michael McCaul (R) Texas
- Sue Myrick (R) North Carolina
- Randy Neugebauer (R) Texas
- Pete Olson (R) Texas
Others have spoken out specifically in favor of an upfront fee ban by debt settlement companies in order to protect consumers from paying thousands or tens of thousands of dollars in fees for services they will never receive from debt settlement companies.
By admission from USOBA, who is unwilling to present specific data on the individual success rate and failure rate of member agencies, or even the names of its member agencies, the vast majority of consumers are not successful in resolving all of their debt.
When a consumers pays 15% of enrolled debt in an upfront fee and only settles a fraction of their enrolled debt the actual fee for service is multiplied many times over. For example, a consumer that enrolls $40,000 in debt in a USOBA approved program would pay $6,000 in upfront debt settlement fees. If the consumers only settled 33% of the debt, or $13,200 of the debt, the total fee paid effectively would have been 45%.
The Federal Trade Commission, many advisory groups, and some state laws, support the contingency fee model where a consumer would pay for actual services received as debts are settled and not just upfront fees for hope that all debts get settled.
Despite that fact USOBA continues to push its agenda to continue upfront fees as critical for the industry to survive.
The argument is made in the USOBA graphic that banning upfront fees would make it impossible for debt settlement companies to continue operating. That is factually not true. Debt settlement companies are operating now on a contingency fee basis. And the only reason why current debt settlement companies would not be able to switch to a contingency fee model is because they are undercapitalized and have spent the fees they have collected before actually delivering the services they promised.
USOBA states that the upfront fee ban would cause 85% of their members to close and displace workers. But that is not a valid reason to continue a practice which grossly harms consumers. The argument then becomes that bad actors need to stay in business to continue jobs that hurt, rather than help consumers.
The statement is also made that an upfront fee ban would eliminate debt settlement as a bankruptcy alternative. Again, that is factually not true. If 85% of USOBA members would go out of business that leaves 15% of members still offering services and debt settlement as an alternative. It has also been said that remaining debt settlement companies would most likely employ more people to deal with their now growing operations.
USOBA Offers No Real Facts
Rather than USOBA stepping up with data showing real success of member programs they offer up a survey of “of almost 700 American workers who service debt settlement consumers.” – Source
Here is what USOBA offers up as supporting facts about the success of their programs:
- According to a survey of almost 700 American workers who service debt settlement
consumers regularly under the fee structure that the advocates want to eliminate:
- 65% reported providing value and/or services to consumers other than the settlement of debts in the form of financial literacy and education, information on how to deal with creditor harassment or threats, “handholding” and emotional support, program coaching and budgeting support;
- Almost 30% reported being told by debtors that their debt settlement program “saved their marriage” or “saved their health;”
- 27% were told by debtors their debt settlement program “saved their life;”
- Almost 40% reported being told by debtors that their debt settlement program “saved their home;”
- 86% (almost 9 in 10) of those employees surveyed confirmed that they and their debt settlement company provided value or service to consumers/debtors other than settling debts; [So does that mean that 14% of debt settlement company employees think they don’t provide value or service?] and
- Consumers themselves -who took the time to write to the FTC during the rulemaking comment period – submitted testimonials that ran 40 to 1 in support of debt settlement programs operating under thefee structure that the advocates want to eliminate. [Yes but only 200 people wrote in. I’m surprised they could not get more employees to send letters.]
These statements are hollow at best and don’t reflect the actual results received by consumers from USOBA member debt settlement companies. All they say is that some of the employees at some debt settlement companies were told by at least one person the statements cited above.
Even the position that submitted testimonials received by the FTC supported upfront fees by 200 people that wrote in, what they fail to mention are the 3,5000+ complaints received by the BBB or the lawsuits and investigations by Attorneys’ General into unfair and deceptive practices of upfront fee debt settlement companies.
Competition Instead of Concern for Consumers
By its own statements, USOBA is trying to influence the Federal Trade Commission against banning advanced fees in order to protect competition against credit counseling groups.
However, the “pay as you go” fee ban would eliminate debt negotiation and settlement services, which are the principal competition to credit counseling services. From a business perspective, virtually outlawing competition would improve the revenues of credit counseling services. – Source
USOBA does not understand the goal in helping consumers is to provide the most appropriate resource needed to address the consumers situation at hand. If the consumer is placed first then no alternative or solution is competitive. Clearly USOBA debt settlement companies place competition and income above the best interest of consumers.
Again, More Fuzzy USOBA Logic
Here are some more questionable statements and positions USOBA makes in the supporting documentation.
- “Often, sufficient savings are accumulated within a year for settlement offers to be made and accepted.” – Source. But USOBA pulls up short again in giving evidence that other than a few consumers that originally enrolled actually achieve this. Illinois Attorney General Lisa Madigan has stated “What we have learned is that 65 percent of people who initially enroll with debt settlement companies drop out before any communication (with creditors) has been made. Before any of their debt has been settled at all.” – Source.
- “Unlike credit counseling services, debt negotiation and settlement services receive no funding from creditors.” But if these programs provided a tangible benefit that creditors could identify there is no reason to assume that these programs would not receive compensation from creditors for valuable services.
- “”Pay as you go fees” are the norm for personal services that are spread out over a period of time. For example, attorneys routinely charge customers for services rendered, even before cases are settled or decided in court.” – Source. But what USOBA fails to mention is that attorneys have a fiduciary duty to their client, and must place retainers and advance fees in escrow/trust accounts and take the money as it is earned. Lawyers must provide a complete and timely accounting of escrowed funds in the client trust account and promptly pay out any funds due the client. Debt settlement companies have a seemingly strict no refund policy and commingle and spend advanced fees received before services are delivered.
- “A move by the FTC to unduly restrict the fees of debt settlement companies would result in an even greater shift of power to harassing creditors and debt collectors, the very operators who are the basis for the majority of consumer FTC complaints.” – Source. Again an untrue statement. If debt settlement companies went out of business and more consumers turned to bankruptcy as USOBA claims, consumers would have significantly superior protections under current bankruptcy law to silence creditors and collectors, authority debt settlement does not provide.
- “Debt negotiation and settlement services are involved in resolving large amounts of debt. A survey completed by approximately one-quarter of United States Organizations for Bankruptcy Alternatives (USOBA) members revealed that nearly $7 billion of debt has been enrolled in debt settlement programs by roughly 277,000 customers. Nearly $1.5 billion of unsecured debt has been settled.” – Source. So even USOBA can’t get its members to provide meaningful data. It is hard to draw any reliable conclusion when 75% of USOBA members would not complete a survey.
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