With all the pushing and pulling from the debt settlement industry, TASC, and USOBA over their enthusiastic laments about the debt settlement industry does not need regulation or advance fee bans, one critical point is lost on all, this is an absolutely easy problem to fix.
Consumers languish for years in debt settlement programs while they attempt to accumulate funds to settle debts but in the meantime the settlement company takes their fees upfront, in advance, and spends them. While waiting to accumulate enough money to settle the consumer is dunned with collection calls, possibly sued, and might even have their wages garnished. Consumers feel they are not getting much benefit for a service they are paying for because the service is partially, if ever, delivered for most people.
If the debt settlement industry just had some appropriate screening policy in place for new customers and did not enroll people until they had sufficient funds in place then the time spent in a debt settlement program would be minimal, the consumer would be best qualified to actually settle, service would be immediately delivered, the performance based fee would not be an issue since settlement companies would not be carrying consumers for years, and creditors would get paid quickly making settlement companies look like allies instead of villains. Best yet, these programs would generate profits and happy consumers.
If settlement companies actually delivered service in this fashion and promptly refunded money for accounts they could not settle, there would be no need for the legislation and regulation current in the works because consumer complaints would be minimal and almost never occur.
In fact, even if performance based fees and advanced fee bans passes, it would be much less of a factor because the argument that debt settlement companies can’t afford to carry consumers for years would be moot.
I’m speaking from experience here. Years ago my old company delivered settlement services but we made sure anyone enrolled was appropriate and had money on hand to settle, had a flat performance based fee, refunded money if the account could not settle and promptly paid creditors when the settlement was reached. And guess what, not a single complaint from a single consumer. It can be done.
As long as the drive of the trade associations is to attempt to continue a flawed approach that harms consumers, they are going to get a black eye. As long as they lobby to continue a system that is ineffective, takes financial advantage of consumers in trouble, and enrolls anyone with a pulse, they are going to be perceived as an industry consumers need to be protected from.