There were some recent interesting meetings over at the Federal Trade Commission. These involved the proposed telemarketing sales rules the Federal Trade Commission is going to put forward. The first meeting was with representatives of The Association of Settlement Companies (TASC) and the United States Bankruptcy Alternatives (USOBA) in attendance.
At the June 3, 2010 meetings from TASC were: Andrew Strenio, Sidley Austin LLP; Andrew Housser, CEO of Freedom Debt Relief and TASC Board Member; Robert Linderman, General Counsel of Freedom Debt Relief and TASC Vice President; and Wesley Young, Legislative Director of TASC. In attendance from USOBA were: Jonathan Massey, Massey & Gail LLP; John Ansbach, Legislative Director of USOBA; and Samuel Brunelli, Team Builders International. – Source
Here are some statements from the FTC published notes from those sessions that just seem unbelievable for the debt settlement industry to say but the consumer groups made some very good points in a followup meeting for the Federal Trade Commission to consider in order to protect consumers.
The representatives said that although interest and fees are added to consumers’ debts while they are in the program, about 50-60% of consumers are already delinquent on their debts when they contact the debt settlement company. [So balances in a debt settlement program DO go up.]
The representatives said that another problem with an advance fee ban is that a contingency fee model would result in a power shift to the creditors; creditors would know that the negotiator would not get paid anything until a settlement occurs; thus, the creditor would offer smaller debt reductions because it would believe that the negotiator would take any settlement in order to get paid. The representatives said that creditors are advocating for the advance fee ban in this proceeding and in state legislatures because it would help them financially. [Major Horseshit.]
The representatives said that the better debt settlement companies engage in significant consumer education about debt collection, and there would be little incentive to engage in such education if an advance fee ban is imposed. In addition, companies would have the incentive to get as many people as possible enrolled in the program; even if 80% drop out, the company would receive some fees eventually, but this structure would hurt consumers. [Seriously?]
The representatives stated that in Freedom Debt Relief s program, of those who dropped out before completion, 52% received more in debt reductions than they paid in fees, and 75% received at least one settlement. They also stated that statistically, most dropouts occur in the first 4-5 months. [So 25% pay 4-5 months of fees and get no benefit and 48% paid more in fees than relief? Seems like a great reason to not allow upfront fees.]
The representatives stated that they have determined, through financial modeling based on Freedom Debt Reliefs data, that if they had to operate under an advance fee ban, it would take them five years before they were cash-flow positive. [Because they have a front loaded business model. If they adjusted their business model they’d be better able to make the switch. The wrong business model is not a reason to support a failed model that harms consumers.]
A USOBA representative stated that they undertake background checks of member companies; they engage in a secret shopper program; they suspend a company from membership upon the first violation of their standards and terminate the company upon the second violation; and, finally, in the last 30 days, they instituted a “zero tolerance” policy for use of government imagery in debt settlement advertising. [I’ve written about specific examples of bad acts of USOBA members and I find it hard to believe that USOBA takes those bad acts seriously at all.]
The representatives made the following statements in closing: it is risky to impose an advance fee ban, as a pure contingency fee model has no track record in the debt relief industry. [So because we can show that the majority of consumers get an insufficient benefit or pay more for debt settlement services when they are charged on an advance fee rather than a performance fee, that’s bad? How can it be argued that paying for actual services received by the consumer is not a fair approached?]
On June 8, 2010 the FTC Commissioner met with representatives the consumer groups Consumer Federation of America, Consumer Action, Consumers Union of U.S., National Consumer Law Center, and Mid-Minnesota Legal Assistance, along with a representative of the Office of the Maryland Attorney General. – Source
At that meeting the consumer representatives made the following positions:
The representatives stated that the ban on advance fees is the essential piece of the proposed rule. They stated that in debt settlement programs, the majority of consumers who enter the programs do not get their debts settled. If any companies go out of business in response to an advance fee ban, they wil be the companies that do not provide actual services to consumers anyway. [That is a valid argument. Since debt settlement companies do not escrow funds these funds can be lost to consumers if the debt settlement company goes out of business as is the case with attorney based debt settlement company Allegro Law.]
The representative of the Maryland Attorney General’s offce said that in enforcement actions, the states repeatedly find that companies sign up consumers indiscriminately, even though debt settlement is only appropriate for a small fraction of consumers. In many investigations, it appears that the debt settlement counselors are simply salespeople whose only goal is to sign people up for the program. [Seems to be exactly the way it really is over most of the debt settlement industry.]
The representatives said that the fundamental business model of debt settlement is
problematic; people save hundreds of dollars in a bank account, but the majority of the money is used to pay the company’s fees, making it impossible for consumers to save for settlements. Consumers are set up to fail but pay advance fees to fill the coffers of the businesses. Moreover, a number of debt settlement companies have said that they can operate without taking fees in advance of settlement. [That’s correct. Currently, debt settlement companies have a failed business model that requires them to constantly rake in new fees since they already spent the fees received from people already enrolled but spent them in advance of settling debts or providing real services.]
The representatives said that the companies are utilizing a large share of the upfront fees they collect on advertising and paying lead generators for consumer names/contact information. Some lead generators charge $500 per lead. Moreover, the companies are not actually spending money on individualized financial counseling; they provide off-the-shelf budgeting information to consumers, information that is free from many consumer organizations and other sources. [That’s a valid argument. I don’t see many debt settlement companies providing financial counseling. It seems to be all about the sale.]
The representatives emphasized that under an advance fee ban, if the debt settlement company produces results in a prompt and timely fashion, it wil get paid in a prompt and timely fashion. [That sounds like a point I’ve made before. If debt settlement companies enrolled people that were prepared fro settlements they would get paid potentially in months, not over five years. Enroll the right people and get paid in the manner you want. Doh!]
The representatives said that the data submitted by TASC are not reliable and were not subject to audit, but even if you assume the industry data are accurate, they show that most consumers pay for results that are not delivered. [That’s true, the debt settlement industry has been hesitant and resistant to provide vetted data to support their positions.]
he Commission should also consider banning advertising of savings rates unless 80% of customers achieve the advertised savings rate, and the rate accounts for the provider’s fees. [That seems reasonable and transparent.]
The Commission should impose a carve-out to the face-to-face exemption for debt relief services so that debt relief companies cannot evade an advance fee ban by hiring a runner to go out to consumers’ homes to get them to sign contracts, thus qualifying for the face-to-face exemption. [That’s a fair position it seems. If runners were sent it would violate the spirit of the new rules so we might as well address that now.]
In conclusion, the representatives said that an industry with hundreds of law enforcement cases fied against companies in the industry does not deserve a safe harbor. [Well that’s an excellent point. Hard to argue against that one especially when a number of Attorneys’ General have gone after debt settlement companies.]
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I’m glad you found a debt settlement company that worked well for you. In looking for a company to help your girlfriend just be aware that if she waits until October 27, 2010 or finds a debt settlement company that will enroll her on a contingency fee contract, she will not have to pay fees based on the amount of debt she has at the time she enrolls under the old advanced fee model.
I enjoyed your egomaniac comment. LMAO.
I guess it’s hard for an About Me page to not be self-focused by its very definition but I have no delusions of personal greatness nor a lack of appreciation so I guess I don’t fit the accepted definition.
Keep commenting, your thoughts and point of view are always welcome.
Steve
I am currently attempting to find my girlfriend a reputable debt settlement company and ran upon your site. Unfortunately, we now live in a state that the company I used is not licensed in so therefore can not help us.
I just want to give my 2 cents in the fact that I went through with a debt settlement program and finished in 24 months completely debt free (Thank God!). I had a little over 36k in debt with I believe 5 or maybe 6 credit cards. I never had a problem at all and feel like they saved me! I think what happened is the FTC is LAZY and needs to do more research in weeding out the good and the bad companies. You write as if all are bad and I can tell you 1st hand that thats not true. I think I paid a total of 19k back which was awesome in my eyes. Seems like you may be lazy as well b/c looks to me that you lump all of these companies together just as they did. Well that and from your picture I can tell being healthy isn’t really a concern. Sorry, but if you can be brutally honest with your language in this article, then so can I about how your article reads and my opinions formed from it.
I don’t know about the industry as a whole, but I got a lot of help and think you should be a little less bias. I would think that the credit card companies that raised my rates by 300% when I lost my job and was late ONE time deserve more of your hateful and bias writings.
By the way your about me section is hilarious! Can we say egomaniac? LOL, good luck i guess.
I am currently attempting to find my girlfriend a reputable debt settlement company and ran upon your site. Unfortunately, we now live in a state that the company I used is not licensed in so therefore can not help us.
I just want to give my 2 cents in the fact that I went through with a debt settlement program and finished in 24 months completely debt free (Thank God!). I had a little over 36k in debt with I believe 5 or maybe 6 credit cards. I never had a problem at all and feel like they saved me! I think what happened is the FTC is LAZY and needs to do more research in weeding out the good and the bad companies. You write as if all are bad and I can tell you 1st hand that thats not true. I think I paid a total of 19k back which was awesome in my eyes. Seems like you may be lazy as well b/c looks to me that you lump all of these companies together just as they did. Well that and from your picture I can tell being healthy isn’t really a concern. Sorry, but if you can be brutally honest with your language in this article, then so can I about how your article reads and my opinions formed from it.
I don’t know about the industry as a whole, but I got a lot of help and think you should be a little less bias. I would think that the credit card companies that raised my rates by 300% when I lost my job and was late ONE time deserve more of your hateful and bias writings.
By the way your about me section is hilarious! Can we say egomaniac? LOL, good luck i guess.
I’m glad you found a debt settlement company that worked well for you. In looking for a company to help your girlfriend just be aware that if she waits until October 27, 2010 or finds a debt settlement company that will enroll her on a contingency fee contract, she will not have to pay fees based on the amount of debt she has at the time she enrolls under the old advanced fee model.
I enjoyed your egomaniac comment. LMAO.
I guess it’s hard for an About Me page to not be self-focused by its very definition but I have no delusions of personal greatness nor a lack of appreciation so I guess I don’t fit the accepted definition.
Keep commenting, your thoughts and point of view are always welcome.
Steve
Steve,
Again I am forced to prove to one more “writer” who is trying to make a name for himself, that he has little to no clue what he is talking about. If you honestly believe for one second that the Banks that lend out on these credit cards don’t have their hands so deep in the governments pockets that they could give them a happy ending then you truly are one of the most uneducated people I have ever read.
Now I am one of those that believe there are a lot of “sham” Debt Settlement companies out there. At the same time however there are plenty of companies out there doing things the right way.
Your theory has merit however under the “pay as you go” plan, what would prevent a client from enrolling a single debt then cancelling their contract with the company after said debt has been settled? What protection does the company have from the consumer. Also looking at your so-called statistics that you quoted. Whose fault is it that 65% of consumers cancel out of their debt settlement agreements? So you are saying thats it is unfair for clients to be charged up front fees? Okay so I will keep that in mind the next time I pay for something before I get it. Most companies operate under a 6-12 month policy where at least one debt will be settled by that time unless specified due to high balance or low monthly payment. Oh yeah one more thing, I am going to go tell my step father who is an attorney that his “retainer fee” according to you is supposed to go into an escrow account so he can pay himself for work completed. Thats ridiculous! Attorneys charge a retainer fee for representation only!!! Their other fees get charged as the case moves along or when you have reached a settlement…and guess what whether you win or lose your case, most attorneys charge you either way.
TASC and USOBA are feeding the FTC a load of horse shit, you are with biased articles that have little to know evidence to back them up just your own opinion. The opinion of some goofy point dexter who advertises Debt Settlement Companies on his page about bashing debt settlement companies. Next time do your research Steve!!! Stop scaring John Q. American into getting ripped off by his credit card companies for thousands of dollars over the rest of his natural life.
Robert,
You might want to read Northeast Settlement Group – Small But Transparent who is a debt settlement company and feels the advance fee is “ridiculous.” His words, not mine. listen to the interview. You might want to look at his model as an example. Maybe you’ll want to listen to your neighbor, CareOne, speak out in support of performance based fees.
And while you want to lash out at me personally with names and insults, remember, I’m not making policy, suing debt settlement companies, or passing legislation. I’m reporting and offering my opinion.
After your comment I now have an entirely new opinion about ClearOneAdvantage.com.
Do you really need me to tell you how to run a successful contingency fee debt settlement company? Hum, let’s see, how about escrow the funds first in a short period of time and escrow the average settlement plus the 15% performance fee. Go for the settlement that you feel you can obtain and the consumer is paying you for based on your professional assertion you can obtain. If you can’t provide the service you promised the consumer, refund the fee.
My “so-called” statistics came from the debt settlement companies themselves.
Upfront costs to a business as the normal way a business is run. Think about all the work and infrastructure that goes into building any sort of widget. A company does not say to the public, help fund our operations and five years from now you’ll get a widget. Pay for the car in installments over the next five years and by the end of that we’ll give you most of a car.
The statistics, the industry statistics, show that the vast majority of consumers do not settle all or even most of their debts enrolled in a debt settlement program. If you charge people 15% as an advance fee but only settle 50% of the enrolled debt then the effective fee is 30%. How is that fair to the consumer. And if you can’t stand behind your work and say our fee is 15% of the debt we actually settle for you then you probably have a failed business model.
So whose fault is it that 65% of people bail on the debt settlement program? The debt settlement companies fault. Most debt settlement companies appear to enroll anyone with a pulse that can pay some minimal payment. Stop doing that and start qualifying people that are more appropriate. If you do that you will have happier clients, a more successful track record.
If you are enrolling consumers on 4 or 5 year settlement plans, stop doing that. Instead, enroll people more appropriate for settlement. Stick to people that either have funds on hand or who can save funds within 1-24 months.
As far as the attorney model goes, yes, work is charged against the retainer as the case moves forward, but if the client decides to cancel the unearned money is returned to the client. So does ClearOneAdvantage.com escrow client funds only when earned or do they take those funds primarily in the first calendar year before the bulk of scope of work promised has been earned? If a client decides to cancel out of your debt settlement program at the end of the first year but no debts have been settled yet, would they get their funds back minus a nominal administrative charge or is your approach to say “no refunds” as other debt settlement companies do?
Steve