I’m always surprised how often people tell me or comment that debt settlement companies can’t survive without charging all their fees upfront. I say it can be done when consumers actually pay for performance, meaning, pay the debt settlement company when the debt is actually settled.
Even the debt settlement trade associations say banning upfront fees is bad. But the reality is a growing number of companies are realizing that charging consumers when a debt is settled can be done. In my interview with Alex Viecco of New Era, Alex talked about how the debt settlement industry began with the performance fee model and did not charge consumers large upfront fees as the current debt settlement trade associations want to try to hold on to.
Coincidently out today is a public statement from debt settlement company Emerge America who says:
Emerge America Responds to Distrust of Debt Settlement Firms
With unethical debt settlement companies taking advantage of a troubled economy, Emerge America speaks up about best practices and good business.
“Many of these companies are taking advantage of customers because of the shaky economy,” said Branson Hamilton, managing director at Emerge America. “Their front-loaded fee structure causes high dropout rates and gives credible companies a bad name.”
When the debt settlement industry first developed, companies worked on a performance based fee structure. Very few companies follow that model now.
“Companies that have a front-loaded fee structure do so to increase cash flow,” Hamilton states. “Usually they collect about 80% of the fees before they can even settle anything. This leads to creditors calling their customers incessantly and frustrated debtors dropping out of the program prematurely because they see no settlements while their situation worsens. Usually people who are facing bankruptcy fall into this debt settlement trap out of desperation.”
“We applaud any effort that would help remove the bad actors from our industry,” said Hamilton. – Source
So here is another company that wants the debt settlement industry to return to how they began, with a performance fee model, getting paid for the work they actually deliver, instead of promising to deliver and then not.
Now the Emerge America story does not stop there. On their site at EmergeAmerica.com they are Extremely Bold in their observations of the debt settlement industry. Here are some of the things they say. These are their words, not mine.
Emerge America Warns Consumers to Watch Out for These Issues in Debt Settlement
- Charge settlement fees, up-front, whether they provide one or not
Most folks would agree, and perhaps expect to be charged a nominal fee in the commencement of various types of service contracts. For example, a mortgage company may charge an application fee in order to begin the process of a home loan. Similarly, most if not all attorneys require a retainer fee, to engage their services. Conversely, if you were required to pay the entire balance of an agreed upon fee, prior to the completion of said services, most consumers, if not all, would balk. Why then, is this very practice taking place in the debt settlement industry? Simply put, many consumers (especially in today’s times) are overwhelmed with economic distress, leaving them vulnerable to unscrupulous enrollment/sales agents, and the associated practices of the debt settlement companies, that they represent. Enrollment agents fail to explain their program in detail, and when questioned, resort to “smoke and mirrors”.
- Allow for undercapitalized affiliate offices – here today, gone tomorrow
Finding a reliable and ethical debt settlement company on the web or elsewhere can be a tricky process. One never knows where you may end up, unless, you apply patience and perform proper due diligence. Not long ago, debt settlement companies, in the pursuit of corporate growth, discovered that with little investment they could easily launch satellite offices, by allowing others to “foot the bill”, enter, The Affiliate! This business model opened the door to several problems, including;
(1) undercapitalized affiliate offices, as little or no investment is made by the parent company,
(2) loss of control over who is hired which causes problems with the education and enrollment of potential clients,
(3) false and or misleading statements made by agents in order to “close a deal” and
(4) questionable customer service provided to the client
- Promise great customer service, until you try & get them on the phone
Since many debt settlement companies operate as affiliate or branch offices (operated by independent contractors) they have no control over customer service, or those empowered to negotiate on your behalf. Additionally once the enrollment process is complete; it is of no further benefit to these entities to service you, as they have already been paid.
- Make unsubstantiated claims that they frequently can’t deliver
Whether watching a cleverly crafted television commercial (with a backdrop of the White House), listening to a radio advertisement or receiving an impressive document in the mail, many consumers are lured in by these flashy professional marketing campaigns. The fact remains that many of these advertisements are not what they seem. The world-wide-web can be just as tricky. Just perform a Google search, and you will quickly discover many potentially unsubstantiated claims such as “Pay pennies on the dollar”, “Save as much as 60% of your debt amount”, “We guarantee to get you out of debt in 36 months”, and so on. These are just some of the claims that many debt settlement companies make in an effort to attract consumers. Understand that debt negotiation/settlement is an ever evolving process, and results vary based upon debt type, consumer circumstance and creditor willingness, with no guarantee of success. For this reason, no one should fall prey to companies that make such unsubstantiated claims.
- Hide behind (paid for) industry associations
Many debt settlement companies proudly display the logos of various industry associations on their corporate websites. At first glance these associations seem impressive, as they are frequently used to convey protection for the consumer, when in fact any debt settlement company can join these organizations, as long as they pay a monthly or annual fee. Be sure to research these organizations and find out how they oversee the debt settlement industry. Upon investigation, you will find that these organizations, for the most part, were created as fee generators and nothing more.
- Use high pressure tactics
Many creditors employ high pressure tactics in order to instill fear into consumers about paying their debts. They may threaten to litigate, garnish wages, even lien property. When seeking the help of a debt settlement company the last thing you would expect, is for that company and its agents to pressure you, using similar tactics as the creditors. Although keeping you aware of the remedies that creditors have at their disposal is important, using those threats to call you into action, in order to sell you their services, without proper research, is unscrupulous. – Source
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