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I’ve previously written about the attorney model debt settlement firm approach that some debt settlement companies are rushing towards in an effort to circumvent any fee ban that may be put in place. The logic is that attorneys are exempt from most laws so if an attorney is doing debt settlement then it must be okay to do. The reality of the new FTC rules is that attorneys are not easily exempted from the regulation and that the statements you will hear the sales representatives make would fall under the new FTC rules and be actionable since they would be determined to be both abusive and deceptive.

As debt settlement companies rush to adopt an attorney model, where an attorney is the face of the debt settlement company or the excuse that allows them to operate in order to step around rules and regulations that debt settlement companies feel will hamper their ability to sell, consumers are being duped and harmed.

There are three major issues for me.

We have the issue of representation and trust. When a consumer calls a telephone number, visits a web site, or sends an email and is told they are talking to a law firm, should the consumer rely upon that information as being true? If it is not true, does that then become deceptive marketing and a misrepresentation of the facts? My vote is, you bet it does.
And if a non-attorney marketing wing or company is misrepresenting debt settlement services under the name of an attorney, is the attorney legally responsible for that misrepresentation? The state bar association feel the attorney has some personal responsibility for tat misrepresentation.
From a consumer protection point of view, the non-attorney firm that presents themselves as a law firm or an attorney appears to deceptively confuse consumers as to who they are dealing with and the level of services and representation they will receive. Not only that, but they provide callers with just wrong or bad information.
In the debt settlement world right now it is becoming increasingly confusing for consumers to know exactly who they are dealing with when they call for help and the people that answer the phone say they are a law firm. Are they really?
As one person told me, “If I’m talking to a debt settlement marketing company I want to know it so I can filter what they are saying to me. It’s like when you go to the car dealer and talk to a salesperson, at least you can pass what they say through a B.S. filter. It’s not like you are talking to Consumer Reports.”
It has been very clear that an ownership by a non-attorney in a legal enterprise is not permitted in most, if not all states. And the splitting of fees consumers pay to a lawyer that are then divided between a lawyer and a non-lawyer is a no-no as well.
It seems that the debt settlement programs instruct the consumer to stop paying their creditors, to deposit the money into a trust account, and while the consumers credit is being impacted and collections and possible legal action begin, the debt settlement program is making money off of the consumer by placing them in a worse financial position. “Don’t send money to your creditors, pay us fees instead.”

The Court Has Spoken About Problem Areas With Attorney Model Debt Settlement

Recently Judge Sawyer ruled in a bankruptcy case involving now disbarred attorney Keith “Andy” Nelms, who ran the settlement company Allegro Law, that the manner in which the attorney did business created four structural problems.

Back office work was provided by non-attorney firm and the numbers made it impossible for the attorney of record to do the actual work. The first structural problem with the way Nelms did business is that Americorp was doing virtually all of the work, but it was not a law firm and it did not use lawyers to provide services pursuant to its agreement with Nelms and the Allegro companies. Nelms, on the other hand, was a lawyer, but wasn’t doing much of anything that resembled real legal work. To put the matter plainly, Nelms was “fronting” his law license for Americorp. When one considers the math here, it is easy to see the problem. If we consider 15,000 individual consumers and assume for the sake of rough analysis, 5 creditors per individual debtor, we see that Nelms would have had to negotiate 75,000 contracts. Hence, Americorp attempts to fill the gap using Nelms and his law license in name only. In fact, Nelms was deceiving his clients and Americorp was practicing law without a license. Nelms represented to his clients that he was acting as their lawyer and his written contracts with them were styled retainer agreements.
Fees paid out to attorney and non-attorneys before paying creditors. The second problem arises in the payment of fees to Nelms and Americorp. Before any money was paid to creditors, Nelms paid himself and Americorp. As Nelms’ clients are not in bankruptcy and do not have the benefit of the automatic stay, there was no legal right not to pay the creditors. The Circuit Court found that Nelms had deceived his clients regarding the payment of both his fees and the payment of his clients’ debts.
Illicitly diverting funds. A third problem arises in that Nelms collected millions of dollars from clients, not all of which was to be paid for his “front loaded” fees, but rather at least some of which should have been paid to creditors. The Circuit Court found that Nelms and his codefendants “illicitly diverted some of this money to themselves and their families and other businesses.”
Attorney dealings with creditors. A fourth problem arises from Nelms’ dealings with the creditors of his clients. For example, Nelms sent 2,344 identical letters to Chase Bank on behalf of his clients, purporting to dispute the validity of their debts. This was not done in a good faith effort to properly adjust the amount of their debts, but rather to buy time so that Nelms could collect his fees from payments made by clients while temporarily holding creditors off with frivolous disputes as to the amounts owed. In other words, Nelms was taking money for himself which was intended by his clients to be paid to Chase and other creditors. The Circuit Court found that only 58 of 5,453 Chase accounts were settled for less than the full amount of the debt, and that of these 58, 30 were settled directly by the consumers, without any input from Nelms or Allegro. – Source

That judicial comments enlightened me that there may be bigger issues surrounding attorney debt settlement other than just the marketing of those services. It seemed that regardless of state regulations regarding if an attorney was exempt or non-exempt from regulations concerning the sales of debt settlement, there were some sticky professional issues to overcome.

Those issues are interesting on background but not the focus of this article. This article will focus on the lies consumers are told to trick and deceive them into signing on the electronic dotted line and pay thousands and thousands of dollars for worthless debt settlement services from attorney fronted firms.

So Let’s Get to It

These calls were made to three different sale representatives of the same marketing company pretending to be the same real law firm. The marketing company actually owns and runs the websites pretending to be attorneys but they are not the actual attorneys.

Let’s start with what the consumer is told when they call and are sold debt settlement services. As you listen to the calls you will hear that I repeatedly gave the sales representatives all sorts of opportunities to say who they were employed by and did not work for the law firm, yet they insist time and time again that they do.

There is no logical way that any consumer would understand that what is actually happening here is they are speaking to a non-attorney firm employee, who is paid on full commission, to sell them debt settlement services.

It is my opinion that what you will listen to amounts to a massive sales deception through misrepresentation and incorrect facts given to callers under the name of the law firm in order to sell large amounts of debt settlement services.

What Consumers Are Told When Sold Debt Settlement

I’ve made some bulleted notes of what each segment contains. These notes are not transcribed comments, just reference notes so you can see what the clips contain.

The notes marked with * really concerned me. I did find those statements to be questionable, disturbing, inaccurate, untruthful or misrepresentative.

In order to be able to present you with this information I have had to alter the recordings to attempt to mask the voices of the employees.

Remember: These Sales People Are Pretending to Be Law Firm Employees

Who Are You?

J-We_Are_**

We are a law office. *
We offer attorney debt renegotiation.
Reduce debts down to forty cents on the dollar. *

M-Not_a_Settlement_Company

We are not a settlement company. We are a law firm. *
We do all kinds of cases, criminal, civil, black market baby adoption.
Interesting to note he said they would evaluate the situation to determine the best option but they never did on the multiple calls I made. In fact they trashed the other options.

M-I_Work_For_The_Law_Firm

I work directly for the law firm and actual attorneys. *
Sales person insists he is a law firm employee even though I know he is not.

M-It_Is_All_One_Company

I work directly for the attorneys. It’s one company only, not two, three or four. *
Sales person insists it all is one company and they are with the law firm.

M-Work_For_The_Lawfirm

How long have you been with the law firm.
Been doing this for 6 1/2 years.
Interestingly the marketing company he works for has only been around for three years.

C-We_Are_a_Law_Firm

I found you on XXXXXXXX.com. We are a law firm.
We are the premiere debt negotiation law firm in the country. *
Yet another employee insisting they are a law firm.

Are You a Law Firm?

J-We_are_a_law_firm

We are a law firm. We handle other type of cases and you can check us out with the bar association. *
Worked at other debt settlement programs.

What Good Can Come From These Attorney – Debt Settlement Company Relationships?

There is no good, except personal financial gain at the detriment of consumers, that can come from a relationship between a marketing company or affiliates selling debt settlement services and a lawyer with a license to practice law to lose.

Even if it was permissible for an attorney to front a debt settlement company to circumnavigate the laws regulating debt settlement services, it just makes no logical sense to take the risk and entrust the license to practice law to sales representatives and affiliates that are motivated to make the sale at all costs and provide unsupervised and questionable representation that can lead to dire consequences.

I contacted a few debt settlement company executives that had affiliate relationships in the past but discontinued them due to problems with trying to watch over the external representation by others. Here is what those companies had to say, and attorneys, please listen, they speak from experience.

It has been our experience in the last 10 years that when you have outside representatives or affiliates you lose control of the expectations. Specially in the last 3 years with the growth of the industry made up of hard closing, sub-prime mortgage guys that I have found will say things that may not be accurate in order to enroll a client. That is another fundamental problem with the Advance Fee Model-It encourages enrollment more than performance or results. Therefore a client often has huge expectations and end up not experiencing the success possible.

Debt settlement sales has been a BOOMING business! The selling of debt
settlement however, was doomed to fail the consumers being sold into it as well as the back end service providers the sales affiliates push their customers to.
Here is why:
Sales guys sell. That is their function. Unless they are being heavily supervised by the actual provider of the settlement services for accurate and complete representations, the greed factor to make a commission is far too overwhelming.
The companies lose:
Settlement companies that use outside affiliates to sell their wares are generally the ones whose customers are screaming scam on the internet, filing complaints with state and federal regulators, and voicing their displeasure in the media. These companies are getting shut down and the shut down has only just begun. They are forking over sometimes as much as 70% of the client fee over to sales affiliates who amount to nothing more than high paid hucksters! In return they get…. nothing. Unless you count grief as something.
The consumers lose:
Consumers ill suited to attempt settlement are sold a pipe dream by the sales affiliates and lose precious time and resources that could have been expended toward a better option to deal with debt. Not EVERYONE should try settlement! People are better off in bankruptcy, especially chapter 7, than trying debt settlement that was sold to them by “slick rick”.
The majority of misleading ads on television, radio and the internet are paid for, and promoted by, the sales side of the debt settlement industry. The guys selling it are the ones without a vested interest in a consumer’s success nor do they care if the company they refer their customers to survives. If a settlement company goes down that they pushed their sales to, they just find another one and its “game on” all over again. I have been watching this play out for years.

Affiliates and outside marketers bring even greater exposure to the pitfalls of some practices of debt settlement firms. The relationship between a DS company offering back end service with an affiliate office is not the same as a net branch that you find in the mortgage space or franchises like Edward Jones as each office operates entirely independent There is a cautionary tale for how these relationships will affect all parties. The indiscretions of one group will be the downfall of another and consumers are put at risk.

And if you are an attorney that is reading this right now and still does not think that tangling yourself up with a debt settlement company is a bad idea, just picture yourself explaining to your kids why you lost your license when the debt settlement marketing relationship crumbles and throws you under the bus, as it seems to always do.

Sincerely,

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Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.