Debt Relief Industry Marketing Marketing

Representative for Debt Settlement Law Firm Tells Me New FTC Rules Don’t Apply to Them

I was working on another story but I had to share this little nugget with you. Apparently the debt settlement law firm sales representative believes the new FTC Telemarketing Sales Rules apply to debt settlement companies but says they don’t apply to law firms.

It was an interesting approach that the representative was telling me if I went with a debt settlement company they probably would not be around for long. An oh yes, the law firm fee was 18% of the debt settled.

But the way that the – obviously, there’s a fee. Nobody works for free and the attorneys certainly aren’t. However, the way that they break down their numbers is really getting paid out the creditors’ end of it. So, just to give you an idea of who they do it, is they take 46,000 which is your total debt.

They’re saying that you’re going to pay back 58 percent. Okay, which is 26,680. Now out of that 58 percent that you’re actually paying back, 40 percent goes to your creditors and the remaining 18 percent goes to the attorneys. So, 40 percent to your creditors, 18 to the attorneys, after everybody’s paid, you’re still saving…

Here is our exchange:

Me: Is this program like what I’ve heard over the past few days about the new program where you pay once the debt’s settled?

Representative: I am not familiar with that type of program, but that’s referring to a debt settlement company. Okay. Debt settlement companies are a lot different than, what we do here. I mean the process is similar, just because settling with your debt, settling with your creditors is similar no matter how you do it, whether it’s a law firm or a debt settlement company or if you try to do it on your own. The process is you fall behind on the bills. You come up with a lump sum to pay them in a settlement and that’s really how it works across the board.

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The only thing is right now, what’s going on in the debt settlement industry is, there’s a lot of new regulations coming into play where they’re not able to charge an exuberant amount of fees. There’s a limit on how much they can charge. And I think there’s also a regulation that’s coming into play with them, that they’re not able to charge a fee until the debt is actually settled, which is kind of like a catch-22, because it sounds good in theory. But in reality if you had any idea how these processes work, it would be nearly impossible, impossible for any sort of debt settlement company to run like that —

Me: Yeah.

Representative: I think they’re capping the 5 percent fee. They can’t charge anymore than 5 percent of the total debt, and they’re not allowed to collect until the debt’s settled, which could be up to a year or two. So, no company – because – well, because we have a law firm we’re working with that we represent here.

Me: Do the new laws apply to you?

Representative: No, that doesn’t apply to us. That’s different. But if you’re thinking about going through one of those companies, I would really, really think twice about it. Because it sounds good in theory, but chances are you’re going to be paying them for probably six months. And they’re not going to be around anymore because they can’t afford to be. You can’t run a company like that. It’s just impossible.

Me: So, do I pay the fee up front or how does that work?

Representative: The fee is paid throughout the first half of the program.

Me: Okay.

Representative: If you do a 36-month program or let’s just say you do a 2-year program, the fees are going to be paid for the first 12 months. After that, a small fee is taken out for processing and the entire monthly payment goes toward escrow. So, the fee would be paid over the first half of the program depending on what term you choose. If you did a four-year program, it’s going to be paid for the first two years. Two-year program, it’s going to be paid for the first year.

READ  A Law Firm Says They Can Protect Me When I Settle My Debt. - Sherrie

Me: So, I’m sorry [Crosstalk] —

Representative: We incorporate – yeah, go ahead.

Me: Does the – did you say that the first few payments go to pay fees or something?

Representative: The first three payments that you make into the law firm, the very first three that you make, go towards paying down the attorney’s retainer.

Me: Okay.

Representative: From month three, beginning in month four is when money starts being saved in escrow.

So It is Still Sales As Usual

So from the call you can see I was pitched the same old advance or front loaded fee program but what was truly the most surprising was the position that the new rules did not require the “law firm” to comply with them.

It is still early days in the implementation of the new rules and we’ll have to see what happens as we draw closer to the implementation of the new FTC Telemarketing Sales Rules but for now, it appears to be business as usual.

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

About the author

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.


  • Hello Marvin,

    There are two possibilities. Either the person that told you that is clearly misinformed or the person is simply not telling you the truth to sell you a program that you likely don’t need.

    The new Law specifically targets law firms as well. They are not outside the scope of the new compliance regulations and if they are telling you that they will not apply to them, then the best advice I can give you is to not do business with them.

  • I am being told that if the firm I am dealing with is not a law firm, the new law will shut them down! Is this true that only law firms will be allowed to settle debts

  • I think you have a lot of firms that aren’t even really paying attention to what is going on because they have this mistaken belief that as long as they sell a consumer into an “attorney” model, they can keep ripping people off with their front loaded fee structure.

    They are going to continue to do that until after the law goes into effect, and some major law firms that are doing this are nailed and held out as examples. Then they will get the message loud and clear, and the panic will ensue.

  • Well Steve, it sounds to me that this is really someone that isn’t fully up to speed about the new rules that don’t take effect until Oct. (at least for the advance fee ban part of it). It would be fair to look at how companies are handling this needed change in the month to come, not 3 or 4 days after the 200+ page rules were released. Of course there are other parts of the conversation that I have problems with. Mainly the lack of proper training but you have that in every industry.

  • So…unless I’m overlooking it, you didn’t give your opinion on the matter? Many in the industry still believe that they’ll “fly by” with the attorney model. I’ve heard they plan to sell as normal, then have an attorney 3-way phone conversation where the attorney approves the said client. It’s my belief that this isn’t going to fly through considering the sales tactics and marketing will be identical. It’s still charging fees up front??? I’ve also been told that attorneys are safe because the FTC doesn’t monitor them, but that the bar does? It’s getting confusing. What is your take on this?

    • Let me direct you to these previous articles that cover the attorney model.

      If anyone believes the new telemarketing sales rules don’t cover attorneys, they would be mistake, especially in the example you gave.

      See my review of the TSR and scroll about 30% down the page and there is a section about coverage of attorneys.

      From this article:

      “In addition, the FTC states that “it is important to retain [TSR] coverage for attorneys, and those partnering with attorneys, who principally rely on telemarketing to obtain debt relief service clients, because they have engaged in the same types of deceptive and abusive practices as those committed by non-attorneys.” The FTC also states that its decision to not grant an exemption to attorneys from the Final Rule is consistent with the existing scope of the TSR and several other statutes and FTC rules designed to “curb deception, abuse and fraud.”


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