Business Models Debt Relief Industry Regulation / Legislation

Trying to Get Around Debt Settlement Rules By Calling Advanced Fee a Retainer. Not So Fast Bucko.

One of the rumors I’ve heard lately is from some debt settlement companies that claim they are going to get around the ban on advance fees, starting October 27, 2010, for debt settlement by calling the fee they will ask for, a retainer.

The argument goes something like this. “But because I’m an affiliate of an attorney I can charge a retainer when the person signs up. We’ll then charge that retainer account for services we provide before we settle debts.”

Photo: Max Braun

I went to the oracle on this. otherwise known as FTC attorney Allison Brown. Allison said, “Telemarketers of debt relief services are prohibited from collecting any fees in advance, including partial fees for opening a file, calling a consumer’s creditors, or other activity. The rule says clearly that they may not receive ANY FEE in advance of settling at least one debt. Telemarketers who are attorneys are not exempted — regardless of whether they label themselves as employing an “attorney model” or claim to be collecting a “retainer.”

However, attorneys engaged in the bona fide practice of law are likely to be exempt from the TSR for two reasons. First, the TSR only applies to providers who use interstate telemarketing. Second, providers — including attorneys — who meet with their clients face-to-face before signing them up are likely exempt from most of the Rule’s provisions. Accordingly, these attorneys who fall outside of the Rule may collect fees in advance, using a retainer model or other methods.”

In case anyone needs for me to read between the lines here, it appears clear that an affiliate attorney model relationship does not escape these rules. That is of course unless you make the consumer schlep to the attorney office and meet face-to-face and did not talk to them on the phone out of state. But if the affiliate used any sort of intrastate telemarketing it appears they would run afoul of the FTC TSR and a solid argument could be made that the retainer would not be allowed.

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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.


  • The problems Legal Helpers has with the TSR in my opinion is this-
    1- Brick & mortar inc a face to face meeting could avoid the TSR, but selling it (phone room, etc) from another state violates it- Applies to intrastate telemarketing. I sincerely doubt face to face meetings will take place with attorneys to sell this…. but they will need a lawyer in every big city, not just each state to do it… Then the lawyer would have to be willing to meet with client to review & sign retainer- A retainer where the lawyer in the state provides no representation or litigation, has to (in good faith) explain that in order for the client to get out of debt, they have to save the money themselves and have it available when offers come in (how will their negotiators know what they are negotiating for???), AND explain thatall the work is done by a third processor & NOT the lawyer they are meeting with.
    2- Fee splitting- Only lawyers can split fees with lawyers- LegalHelpers currently has affiliates & it’s my understanding that they will maintain affiliate sales companies to sell for them. (however, i don’t know their plans on how they would pay the affiliates)
    3- Their plan most likely will hurt consumers and their lawyers will have problems when the complaints come rolling in!
    My understanding is that brick & mortar does NOT avoid the TSR. If the call comes across state lines, the TSR applies- If the TSR applies, they are selling Debt Settlement Services, charging upfront fees & therefore, violating the TSR. Elizabeth Warren can get $16,000 per violation….? The Federal Gov needs all the money it can get so my guess is… They’ll be coming!

  • Dsguy, are you a rep or an owner of the company? Andy made a great point about the Deadliest Catch. They spend on their marketing to find a hardworking crew, and pay for all their expenses while at sea, hoping to find that jackpot to make their trip profitable. Imagine if it was the other way around where, everyday they stay out at sea they get a check wired to their bank. Do you think they will work harder to catch a jackpot or just catch what they can if they come back empty handed oh well they got paid already. Imagine hiring a contractor to remodel your bathroom and you paid him upfront before the work is completed, do you think he will make sure that bathroom will be completed by its stated deadline? Point is this, if your a rep, than I don’t blame you for thinking this is BS because your boss trained you differently on how his business model works. Why is that there is companies out there that is already doing performance model for years and seems to be just as successful in this industry. And the sad part is that they are the ones hurting the most because now they are scrutinized with so much bad press when all this time they were doing business the right way. Imagine working so hard to be a reputable doctor and over 90% doctors are known to be crooks, would you like to be labled the same as the bad apples when you are actually the good guys? Not fair right? So my suggestion is to try the performance model if you are serious about staying in this industry, and if its costing you too much to stay in the biz than its not the right biz for you to stay in, its that simple.

  • You may be right, a small advance fee to cover costs sounds fair, but here’s the problem.

    First of all, there’s now a rule against it. No matter what you say, I say, or anybody says, that’s just the way it is and it’s not changing. If there are any fees charged prior to a settlement, it’s not legit. Even if it’s called a retainer, maint. fee, or donation, it doesn’t matter. The performance based business model is not impossible, in fact many industries use it.

    Have you ever seen The Deadliest Catch? Those guys get on board a fishing boat and spend weeks at sea. They spend thousands on fuel, food, and bait, but they have no idea what they will catch. They may hit the jackpot and the entire crew makes a years salary in five weeks, other times they make a thousand bucks each for five weeks bouncing around the arctic ocean. That’s just business, and regulators will always side on placing the risk on the business, not the consumer. This type of performance model is standard througout many industries worldwide.

    The debt settlement industry had plenty of time to prepare for this transition to a performance based model, they didn’t, instead they fought any kind of regulation on advance fees whatsoever, with trade associations TASC and USOBA leading the charge. If they had worked with regulators, instead of in total opposition, a small monthly maintenance fee may have been allowed in the final rule.

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