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Franklin Debt Relief Worried Debt Settlement Fees Will Be Controlled By Credit Card Companies

Franklin Debt Relief sent out the press release I’ve published below. In the release they announce they will comply with the new FTC rules on debt settlement. Smart move.

But then there is this statement, “The scary part of this [FTC TSR] is the control it gives to banks over the debt relief industry. After seeing how they treat the thousands of consumers with credit card debt who have hit hard times and contacted us, I’ll always be skeptical about giving them more power.”

I think what Franklin Debt Relief has missed is they are only a service provider and they have never had any control or power over creditors.

Until these new consumer protection rules passed debt settlement companies charged consumers a percentage of all the debt they enrolled, even if the creditor never eventually settled. That was scary. Companies made loads of money for services never delivered and consumers financially suffered as a result.

So Franklin Debt Relief is going to be upset that their income is now going to be determined by the work they actually do deliver and settlement agreements they actually achieve? If you are a consumer focused operation you should be applauding the new protection.

The new Federal Trade Commission rules don’t shift any power to creditors nor give them any control over fees. If creditors want to settle a debt, they can. If they don’t want to they don’t have to. That’s always been the case. The new rule is put in place to protect consumers from debt relief providers, not force creditors to do a damn thing.

If a creditor didn’t want to settle a debt yesterday and does not want to settle after the new rules go into force, the only thing is the now the debt settlement company won’t be able to charge the consumer for a service they could not deliver. Is that really the shame Franklin Debt Relief wanted to complain about in their release?

“Allowing creditors to determine when and how much debt settlement companies are paid will disturb the balance of power and alignment of interests in negotiations,” says Franklin CEO, Robert Zangrilli. “The nature of the relationship between banks and debt settlement companies will always be adversarial no matter how you look at it or how companies charge fees, but by tying fees into the savings realized by consumers, you’re allowing debt settlement’s biggest opponent to determine their income.”

The balance of power? Really? Because you never had any power over the creditors to begin with. And what’s that about alignment of interests changing? Your interests should have always been to provide consumers with the best possible advice and service, how do the new rules change that?

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The new rules do not limit fees that can be charged. They only limit the way fees are charged. Now the consumer will not have to pay until the service sold by the debt settlement company is actually delivered. If a debt settlement company is worried about enrolling a bunch of debt into a program they know they won’t get paid on, gee, how about not enrolling those accounts?

I also take exception to the statement that the relationship between banks and debt settlement companies needs to be adversarial. There are debt settlement companies that have good relationships with creditors and know what their policies are. It does not have to be adversarial, it can be a cooperative relationship, that is unless the debt settlement company is intentionally telling consumers not to pay the creditors and send the money to the debt settlement companies instead. Yea, that’ll make it adversarial.

If there has been any shift in power here it is not to the banks, it it to the consumers. People now must only be charged for service promises delivered and that’s a good thing.

Sincerely,


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The Franklin Debt Relief Press Release

Franklin Debt Relief Worried About Future of Industry with New Debt Settlement Laws but Willing to Comply

Franklin Debt Relief, a leading debt settlement company operating nationwide, announces its support of new debt settlement laws, but is concerned that the future of the industry will be jeopardized by allowing their fees to be controlled by the credit card companies.

Chicago, IL (PRWEB) September 13, 2010

After investigating the debt settlement industry for over a year, the FTC chose recently to adopt new rules and perhaps most controversially, an up-front fee ban for debt relief programs. By doing so, debt settlement companies will be forced to only receive fees upon the successful resolution of their clients’ accounts. Franklin Debt Relief, a leading debt settlement company, has come out in support of much of the new rule, but expressed clear concern over the impact an up-front fee ban will have on the future of the debt settlement industry.

“Allowing creditors to determine when and how much debt settlement companies are paid will disturb the balance of power and alignment of interests in negotiations,” says Franklin CEO, Robert Zangrilli. “The nature of the relationship between banks and debt settlement companies will always be adversarial no matter how you look at it or how companies charge fees, but by tying fees into the savings realized by consumers, you’re allowing debt settlement’s biggest opponent to determine their income.”

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Franklin Debt Relief intends to comply with the new rules for debt relief services, and in fact, estimates that their revenues will increase by moving to a contingency fee model. Statistics from the company last month show their average settlement was 33% of the original balance, which would result in a fee of nearly 17% of the original balance if they were charging their clients a fee of 25% of the savings realized. Currently the industry average fee is 15% of the debt a consumer owes upon enrollment into a debt settlement plan.

“We know we deliver results and that we can continue to be profitable under a contingency fee model. The bad companies on thse other hand will go out of business, as will some of our smaller competitors. We’re definitely excited about the opportunities this will open up for us,” Zangrilli adds. “The scary part of this is the control it gives to banks over the debt relief industry. After seeing how they treat the thousands of consumers with credit card debt who have hit hard times and contacted us, I’ll always be skeptical about giving them more power.”

###

Robert Zangrilli
Franklin Debt Relief
312-445-4700

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30 thoughts on “Franklin Debt Relief Worried Debt Settlement Fees Will Be Controlled By Credit Card Companies”

  1. I have written a few articles, submitted public commentary, written to Senators, submitted to some of the largest card issuers, the following:

    Debt Settlement, based on all available data, for the consumer who cannot and/or should not enroll in a DMP, but otherwise cannot continue timely payments; Affords the best return to creditors/assignees/purchasers. By a wide margin. As Sean puts it – The beans are the beans.

    I have obviously presented the facts differently than I do here, but the message boils down to that.

    Further, I have combined the math to show that other than chapter 7, settlement (aggressive settlement mind you – not 3 yr plus programs) represents the quickest path to recovery at the national level when considering the demographic that has been pounded the hardest this past decade and certainly the last 3 years; Middle Class.

    I see nothing on the horizon that would adjust the figures to support any other contention than what we see today (unless it is to further my point, i.e. increased BK figures)

    Even the ill fated 60/60 plan, were it to gain traction, would push individual and bank recovery out to a longer slog than our economy needs right now, when looking with a macro view to the individual consumer and their consumption and spending.

    What would help is a 40/40 plan or a 30/30 plan, which is to say; 40% of the balance stretched out over 4 monthly payments or 30% of the balance stretched out over 3 monthly payment (which we see with some issuers now).

    Reply
  2. Mike- You are correct. But time and experience has proven we should o.k.- Every year a credit card or issuing bank, simply STOPS dealing with settlement companies. This year it was Chase. I understand their reasons (i think). But, as you say, they are “earnings driven” and, therefore their bean-counters will dictate policy. Chase will find that their decision not to settle through third parties ends in more charge offs, not less, and ultimately costs them money.
    I believe that performance driven companies will end up working well with collections in the end. Things, in my opinion, will improve.
    Regards-

    Reply
  3. You all make good points, so I’ll leave you with this; the current state of affairs in the US economy is cause for much change, money make the world go round and when it stops moving, things change. Look at interest rates, have these lows caused stimulation? When lenders aren’t lending and borrowers (who can) are not borrowing, anything is possible. These large institutions are earnings driven, it’s all about the bottom line and if one changes policy that proves successful, most of the time, they all follow suit.

    A good example of this is the mortgage lending industry, did we see dramatic change? You bet we did, in both directions! One lender came out with a program that caused a stir and everyone followed suit. Once the mess was created the same thing happened in reverse to unwind it. Change is always on the horizon, and if you think things get better before they get worse, well, I beg to differ, but that’s a chat for another day.

    Michael Reilly, CDS
    Emerge America
    http://www.emergeamerica.com

    Reply
  4. Hey Sean, we haven’t always been performance based, we had a flat fee model until about April 2010. We offered all of our existing clients the opportunity to switch to the perf. based fee structure, about 70% did, and we prorated and calculated any fees and settlements paid so it was like they were in that program from the beginning.

    On this topic, we have found that communication with law firms, collectors, and debt buyers has improved a lot. The original creditors, they still don’t care, they have a collection system and nothing gets in the way of that. They only understand cash.

    Reply
  5. I agree- Like Andy Faria, we have always been performance based- It simply hasn’t occurred to us to even look at a flat fee model. In the unlikely event that things change that drastically (70% ave settlements) we would have to look at that possibility then… However, the system on the side of creditors is very unlikely to change. It is our opinion, as well, that it will not become necessary.

    Reply
  6. Damon, you know as well as I, most in the DS industry will be gunning for term settlements in an effort to earn fees early on. That’s where the rubber meets the road. Recently and on several occasions, I have spoken with the CEO’s of two major debt buyers (I’m talking billions, 1 private & 1 public), both also provide outsourced collections. Anyway, both firms have the ears of the majors (creditors) and when I tell you the words Debt Settlement strikes a sour note, I mean sour!

    Time will tell.

    Reply
  7. Mike,

    I hear the point but having been involved in the debt relief world since 1994, in my experience, it is a non-factor.

    Creditors are process driven beasts. They don’t have policies and procedures to deal with individual companies and would rather get paid than not paid before charge off, a function beyond their control.

    Would a debt buyer that purchased a bad debt for 10% want to hold out for more, probably so but that is more because they can rather than they no perceive they have some imaginary power.

    If a creditor wants to get paid the power remains with the person with the cash to pay them and the policy in place to accept certain payments. I’ve personally seen Capital One turn down an offer than was ten cents short, not because they were trying to shift power, but because the offer just didn’t cross the threshold in the computer.

    Bottom line is if a creditor does not want to settle, for whatever their reason is, they don’t have to and never have had to. Nothing has changed in that equation.

    I hear people talking about this alleged power shift but it seems to be more of a rallying message among debt settlement companies than a reality.

    Reply
  8. Mike,

    I have direct experience using a success fee for debt settlement services for the past 5 years.
    It works & works well.

    Perhaps the concern issued in the release by Franklin, which has been raised before, has some validity with those whose debt settlement experience revolves primarily around dealing with portfolio purchasers and the 3rd tertiary collection phase. Maybe the thinking is that purchasers will hold out for a 5-10% bump.

    When a service provider gets paid should not affect the math used by:

    Original Creditors attempting to maximize recovery pre and post charge off.

    Assignees metrics and performance goals given the parameters they have dictated to them by the original creditor.

    Purchasers metrics and portfolio performance time lines and margins.

    The real time value of money will apply across the spectrum.

    I will go so far as to suggest that service providers a year from now will be far more legitimized and may find better working relations – not worse.

    Reply
  9. Hey Mike,

    Certainly only time will tell, but the reality seems to be that a creditor can do whatever a creditor wants, whenever they want. These upfront fee models typically meant that the original creditor was not getting a settlement before charge off anyway and thus they didn’t even have a chance to make an offer. The bottom line is the banks want to get paid sooner rather than later. Unless the banks change the entire process of how debts are collected, then I don’t see how this can create much of a power shift. Typically the debts are going to get sold off at one point. Therefore if they wanted to hold out as a way to “spite” a debt settlement company, in most cases it could only be for a certain amount of time.

    My theory is that banks care much more about getting paid money than trying to spite a debt settlement company. Only time will tell, but I see this law benefiting creditors, settlement programs and consumers alike.

    Reply
  10. In my humble opinion, I think Robert’s statement can become reality. There has been a shift, no arguing that, (read the TSR), the question is; will it be realized? Should creditors decide against playing ball, hold out longer than normal, steeper term settlements or increased legal action it could lead to higher settlements in favor of the creditors. Clearly these actions would cause a revenue issue for most firms both young and old. Could we see typical 40-50% averages become 60-70%? It’s certainly in the realm of possibilities. This will end up forcing more DS companies to initiate a “flat fee” performance structure as compared to a percentage of savings model.

    Michael Reilly, CDS
    Emerge America
    http://www.emergeamerica.com

    Reply
  11. In my humble opinion, I think Robert’s statement can become reality. There has been a shift, no arguing that, (read the TSR), the question is; will it be realized? Should creditors decide against playing ball, hold out longer than normal, steeper term settlements or increased legal action it could lead to higher settlements in favor of the creditors. Clearly these actions would cause a revenue issue for most firms both young and old. Could we see typical 40-50% averages become 60-70%? It’s certainly in the realm of possibilities. This will end up forcing more DS companies to initiate a “flat fee” performance structure as compared to a percentage of savings model.

    Michael Reilly, CDS
    Emerge America
    http://www.emergeamerica.com

    Reply
    • Hey Mike,

      Certainly only time will tell, but the reality seems to be that a creditor can do whatever a creditor wants, whenever they want. These upfront fee models typically meant that the original creditor was not getting a settlement before charge off anyway and thus they didn’t even have a chance to make an offer. The bottom line is the banks want to get paid sooner rather than later. Unless the banks change the entire process of how debts are collected, then I don’t see how this can create much of a power shift. Typically the debts are going to get sold off at one point. Therefore if they wanted to hold out as a way to “spite” a debt settlement company, in most cases it could only be for a certain amount of time.

      My theory is that banks care much more about getting paid money than trying to spite a debt settlement company. Only time will tell, but I see this law benefiting creditors, settlement programs and consumers alike.

      Reply
      • Damon, you know as well as I, most in the DS industry will be gunning for term settlements in an effort to earn fees early on. That’s where the rubber meets the road. Recently and on several occasions, I have spoken with the CEO’s of two major debt buyers (I’m talking billions, 1 private & 1 public), both also provide outsourced collections. Anyway, both firms have the ears of the majors (creditors) and when I tell you the words Debt Settlement strikes a sour note, I mean sour!

        Time will tell.

        Reply
    • Mike,

      I have direct experience using a success fee for debt settlement services for the past 5 years.
      It works & works well.

      Perhaps the concern issued in the release by Franklin, which has been raised before, has some validity with those whose debt settlement experience revolves primarily around dealing with portfolio purchasers and the 3rd tertiary collection phase. Maybe the thinking is that purchasers will hold out for a 5-10% bump.

      When a service provider gets paid should not affect the math used by:

      Original Creditors attempting to maximize recovery pre and post charge off.

      Assignees metrics and performance goals given the parameters they have dictated to them by the original creditor.

      Purchasers metrics and portfolio performance time lines and margins.

      The real time value of money will apply across the spectrum.

      I will go so far as to suggest that service providers a year from now will be far more legitimized and may find better working relations – not worse.

      Reply
    • Mike,I hear the point but having been involved in the debt relief world since 1994, in my experience, it is a non-factor.Creditors are process driven beasts. They don’t have policies and procedures to deal with individual companies and would rather get paid than not paid before charge off, a function beyond their control. Would a debt buyer that purchased a bad debt for 10% want to hold out for more, probably so but that is more because they can rather than they no perceive they have some imaginary power. If a creditor wants to get paid the power remains with the person with the cash to pay them and the policy in place to accept certain payments. I’ve personally seen Capital One turn down an offer than was ten cents short, not because they were trying to shift power, but because the offer just didn’t cross the threshold in the computer.Bottom line is if a creditor does not want to settle, for whatever their reason is, they don’t have to and never have had to. Nothing has changed in that equation.I hear people talking about this alleged power shift but it seems to be more of a rallying message among debt settlement companies than a reality.

      Reply
      • I agree- Like Andy Faria, we have always been performance based- It simply hasn’t occurred to us to even look at a flat fee model. In the unlikely event that things change that drastically (70% ave settlements) we would have to look at that possibility then… However, the system on the side of creditors is very unlikely to change. It is our opinion, as well, that it will not become necessary.

        Reply
        • Hey Sean, we haven’t always been performance based, we had a flat fee model until about April 2010. We offered all of our existing clients the opportunity to switch to the perf. based fee structure, about 70% did, and we prorated and calculated any fees and settlements paid so it was like they were in that program from the beginning.

          On this topic, we have found that communication with law firms, collectors, and debt buyers has improved a lot. The original creditors, they still don’t care, they have a collection system and nothing gets in the way of that. They only understand cash.

          Reply
        • You all make good points, so I’ll leave you with this; the current state of affairs in the US economy is cause for much change, money make the world go round and when it stops moving, things change. Look at interest rates, have these lows caused stimulation? When lenders aren’t lending and borrowers (who can) are not borrowing, anything is possible. These large institutions are earnings driven, it’s all about the bottom line and if one changes policy that proves successful, most of the time, they all follow suit.

          A good example of this is the mortgage lending industry, did we see dramatic change? You bet we did, in both directions! One lender came out with a program that caused a stir and everyone followed suit. Once the mess was created the same thing happened in reverse to unwind it. Change is always on the horizon, and if you think things get better before they get worse, well, I beg to differ, but that’s a chat for another day.

          Michael Reilly, CDS
          Emerge America
          http://www.emergeamerica.com

          Reply
          • Mike- You are correct. But time and experience has proven we should o.k.- Every year a credit card or issuing bank, simply STOPS dealing with settlement companies. This year it was Chase. I understand their reasons (i think). But, as you say, they are “earnings driven” and, therefore their bean-counters will dictate policy. Chase will find that their decision not to settle through third parties ends in more charge offs, not less, and ultimately costs them money.
            I believe that performance driven companies will end up working well with collections in the end. Things, in my opinion, will improve.
            Regards-

          • I have written a few articles, submitted public commentary, written to Senators, submitted to some of the largest card issuers, the following:

            Debt Settlement, based on all available data, for the consumer who cannot and/or should not enroll in a DMP, but otherwise cannot continue timely payments; Affords the best return to creditors/assignees/purchasers. By a wide margin. As Sean puts it – The beans are the beans.

            I have obviously presented the facts differently than I do here, but the message boils down to that.

            Further, I have combined the math to show that other than chapter 7, settlement (aggressive settlement mind you – not 3 yr plus programs) represents the quickest path to recovery at the national level when considering the demographic that has been pounded the hardest this past decade and certainly the last 3 years; Middle Class.

            I see nothing on the horizon that would adjust the figures to support any other contention than what we see today (unless it is to further my point, i.e. increased BK figures)

            Even the ill fated 60/60 plan, were it to gain traction, would push individual and bank recovery out to a longer slog than our economy needs right now, when looking with a macro view to the individual consumer and their consumption and spending.

            What would help is a 40/40 plan or a 30/30 plan, which is to say; 40% of the balance stretched out over 4 monthly payments or 30% of the balance stretched out over 3 monthly payment (which we see with some issuers now).

  12. Bingo!

    Andy Faria breaks loose a tackle… leaps over a middle line backer… picks up a blocker… heads for the sideline…. He-could-go-all-the-way…. TOUCHDOWN!!!

    The home town debt settlement service crowd is quieted by the display of blunt logic the Faria team brought with them today….

    Reply
  13. I can’t figure out their angle with this PR. What do they gain by making this comment? It’s not going to prompt the FTC to rescind the TSR.

    In our experience the premise that creditors now have “increased leverage” is simply NOT TRUE.

    We actually make mention that we are performance based in all written and verbal correspondance with creditors. We have found that communication with creditors has greatly increased as a result of this. With increased communication our clients face less harrassment and overall better service.

    Reply
  14. I can’t figure out their angle with this PR. What do they gain by making this comment? It’s not going to prompt the FTC to rescind the TSR.

    In our experience the premise that creditors now have “increased leverage” is simply NOT TRUE.

    We actually make mention that we are performance based in all written and verbal correspondance with creditors. We have found that communication with creditors has greatly increased as a result of this. With increased communication our clients face less harrassment and overall better service.

    Reply

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