Business Models Debt Relief Industry

Debt Settlement Fee Structure in Relationship to Client Success Rates

Debt settlement industry insider Scott Johnson sent me this interesting chart based on the numbers he has reviewed from the different models.

His data shows consumers are graduating at higher rates and getting lower settlements from performance based debt settlement companies.

He determined, a performance based debt settlement model will result in 57.5% of consumers paying back between 57% – 75% of their debt while 42.5% will fail. That’s a great success rate as compared to his 90% failure rate on the advanced fee models.


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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.

51 Comments

  • Again Errick, I’m just explaining my side while trying to understand yours. That’s all. My company has 5 employees- We do our best. I can’t speak for Care One.

  • You can ask. I’m the person who is saying things no one has denied yet. I have 20+ years in the addition and multiplication industries. And I say Care One runs the 45+15=50 scam, and if he doesn’t where is he to deny it? Or anyone willing to take his side?

  • Errick-
    Again, I’m certain that there are companies who may do debt settlement the way you said- Most have a bad reputation that was certainly earned.

    I’ll say this, though (and 20+ years in sales to back it up), retention of a client is far less costly than new client acquisition. My company is only 4 years old. We shut our sales room down about a year ago, so in our case we DEFINATLY concentrate on continuing to settle clients debt- we have to or we would already have shut our doors.

    I believe the company you are speaking of has more than half of their employees telecommuting. I wouldn’t usually put their business out there but I’m relativly sure I read that in Time Magazine.

    Can I ask you what your background is in “debt relief”?

    Thanks,
    -Sean

  • It is the practice where debt settlement companies get 50 cents on the dollar from the customer, take 15 cents as a fee, then settle for 45 cents on the dollar, which slowly squeezes the customer and forces them off of the program before they get cranky and unprofitable. Sometimes they then get steered into paying again for bankruptcy.

  • That’s precisely what I’m trying to say, that the new fee regime makes the 45+15=50 scam less profitable, but still very profitable. And the FTC eliminates competition because the regulation makes the best closer the winner.

    I’m also trying to get people to understand exactly how to tell the difference between a legitimate operation and an illegitimate one. All you have to do is count the people.

    Let’s say that for every 1000 clients a certain debt settlement company closes, they enroll about 5000-9000 accounts. Let’s say 5000 accounts to be charitable.

    How many people do you need to service 5000 accounts? Let’s say, again being very charitable, you need two labor hours to do all the intake, tracing, negotiation, documentation, and management to close an account. So, every 1000 clients needs 10,000 labor hours. At 1800 hours per FTE, you need six people to service 1000 clients.

    Believe me, that’s a ridiculously low number. Like I said, real debt settlement is really hard.

    So how many people should a yet-to-be-named debt settlement company with 50,000 clients have? THREE HUNDRED. At least. So if you go in there and find only 100-150 people, guess what? Success is not an option, and unless you failed arithmetic, you can’t not know it.

  • No- I get it. I disagree with your thoughts though, unless you’re in business for the quick hit & run. Im certain there are some who run their businesses that way but not everyone.

  • What about flat fee performance based, 12-20% based on the total debt enrolled at enrollment?

    Settlement percentages are based on the (rising) debt amount at settlement or the original at enrollment?

    It’s all good Scott!

  • Wow, sounds like somebody needs a juice box and a nap. I have no lawsuit, and I wasn’t insulting anyone who doesn’t fit my description.

    Since we’re all pretending you don’t understand what I’m talking about, I will “answer” your “question” about why you wouldn’t want to go the distance and finish your customers’ plans. Hope you’re sitting down for this one.

    IT’S TOO HARD.

    Say you had the choice of spending 50 percent of your revenue, working day in and day out to build a huge team of negotiators and managers, or you could just fake it and take the low hanging fruit for 10 percent? Wouldn’t you accept less revenue from each customer to increase your margin by 40 points? What sane person wouldn’t? Business 101: the goal of the established business is to increase profitability, chiefly by reducing costs in a competitive environment.

    If it makes you feel any better, at least I still think you’re only playing dumb.

  • Im looking at your math & you have it wrong.

    Lets say we settle the clients account at 30%- $9000
    Savings = $21,000
    Fee (30% of savings) = $6,300
    Total to client = $15,300
    Total as a % of enrolled debt= 51%

    Lets say we settle the clients account at 40%- $12000
    Savings = $18,000
    Fee (30% of savings) = $5,700
    Total to client = $17,700
    Total as a % of enrolled debt= 59%

    Lets say we settle the clients account at 50%- $15000
    Savings = $15,000
    Fee (30% of savings) = $4,500
    Total to client = $19,500
    Total as a % of enrolled debt= 65%

    I have no idea how Care One does it. But that’s how we do it. As you can see, we have a vested interest in saving our clients as much as possible.

  • That doesn’t work in my model.

    But what if you can’t get the creditors to accept $12,692?

    Then we make 30% of the savings, what ever the savings are.

    What if you never could?

    Statistically, we can, but we dont guarantee it. We are very clear that settlement is not exact science & past performance may not prevail in any particular case.

    What if you know from your own statistics that you never have?

    We know in our statistics that we do.

    What if you are not even trying to do it?

    Why wouldnt we try? The more $ we save our client, the more we make- so we do try.

    What if you were, as the class action lawyers against Care One in Florida allege, you are actively concealing from me that you are not even trying?”

    We do try. See answer above.

    In 4 years, we have less than 500 clients- so we are not making it up in volume. In the last year, we had 2 judgments. Of course you can be sued, you have defaulted on your debt payments. If you lose, we dont get paid. At what point has my model hurt the consumer?

    Errick- Your last 2 comments, implying that our clients are scammed & that you may have to outline your description here in stick figures are callous. Your example holds NO merit and no where did I insult you.

    Good luck with your lawsuit.

  • Okay, Let’s try it this way. You’re the debt relief provider and I’m the customer with $30,000 in enrolled debt. You sign me up to pay $550/month for 30 months, or $16,500 total. Your fee is 30 percent of the savings from the original balance, which is TSR compliant, right? Still with me?

    Now, in order to ACTUALLY do that, you have to get my creditors to accept NOT $16,500, but $16,500/(1+0.30) = $12,692. The remaining $3808 is your fee. Problem yet?

    But what if you can’t get the creditors to accept $12,692? What if you never could? What if you know from your own statistics that you never have? What if you are not even trying to do it? What if you were, as the class action lawyers against Care One in Florida allege, you are actively concealing from me that you are not even trying?

    Still following? Since I am unlikely to avoid lawsuits and bankruptcy anyway, it is actually MORE profitable for you to get some easy success fees up front, knowing I will either be sued or miss payments eventually anyway, for which I can’t blame you. You didn’t do those things to me, you just counted on other people to beat me away before I realized I was being scammed.

    As the saying goes, you will make less off of each sale, but you’ll make it up in VOLUME.

    I may have to do this in stick figures if you can’t figure it out now.

  • I know much more needs to be included, but I still want to see Errick’s basic calc. I do remember reading it somewhere before but I don’t remember specifically. I am hoping to understand it as it would apply to my model.

  • Q. There must be many assumptions to these calculations

    Calculation formulas

    Graduation

    X = Total Consumers enrolled
    Y = Consumers that settled all their Debt
    Z = Percent of client that graduated

    Y / X = Z

    Client retention after 12 months

    A = Total client enrolled Month 1
    B = Client still active from month 1 – 12 month later
    C = percent of active clients

    B / A = C

    Settlement Average at time of Settlement

    M = Total Current Balance
    N = Total Dollar paid by consumers
    P = Average settlement percentage

    N / M = P

    For more information on Data analysis please refer to http://www.ftc.gov/os/comments
    or
    http://www.ftc.gov/os/comments

    ….to understand this I would need to see them all.

    There were 3 only the used. I hope this helps

    Without them, it’s like a weather man saying “tonight expect it to get dark”

    Bob Dylan answered this Best “You don’t need a weatherman to know which way the wind blows”.

  • How exactly does a different fee structure lower settlements?

    The simple answer to this is based on accretion, as debt will continue to grow over a period of time due to several factors
    Late fees
    Over limit fees
    Increased interest rates
    Continual interest rates
    Attorney fees

    If a consumer’s contributions to a debt relief program are applied to the provider’s fees in the initial months there is a decrease in settlement opportunity and thus the typical debt settlement client will pay a higher rate when funds become available. Testimony that has been presented to regulators has indicated a >20% accretion rate at time of settlement.

    Example 1

    Account 1
    Balance $1,000.00 x 20% accretion = $1,200.00
    $1,200.00 balanced settled @ 50% = $600.00
    True cost to consumer 60% of original balance + Providers fees

    More detailed explanation can be found at http://ftc.gov/os/comments/deb

    EXTRA CREDIT: What is the success rate of customers who only pay 50 to 55 percent of their debts to a program that succeeds in settling at no less than 57 percent?

    This is one way the advance fee ban will align the goals of the client and debt relief provider. As the fees paid by a consumer will be portioned to the results they receive. Failure rates a majority of the time are beyond the control of the debt relief provider. A consumer that is qualified at the time of the enrollment could have life changing events that make them unable to complete their program. So if they only settle 50% of the enrolled debt and paid accordingly I believe this is a positive result.

  • There must be many assumptions to these calculations….to understand this I would need to see them all. Without them, it’s like a weather man saying “tonight expect it to get dark”

  • There must be many assumptions to these calculations….to understand this I would need to see them all. Without them, it’s like a weather man saying “tonight expect it to get dark”

    • Q. There must be many assumptions to these calculations

      Calculation formulas

      Graduation

      X = Total Consumers enrolled
      Y = Consumers that settled all their Debt
      Z = Percent of client that graduated

      Y / X = Z

      Client retention after 12 months

      A = Total client enrolled Month 1
      B = Client still active from month 1 – 12 month later
      C = percent of active clients

      B / A = C

      Settlement Average at time of Settlement

      M = Total Current Balance
      N = Total Dollar paid by consumers
      P = Average settlement percentage

      N / M = P

      For more information on Data analysis please refer to http://www.ftc.gov/os/comments/tsrdebtrelief/543670-00319.pdf
      or
      http://www.ftc.gov/os/comments/tsrdebtrelief/index.shtm

      ….to understand this I would need to see them all.

      There were 3 only the used. I hope this helps

      Without them, it’s like a weather man saying “tonight expect it to get dark”

      Bob Dylan answered this Best “You don’t need a weatherman to know which way the wind blows”.

      • What about flat fee performance based, 12-20% based on the total debt enrolled at enrollment?

        Settlement percentages are based on the (rising) debt amount at settlement or the original at enrollment?

        It’s all good Scott!

    • I know much more needs to be included, but I still want to see Errick’s basic calc. I do remember reading it somewhere before but I don’t remember specifically. I am hoping to understand it as it would apply to my model.

      • Okay, Let’s try it this way. You’re the debt relief provider and I’m the customer with $30,000 in enrolled debt. You sign me up to pay $550/month for 30 months, or $16,500 total. Your fee is 30 percent of the savings from the original balance, which is TSR compliant, right? Still with me?

        Now, in order to ACTUALLY do that, you have to get my creditors to accept NOT $16,500, but $16,500/(1+0.30) = $12,692. The remaining $3808 is your fee. Problem yet?

        But what if you can’t get the creditors to accept $12,692? What if you never could? What if you know from your own statistics that you never have? What if you are not even trying to do it? What if you were, as the class action lawyers against Care One in Florida allege, you are actively concealing from me that you are not even trying?

        Still following? Since I am unlikely to avoid lawsuits and bankruptcy anyway, it is actually MORE profitable for you to get some easy success fees up front, knowing I will either be sued or miss payments eventually anyway, for which I can’t blame you. You didn’t do those things to me, you just counted on other people to beat me away before I realized I was being scammed.

        As the saying goes, you will make less off of each sale, but you’ll make it up in VOLUME.

        I may have to do this in stick figures if you can’t figure it out now.

        • That doesn’t work in my model.

          But what if you can’t get the creditors to accept $12,692?

          Then we make 30% of the savings, what ever the savings are.

          What if you never could?

          Statistically, we can, but we dont guarantee it. We are very clear that settlement is not exact science & past performance may not prevail in any particular case.

          What if you know from your own statistics that you never have?

          We know in our statistics that we do.

          What if you are not even trying to do it?

          Why wouldnt we try? The more $ we save our client, the more we make- so we do try.

          What if you were, as the class action lawyers against Care One in Florida allege, you are actively concealing from me that you are not even trying?”

          We do try. See answer above.

          In 4 years, we have less than 500 clients- so we are not making it up in volume. In the last year, we had 2 judgments. Of course you can be sued, you have defaulted on your debt payments. If you lose, we dont get paid. At what point has my model hurt the consumer?

          Errick- Your last 2 comments, implying that our clients are scammed & that you may have to outline your description here in stick figures are callous. Your example holds NO merit and no where did I insult you.

          Good luck with your lawsuit.

          • Im looking at your math & you have it wrong.

            Lets say we settle the clients account at 30%- $9000
            Savings = $21,000
            Fee (30% of savings) = $6,300
            Total to client = $15,300
            Total as a % of enrolled debt= 51%

            Lets say we settle the clients account at 40%- $12000
            Savings = $18,000
            Fee (30% of savings) = $5,700
            Total to client = $17,700
            Total as a % of enrolled debt= 59%

            Lets say we settle the clients account at 50%- $15000
            Savings = $15,000
            Fee (30% of savings) = $4,500
            Total to client = $19,500
            Total as a % of enrolled debt= 65%

            I have no idea how Care One does it. But that’s how we do it. As you can see, we have a vested interest in saving our clients as much as possible.

          • Wow, sounds like somebody needs a juice box and a nap. I have no lawsuit, and I wasn’t insulting anyone who doesn’t fit my description.

            Since we’re all pretending you don’t understand what I’m talking about, I will “answer” your “question” about why you wouldn’t want to go the distance and finish your customers’ plans. Hope you’re sitting down for this one.

            IT’S TOO HARD.

            Say you had the choice of spending 50 percent of your revenue, working day in and day out to build a huge team of negotiators and managers, or you could just fake it and take the low hanging fruit for 10 percent? Wouldn’t you accept less revenue from each customer to increase your margin by 40 points? What sane person wouldn’t? Business 101: the goal of the established business is to increase profitability, chiefly by reducing costs in a competitive environment.

            If it makes you feel any better, at least I still think you’re only playing dumb.

          • No- I get it. I disagree with your thoughts though, unless you’re in business for the quick hit & run. Im certain there are some who run their businesses that way but not everyone.

          • That’s precisely what I’m trying to say, that the new fee regime makes the 45+15=50 scam less profitable, but still very profitable. And the FTC eliminates competition because the regulation makes the best closer the winner.

            I’m also trying to get people to understand exactly how to tell the difference between a legitimate operation and an illegitimate one. All you have to do is count the people.

            Let’s say that for every 1000 clients a certain debt settlement company closes, they enroll about 5000-9000 accounts. Let’s say 5000 accounts to be charitable.

            How many people do you need to service 5000 accounts? Let’s say, again being very charitable, you need two labor hours to do all the intake, tracing, negotiation, documentation, and management to close an account. So, every 1000 clients needs 10,000 labor hours. At 1800 hours per FTE, you need six people to service 1000 clients.

            Believe me, that’s a ridiculously low number. Like I said, real debt settlement is really hard.

            So how many people should a yet-to-be-named debt settlement company with 50,000 clients have? THREE HUNDRED. At least. So if you go in there and find only 100-150 people, guess what? Success is not an option, and unless you failed arithmetic, you can’t not know it.

          • It is the practice where debt settlement companies get 50 cents on the dollar from the customer, take 15 cents as a fee, then settle for 45 cents on the dollar, which slowly squeezes the customer and forces them off of the program before they get cranky and unprofitable. Sometimes they then get steered into paying again for bankruptcy.

          • Errick-
            Again, I’m certain that there are companies who may do debt settlement the way you said- Most have a bad reputation that was certainly earned.

            I’ll say this, though (and 20+ years in sales to back it up), retention of a client is far less costly than new client acquisition. My company is only 4 years old. We shut our sales room down about a year ago, so in our case we DEFINATLY concentrate on continuing to settle clients debt- we have to or we would already have shut our doors.

            I believe the company you are speaking of has more than half of their employees telecommuting. I wouldn’t usually put their business out there but I’m relativly sure I read that in Time Magazine.

            Can I ask you what your background is in “debt relief”?

            Thanks,
            -Sean

          • You can ask. I’m the person who is saying things no one has denied yet. I have 20+ years in the addition and multiplication industries. And I say Care One runs the 45+15=50 scam, and if he doesn’t where is he to deny it? Or anyone willing to take his side?

          • Again Errick, I’m just explaining my side while trying to understand yours. That’s all. My company has 5 employees- We do our best. I can’t speak for Care One.

          • Errick, my assumption is that you work in credit counseling
            at an executive level. Unless you reply that you are an attorney practicing
            debt collection or bankruptcy, it would be hard to shake me off of this.
            You have posted continuously on Care One threads on this site and rail against
            debt settlement. You never mention that CareOne also provides debt management
            plan services. Why is that?
            CareOne offers DMP’s as a for profit company. One of the few who do. They do
            not accept fair share or grant contributions from creditors to my knowledge,
            unlike the non profit DMP providers who, for the most part, are beholden to
            creditors and their whimsies because without the revenue from creditors they
            would fail as going concerns. Why is it that CareOne can do what non profits can’t?
            Are they more efficient than non profits? Probably, but let’s be real here. It
            costs less than 10 bucks a month to service a DMP client. For some I bet the
            costs are less than that. If the average monthly fee is $30 that’s at least a
            200% return! With that kind of margin, why do non profits even need fair share
            or grant money from creditors? What well run company cannot do well with a 200%
            monthly operations budget?
            I did not account for marketing. To do so would be to admit that nonprofit DMP
            providers have to market. All the stuff I see presents nonprofits as some
            benign help the community -help the people – type of set up. They are not. They
            are companies just like any other. They just don’t pay tax and have to comply
            with certain things as a result. They are to provide education. Big whoop!
            There are many free sites with constantly updated money, budgeting and finance
            education and advice that blow doors on the education offered by most non
            profits. That being the case, non profits appear to not have to pay tax for
            next to no good reason. If free sites can provide the same and better education
            to consumers at no cost and pay tax on whatever revenue they generate, why cut
            the nonprofits a tax break? Because they do the educating live in office or in
            the local community, in schools and such? Maybe, but how many of the non
            profits do that really? Could nonprofits who do not engage in DMP services do
            the same and non profits DMP-ers pay tax? Yes indeed. Would creditors cut fair
            share and grants even more because the “donations” would no longer be
            a tax write off for them? You betcha! Nonprofits may take exception to my
            stating this so simply, but it’s just not complicated.
            So, non profits market. Is that why they need grant and fair share money? The
            marketing and acquisition costs? Probably partly. I think its more a fact of
            customer attrition though. What is the success rate of a DMP client? How many
            people drop from a DMP in 3 to 12 months. Determining that number is important
            for the American public to know. If the attrition is high, it means non profits
            enroll people who should have been referred straight to bankruptcy. That’s the
            only next step according to your answer. Why take on people who cannot finish?
            For revenue and to serve the nonprofits true master, the banks. If nonprofit
            DMP providers truly serve the consumer, and given your position that its either
            DMP or BK than the only people who should ever be referred to nonprofit DMP
            providers would be because of the BAPCPA. Following your logic it’s just that
            plain and simple.

            People should TRY EVERYTHING and when failed then to bankruptcy
            is what you said above. Why Errick? Because its the moral thing to do? Because
            it generates revenue for non profits? Because it serves banks?

            So, what’s your opinion on CareOne’s DMP service they offer
            while not accepting funds from creditors? Any feedback? I know mine. Its Kudos
            to CareOne for being positioned to represent consumers more than banks.
            Nonprofit DMP-ers cannot say they represent consumers more than banks with a
            straight face.
            I guess there are some states that require a nonprofit deliver a debt
            management plan. So non profits should only exist to serve those states. I
            think those laws should be changed to allow for profit companies who can do it better
            and for less cost than the non profits and who pay tax to the treasury that
            supports this country in its current troubled economy. Why the hell should
            nonprofit DMP-ers be getting the tax break on DMP revenue when there is not
            enough in the coffers to prevent severe poverty in this nation?

            Errick – You favor DMP’s and I assume you work in the
            nonprofit sector at a high and well informed level. How consumer focused are
            the DMP-ers when 2 years ago one of the largest credit card issuers and another
            one in the top 12 were offering account holders to settle their accounts at 15%
            of the balance pre charge off? Were the DMP-ers “educating” consumers about
            that? Bet not. For me, that would mean they are not interested in helping
            consumers, just themselves and the banks they serve. Banks that, need I remind
            you, have and will continue to pay out BILLIONS of dollars for their wrong
            doing. That’s what you support Errick. A system that brought this nation to its
            worst economic condition since the great depression.

             “Now get in the pit
            and try to love someone.”

            P.S. I don’t work for CareOne or company related to them. I
            am not related to anyone who does work for them nor any contractor for them
            etc. I am just kinda sick of the Erricks and the holier than thou attitude they
            have about debt management plans that are mostly offered by nonprofits. CareOne
            is an exception and a good one for the DMP.

  • I don’t honestly. I remember you referring to a competitor’s plan & described it- but i thought it referenced his plan only.

    Will you give me an example- Use our fee structure: 30% of the savings, at settlement. Lets say $30k in debt. a 3 year plan. Figure the monthly by taking 55% of the debt and divide by 36.

    Im not being an ass- I really want to understand it.

  • I also appreciate hearing your side, and I completely agree, a debt settlement plan that balances would definitely be more likely to succeed if you paid the creditors first and yourself after. And if the creditors could be made to believe it is a win-win for them, you might actually improve settlement performance, although I doubt it.

    But I have never been talking about that. I am talking about plans that don’t balance, that are MATHEMATICALLY IMPOSSIBLE to succeed. It does not matter when you take your fees if the client pays less than the plan costs. If they pay 60 cents and it all costs 65 cents, every settlement puts them behind, not ahead. I don’t believe you don’t understand me.

  • Errick-
    I know we’ve had our back and forth… And I think it’s a great question but look at it this way:

    It is not uncommon for a client’s financial situation to change over time. At least with the success based model, if the clients financial situation changes, they have received services for what they paid.

    For example if 25% of savings is equal to 15% of debt and in 12 months the client quits- In front fee model they have paid 100% of the fee & likely seen none of their debts settled, but in the success based model they have 25% of their debts settled and they would have only paid 25% of the fee.

    $10k in debt-
    $5k total to get out-
    Fee $1500

    Front Fee Model Pd $1500, Owe $10,000 (fee paid= $1500)

    Success Fee Model Pd $1,500, Owe $7500 (fee paid $750)

  • How exactly does a different fee structure lower settlements? EXTRA CREDIT: What is the success rate of customers who only pay 50 to 55 percent of their debts to a program that succeeds in settling at no less than 57 percent?

  • How exactly does a different fee structure lower settlements? EXTRA CREDIT: What is the success rate of customers who only pay 50 to 55 percent of their debts to a program that succeeds in settling at no less than 57 percent?

    • Errick-
      I know we’ve had our back and forth… And I think it’s a great question but look at it this way:

      It is not uncommon for a client’s financial situation to change over time. At least with the success based model, if the clients financial situation changes, they have received services for what they paid.

      For example if 25% of savings is equal to 15% of debt and in 12 months the client quits- In front fee model they have paid 100% of the fee & likely seen none of their debts settled, but in the success based model they have 25% of their debts settled and they would have only paid 25% of the fee.

      $10k in debt-
      $5k total to get out-
      Fee $1500

      Front Fee Model Pd $1500, Owe $10,000 (fee paid= $1500)

      Success Fee Model Pd $1,500, Owe $7500 (fee paid $750)

      • I also appreciate hearing your side, and I completely agree, a debt settlement plan that balances would definitely be more likely to succeed if you paid the creditors first and yourself after. And if the creditors could be made to believe it is a win-win for them, you might actually improve settlement performance, although I doubt it.

        But I have never been talking about that. I am talking about plans that don’t balance, that are MATHEMATICALLY IMPOSSIBLE to succeed. It does not matter when you take your fees if the client pays less than the plan costs. If they pay 60 cents and it all costs 65 cents, every settlement puts them behind, not ahead. I don’t believe you don’t understand me.

        • I don’t honestly. I remember you referring to a competitor’s plan & described it- but i thought it referenced his plan only.

          Will you give me an example- Use our fee structure: 30% of the savings, at settlement. Lets say $30k in debt. a 3 year plan. Figure the monthly by taking 55% of the debt and divide by 36.

          Im not being an ass- I really want to understand it.

    • How exactly does a different fee structure lower settlements?

      The simple answer to this is based on accretion, as debt will continue to grow over a period of time due to several factors
      Late fees
      Over limit fees
      Increased interest rates
      Continual interest rates
      Attorney fees

      If a consumer’s contributions to a debt relief program are applied to the provider’s fees in the initial months there is a decrease in settlement opportunity and thus the typical debt settlement client will pay a higher rate when funds become available. Testimony that has been presented to regulators has indicated a >20% accretion rate at time of settlement.

      Example 1

      Account 1
      Balance $1,000.00 x 20% accretion = $1,200.00
      $1,200.00 balanced settled @ 50% = $600.00
      True cost to consumer 60% of original balance + Providers fees

      More detailed explanation can be found at http://ftc.gov/os/comments/debtsettlementworkshop/536796-00040.pdf

      EXTRA CREDIT: What is the success rate of customers who only pay 50 to 55 percent of their debts to a program that succeeds in settling at no less than 57 percent?

      This is one way the advance fee ban will align the goals of the client and debt relief provider. As the fees paid by a consumer will be portioned to the results they receive. Failure rates a majority of the time are beyond the control of the debt relief provider. A consumer that is qualified at the time of the enrollment could have life changing events that make them unable to complete their program. So if they only settle 50% of the enrolled debt and paid accordingly I believe this is a positive result.

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