The following guest post was contributed by Scott Johnson.
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The 5 Year Business Plan
Business planning is essential to any company and debt relief service provider’s have additional challenges as statutory and regulatory changes mandate additional focus as the rules can be interpretative and ever changing.
The internal development of polices and procedure directed by management to deliver compliant services at the highest level of quality and maintain profitability require adaption and prudent planning. With information at hand how did debt relief companies respond in the past five years?
Stepping back in time to the stakeholder meeting for the final draft of the UDMSA held November 2007 the writing was on the wall the future of debt settlement was going to be heavily regulated and the commissioners spoke – 30% of savings.
That was a time when debt settlement was not a household name and lead price was under $20.00 for an exclusive qualified candidate.
The discussion contained debate on bonding, insurance and certification requirements as well as other general areas and concerns from all. This was another opportunity for changes even though the UDMSA had already been years in the making.
My view of the proposal was broken down into two categories what was unreasonable and what was burdensome. Here is the short check list as what the passage in states would mean to an organization.
Bonding – created a challenge that it could limit the number of states that companies would be able to operate in and have an immediate impact on reducing the number of entrants into the space.
Insurance – this would be of little impact as companies would already have these types of instruments in place. The only concern was carrier rating and deductable.
Background Check – standard practice through the companies HR Department, items like FMLA, ADA, ERISA and EEOC are far more challenging.
Financial Audit – an additional expense as audits that were being done were by a CPA. Sharing this information from a private company appeared to be intrusive.
Company Certification – this was going to take some time – ISO 9000 (6 – 12 months) and a sizable investment of capitol and labor.
Employees Certification – What would be accepted – looking back on the challenges of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and sorting the approved education programs.
License Fees – these would me minimal and no major impact or prohibition and in line with other state requirements.
The above list was easy to put in the burdensome column as there is little to nothing new for requirements already in place for a debt relief organization.
Fee Structure – 30% of Savings!!! – UNREASONABLE
The market place demanded to take advance fees. Competition in the debt settlement vertical was intense, lead price was soaring, default rates of a consumer were rising and creditors were mild in collection activity. The performance based companies were not experiencing the same growth rates and new entrants think they can see a pot of gold at the end of the rainbow.
The NCCULS conference room appeared absent of representation of a debt settlement companies in support of performance based fees. Instead, it was occupied with supporters of an advance fee model, individuals with concerns of fee caps and challenges of the free market, after all the US is a capitalist country. Result – 30% of savings!
Fee Structure – 30% of Savings!!! – BURDEMSOME
The fees being charged to consumers at the time ranged from 10% – 15% of the debt enrolled. How much impact would the new 30% of savings really mean? A debt settlement company could now charge an 18% fee and even higher as long as they performed the contracted services. Imagine a consumer’s debt being settled for 20 cents on the dollar and the company receiving fees of 24%. This is easier said than done even at 40 cents on the dollar. What this means is that companies have had five years to improve their processes become more efficient and deliver results to their clients.
Fee Structure – 15 – 30% of Savings!!! – THE FUTURE
Why did the free market that so many continue to support fail to reduce price and increase quality service? Will new regulations have an impact? That debate can continue forever but the reality is a new line has been drawn and it is going the way of 15 – 20% of savings. It is now time to start working a new 5 year business plan.