In a previous article published on the GOOD site, I asked the question: Is the debt relief delivery system broken? The article outlined the statistical failings of different options consumers seek in order to get relief from debt they can no longer afford. I also identified several reasons for the shortcomings and encouraged industry participants to share ideas for how to overcome them. The feedback and suggestions from readers in the comments were helpful. They boiled down to:
- Better and more complete training of the debt relief services industry personnel.
- Improved sales and screening and placement of consumers into the respective options suited to them.
- Better cooperation and relationship building between different service providers.
- Changing the compensation structure of sales and intake employees so that wages are not tied to customer conversions.
That last item inspired a standalone article about compensation.
All of the feedback and suggestions are good. Some companies already do well in these suggested areas, but may find it necessary to improve sales and screening, or will work to improve cooperation, or seek out and establish solid relationships with industry partners.
What follows are some of my ideas:
General practice attorneys, and most especially attorneys practicing consumer law (bankruptcy, consumer protection), should look to serve their local markets in settling debts. Virtually all professional industries have been impacted by the downturn in the economy, including the legal profession. Debt settlement is not a difficult service to introduce into a law practice.
- This in no way should be read as me advocating loopholes for charging advance fees for a direct debt settlement service. There are enough legal models doing so now…. I am suggesting attorneys serve their states residents through a bona fide attorney client relationship AND charge only affordable success fees. The revenue from doing so with clients who have a shot at avoiding bankruptcy will often exceed the fees generated with bankruptcy representation.
Nonprofit credit counselors should be offering debt settlement education AND direct debt settlement services. Adding the debt settlement tool and offering the education and support to consumers who cannot qualify for a proposal to be submitted to creditors for a DMP would replace fair share and grant revenue. I am not speculating on this fact. I have the data that proves it.
- CCA’s need to make changes and commit to serving consumer interests first.
- State and federal law supports CCA’s offering settlement education and services.
- Nonprofit tax status supports CCA’s embracing more of their education requirements.
- CFPB will no doubt propose a definition for larger participants in the non bank sector that will include nonprofit CCA’s that will later hold them to TSR standards for direct debt settlement services – more on that later.
- CCA’s will need to embark on a MAJOR counselor training effort when offering a settlement tool. First to dispel the contempt for the option that has been instilled and second in order to become proficient.
Debt settlement service providers working with business models of the past have closed and will continue to die off. Those willing to embrace changes to how they operate and willing to reduce their fees will be better positioned to survive and compete with CCA’s and attorneys entering the space.
- Settlement companies could form relationships with CCA’s by contracting with experienced negotiators to deliver back end settlement functions.
A better and less expensive technology can be introduced that allows settlements to be accomplished with issuers, assignees and purchasers that will enhance efficiencies, lower costs for all (most especially consumers), and allow for auditing, tracking and monitoring.
Consumers need to become more aware and better informed. Learning the details of legitimate debt intervention services as applied to their own unique set of circumstances and goals is the number one way to increase success rates and reduce the amount of time and resources that get wasted each year throughout the debt relief industry. More companies can/should/will embrace a consumer-centric educational focus that provides people the tools they need. This will create an environment where consumers become less reliant on direct services; are encouraged to have a more active and responsible role in their own debt relief decisions; participate in their own positive results; and apply financial fitness tools moving forward in their life when no longer overburdened by unmanageable debt.
Last year I committed to a project that embraces much of what is outlined above. The idea was to open up settlement to the nonprofit space while meeting the educational mandate of their tax status and to provide them with an additional tool to assist consumers. I have done that. The system is plug and play. Any CCA who would like to learn more is welcome to contact me at 208-265-8884. The opportunity for you to serve 2 or more times the people you currently are able to should provide great opportunity whether you are a small regional or national organization.
What was originally designed for implementation by nonprofit DMP providers will also be available to for profit debt relief companies as well as anyone who is interested in being of maximum benefit to consumers struggling with debt. I welcome all inquiries regardless of tax status.
This project embraces many attributes from my company’s business model for assisting consumers since 2006. Shortly, CRN will be making changes that incorporate much of the project design – more on that next week.
Listen, it’s the creditors (Chase) that will not allow CCAs to do debt settlement, and that’s the cold hard fact. In fact, even if you’re able to get a RPPS, once Chase finds out you’re doing debt settlement (or even if a CCA is working with a debt settlement company), they’ll shut you down faster than you can say DMP. Until the creditors (Chase) are forced to formally recognize debt settlement, CCAs simply won’t do it.
So do the CCAs represent the consumer and do what is right for the consumer or are they simply an agent of Chase and do what Chase wants?
Do CCAs have a fiduciary duty to the consumer or Chase?
I agree, CCAs should be working for the consumer’s best interest since they most likely do have a fiduciary duty. But the problem is that if, by doing/working with debt settlement, Chase is going to cut off a CCA’s ability to get concession rates, what can a CCA really do? Realistically, it would kill their business (the inability to process accounts from a major creditor would kill their DMP business). In addition, it could hurt a CCA’s ability to continue to use MaterCard’s RPPS system. Of course, neither Chase or MasterCard will say publicly, on the record, that if a CCA does or works with debt settlement that they’ll effectively cut them off, but ask anyone behind the scenes and that is the undeniable truth.
Steve, why don’t you reach out to both Chase and MasterCard and ask for their official stance on this?
Will do.
Point to ponder. The current approach of silence isn’t really working, is it? Not only does it create a growing liability but it continues to drive down fairshare.
If nothing changes, what do you expect the result to be?
I have sent media inquiries to both Chase and RPPS. Now we wait for a response.
Hi Guest,
Thank you for commenting and being blunt about what is well known, but not discussed enough. I sincerely hope that many more industry professionals follow your lead. Please don’t take what follows as being directed at you, or your comments specifically. I am commenting generally.
Chase does formally recognize debt settlement. They settle with card members… a lot. They have stated they will work directly with their customers, and they do. Not just for settlement, but with direct to consumer reduced monthly payment plans similar to a DMP.
Chase is but one creditor who takes exception to CCA’s truly fulfilling the role they are held out to the public to provide. The position that Chris and company at Chase have on this issue is about many things. I am skeptical about one of those things being the benefit to Chase share holders. Business model experience and data suggests Chase could lower the hit to their quarterly loss reserves on their non performing card portfolio by a conservative 5 to 10%, and with little to no change in work flow from what they are already doing between 90 and 180 day delinquency. Making adjustments to post 180 day recovery processes would increase recovery even further.
I do know that creditor reactions have included cessation of grant and fair share contributions. That’s one of the ways they control non profit entities that are held up to be providing a public good. The mere threat of losing that funding keeps the CCA space in check. That funding is low enough now where settlement education and services would replace and exceed it.
I do find this behavior odd. CCA is a nonprofit with an educational mandate – tied to a tax benefit – connected to a fiduciary commitment – and held up as a public benefit. Banks kick back tax deductible donations to the CCA as a thank you very much for collecting our debt. Most DMP’s are never completed and this whole public benefit thing really results in large scale mis-allocation of time and money for strapped consumers affecting local, state and the national economy.
The kicker of course, roughly 80% of initial DMP consults do not result in proposal submission – CCA not allowed to connect the dots to settlement – so, many consumers are directed to bankruptcy. Roughly 70% of bankruptcies are chapter 7’s where unsecured creditors experience between 90% and 100% loss, and where chapter 13 generally does not result in full recovery to unsecured creditors (In some instances as little 10% when mortgages and other secured claims are first considered).
I am also aware that CCA’s have been further threatened with losing the
ability to submit proposals. When settlement is sold and delivered in a
manner similar to how most of the industry has operated for near a
decade, I can see the creditors side. I do not envision CCA’s
representing and delivering settlement services following a flawed model
that is well known to be problematic for consumers (and for creditors).
Steve’s comment about the system not working is correct. Other than chapter 7, the debt relief system works least for the consumer – the very person whose needs should be first. If we hold ourselves out as professionals committed to our customers best interests, how have we allowed the industry to be where it is today. If some of us want to maintain status quo, we should at least drop the facade of serving financially disadvantaged consumers as a first priority.
The first CCA to convert to a legitimate non profit settlement company with fair and affordable fees will clean everyone’s clock until it becomes the norm.
As promissed great article Michael, you have identified the future of debt relief.
The challenge will be getting agreement (and action) from CCAs to educate their counselors on the DS option…it make so much sense but this group seems blinded by their archaic ideas of what debt settlement is.
Building the cooperative business relationships between the providers of the different options will be easy once the CCAs acknowledge the need to provide all options to their consumer clients.
Thanks for posting this, we need to keep talking about CCAs and DSCs working together to make this happen.
Melissa
As promissed great article Michael, you have identified the future of debt relief.
The challenge will be getting agreement (and action) from CCAs to educate their counselors on the DS option…it make so much sense but this group seems blinded by their archaic ideas of what debt settlement is.
Building the cooperative business relationships between the providers of the different options will be easy once the CCAs acknowledge the need to provide all options to their consumer clients.
Thanks for posting this, we need to keep talking about CCAs and DSCs working together to make this happen.
Melissa
It is mind boggling that CCAs refuse or are afraid to engage in a greater debt relief industry public discussion.
Hi Melissa,
The intellectual dishonesty about the efficacy of settlement from the CCA side has subsided. There are still some who hold fast to old and now somewhat crusty ideas, but they are fewer.
Honest CCA executives already do recognize the viability of settlement and their need to enter the space (some desperately so).
The industry does need to continue the discussion, and do so openly. CCA’s may not recognize it, but these open discussions will assist them in accomplishing their goals far more than staying mum on the matters. This site allows anonymous posting, just call yourself Bill or Barbara and type any email address.
I have another post coming out next week that will be far more detailed. It may or may not contain a direct and thorough answer to your question you posted in your comment on the prior article: https://getoutofdebt.org/33888/debt-relief-options-for-consumers-is-the-delivery-system-broken
You asked:
“Are you willing to share how many clients will learn DIY debt settlement from you and then decide to have your company take over the negotiations because they find it is just not for them?”
From 2006 through 2009 about 54% of the accounts settled were done through the DIY process that includes thorough upfront education and ongoing supplemental information.
2010 & 2011 saw a dramatic increase where just over 74% of accounts were settled in the DIY format. Not much changed in our process, delivery and support, so why the increase? Chase bank. For several years CRN had a very productive relationship with Chase recovery in the Philippines, recovery stateside, Chase legal in 4 states and the varied assignees Chase placed accounts with. In Nov 2009 Chase changed policy and was no longer interested in working with us. More than 80% of the settlements we did with Chase were pre charge off, because we could no longer deliver that to our members who request we settle on their behalf, and because to allow a file to charge off meant often settling for higher amounts and other concerns, our members with Chase accounts were encouraged with the needed enthusiasm that their settling directly with Chase was in their best interest. That is the primary reason for the increase in DIY percentage compared to full service.
CRN has always been a performance fee company when we perform direct settlement services. Our fee has been 15% of savings since 2007. The vast majority of the settlements we have performed do not result in us being paid a dime though. We encourage our members to voluntarily donate what are fees would have been to a low income legal aid office or to a local food bank in the form of non perishable food items. Though CRN is for profit, I often find we are more nonprofit than our counterparts on the CCA side.
Changes that are being made, which I will cover more of next week, will be exciting and new to most of the industry.