Someone just posted the following comment, on a post about Lloyd Ward, which actually creates a perfect segue for me to finally write an article I’ve had percolating for some time. While some of the claims made by the commenter are skewed, it is true that back in the early 2000s the non-profit group that I ran did charge some advanced fees for service. But I wanted to share with you what I learned from that experience.
Commenter Says: Didn’t you file bankruptcy? and you ran credit counselling, kind of ironic you did not settle your debts. And your company made some of the exact claims that you destroy companies for now. That is ironic. Your former company also charged sometimes 5000 upfront for programs before ANY work was done, amazingly ironic. I have a great portfolio of screenshots of your former websites before you scrambled to take them all down off the way back machine. Contracts, quotes, and many other business related items that shall we say shows you operated very similar to the very people you now bash or even some would say slander. But that is for the court to decide but it is ironic. Amazing how hypocritical you are. – Source
I guess we can’t help but let our life experiences influence our future decisions and points of view. That’s actually a good thing, isn’t it? Shouldn’t we learn from our mistakes or experiences? Actually one of my life mottos is “No sense wasting a perfectly good mistake.” So with that in mind I learned a number of great lessons along the way that shaped who I am and my points of view that I embrace today.
In my case, my experience with the non-profit group taught me one big lesson, advanced fee debt relief programs don’t work. It’s a lesson learned I’ve shared with readers along the way as well. And it’s a lesson I’ve watched many not listen to and instead learn it over and over again, especially in the heyday of advanced fee debt settlement.
While I don’t know of any big advanced fee debt relief programs from much earlier generations, as a student of debt relief history there have certainly been other approaches and attempts, such as the early for-profit proraters or “debt lumpers,” that failed as well.
See Consumer Debt Relief False Promises Not a New Problem. Let’s Look Way Back. And here are some old examples of debt relief ads and easy credit ads.
As I said to the commenter:
You are right, it is ironic.
When I was going through my troubles in 1989 nobody ever mentioned debt settlement to me, I’m not sure if anyone was actively settling debt at that time. But that’s before we had things like the internet to research and find stuff.
Looking back, for me, bankruptcy was the better solution in the long run since credit counseling had already told me they could not help. In the end, bankruptcy allowed me to recover quickly from my money troubles. A couple years after our bankruptcy we were able to buy our house.
I think we had a program that was $3,000. If we had a more expensive program it might have been for the inpatient spending addiction treatment program we had with our staff psychologist.
Our $3,000 program was an intervention program with creditors. In the end the program did not work as well as we hoped and we terminated it. The big difference is we gave refunds and didn’t trap people into a corner.
I’m not sure what the commenter is referring to about scrambling to take things down. I have not scrambled to do that.
The non-profit group I ran, in the building pictured, focused on a much more holistic approach to debt help. Besides the staff psychologist we had a CPA, CFP, Tax Advisor, Certified Arbitrators, HR specialists for clients to utilize, etc. The focus was to help someone recover from the issue at hand and prepare to do better. If you consider that money problems are both about reducing expenses and increasing income you can better understand our approach back then.
For example, our HR specialists would review client resumes and prepare people for interviews in an effort to help them focus on earning more at the same time we were dealing with the debt. There were times we even hunted for jobs and arranged interviews for clients as well. A couple of times we even had our IT staff help some clients troubleshoot their home internet connections so they could be better connected on the internet to find jobs.
The $3,000 program we had was an advanced fee program and was not prohibited when we offered it. In that comprehensive program we gathered all of the client’s financial information and as a team of 3-4 spent 40+ hours on average working each client case. The client’s team was managed by the CFP and other experts.
We would evaluate the current situation, have multiple conference calls with clients and the designated team, make all encompassing specific suggestions for changes, help implement those recommendations, and intervene with creditors. That intervention was in the form of a comprehensive financial analysis and extensive documentation showing what the consumer could afford and what reductions all creditors would need to make for it to be successful. We even included a letter from a local bankruptcy attorney indicating they were willing to represent the consumer and assist them to file bankruptcy if the creditor did not accept the plan.
In the end the program was determined to be a failure and terminated. And the big reason the program failed was that it lacked any power to require creditors to implement changes, even if those changes were in their best interest. We learned the hard way, the only solution that has ultimate unilateral power over a creditor is bankruptcy.
If a consumer had ten creditors and nine agreed to the plan, the plan would work at first but fail because of the actions of the lone creditor. Does that sound familiar modern debt settlers? How many times have you seen a client blow apart because a creditor didn’t want to accept the settlement offer and instead sued. While we didn’t have any clients sued that I can remember, we did strongly encourage clients with aggressive creditors to meet with a bankruptcy attorney and protect themselves.
I think that program ran for a couple of years, tops. But along the way the difference was we focused on learning lessons, consumer satisfaction and issued refunds, not trapping people into the agreement os saying, as some debt relief companies have, “You signed the agreement, live with it.”
I’ve never mentioned it on the site before, because it is not relevant when writing about others, but the non-profit company I ran, had a great reputation. We had an A+ BBB rating and at the peak about 20,000 clients. – Source
The vast majority of our clients were very happy and we diligently focused on customer service. All staff members had to read and we tried to encourage them to live the philosophies taught in Raving Fans. It’s a book I highly recommend to all debt relief companies that care, as well.
Sure, we did have some complaints, with 20,000 clients at the peak and probably 100,000 over the years we were in business you have got to naturally expect some complaints.
For those that had an issue we focused on making sure those people had their problem resolved and worked hard to deliver exceptional customer service using the Raving Fans approach. That’s where I learned the lesson of the incredible power of exceptional customer service and how it can take a problem and neutralize it. I even shared what I learned in this guide I wrote, How to Handle a Consumer Complaint Like a Pro And Come Out Smelling Like a Rose.
That’s why it blows my mind to watch current day debt relief companies tell their customer to go pound sand and not give refunds or resolve their issues and let them go elsewhere, like this website, and complain. No refunds and poor customer service results in regulator complaints, complaints result in legislative interaction, and new laws result in restriction.
The commenter didn’t mention it but back in the day we even settled debts as well and there were clearly cases when settling was a tool to use, but not all cases. Settling was best for those that had cash on hand to settle and an offer and acceptance could be made quickly with the creditor. For that program we charged a flat rate of $495 per creditor and if we were unable to secure a settlement we refunded 100% of the fee.
But what the commenter fails to place into context is that between then and now the entire debt relief industry went, well, crazy with advanced fee debt settlement. And while some debt settlement companies had their hearts in the right place, many just took the money and ran. Some even spent their incredible windfall on hookers, drugs, and exotic cars. I’m not kidding. You know who you are.
Modern advanced fee debt settlement was also based on a number of poor factors at the heart of some operations.
- No refunds.
- Provide bad customer service to make clients quit so advanced fees can be kept.
- Spend the money from advanced fees before delivering the service. Creating essentially a Ponzi scheme where future income was necessary to pay for services delivered to previously enrolled clients.
In addition, back in my time, which was between 1994 and 2004, rules, regulations and the need to provide protection for consumers from bad actors was not as necessary as it has been recently. These are all new rules and laws I’ve watched evolve since that time which are directly the result of companies harming consumers which required regulators to step in.
It wasn’t until the explosion of Ameridebt that a big focus on bad behavior on a mass scale hit the radar in the debt relief space. Ameridebt was a non-profit credit counseling group that charged all people an advanced fee by keeping the first months DMP payment instead of sending it to creditors. The fallout from this was a crackdown by the IRS on non-profit credit counseling and many new regulations by the IRS.
Until then the ability to keep the first months payment was legal in most, if not all places. The reason Ameridebt was nailed was not because they took the first payment but because they took the payment and hid the fact they were taking it. Creditors would start to call consumers and people got pissed their creditors were not getting paid. Ameridebt imploded and people even went to jail over it. Some though went on to take what they learned from the experience and bring that into a debt settlement industry that then re-adopted the advanced fee sales approach. There is even a common link between Ameridebt and the spectacular debt settlement debt settlement failures of Hess Kennedy and Allegro Law.
I get the point and see the irony that at one point the non-profit credit counseling group I ran charged advanced fees. I really do, but I learned a bunch of lessons from those days that I try to share with readers in advice and direction. I use my interest in debt relief history to try to make all aware of mistakes that failed in the past so people are not doomed to repeat them again.
For me, the alleged attack that at one point the group I was affiliated with charged fees is a bit like saying at one time cars were built without seat belts. Somewhere along the way the industry and public learned the value of seat belts saving lives and doing good and now getting into a car without clicking your seatbelt seems foreign and odd to us because we’ve learned that it can protect us.
Between Then and Now
And between those days past for me and today I learned an entirely different paradigm on how advanced fees for debt relief services can be turned from being logical, good and proper to detrimental and wrong when abused.
I also learned a lesson about dealing with states and making 100% certain you are fully compliant with regulations. I learned my lesson the hard way with California. You can read about that here, Debt Relief Expert With Background You Don’t Know About. Not being complaint, intentionally or unintentionally, no matter how hard you try, has consequences. If anything, my position on this site is not if a regulation is good or bad, that doesn’t matter, but that companies comply with it so they don’t have the same experience I did.
One point the commenter makes is that they have the contracts we used. And the reason why is most likely that we made sure all our client agreements were publicly available before any consumer gave any information. The contracts were available and linked on the enroll and program pages so people could read the agreements before signing up. That’s a practice I’d like to see more companies do today. There is no reason why a consumer should not have the freedom to review the agreement without giving up personal information. There is also nothing in a client agreement that is a trade secret.
What the commenter did not mention was that back in the 1990s and up till a certain point we had pages that did have pages with messages on it like avoid bankruptcy and mentioned that debt consolidation loans were not a way to go. But along the way my points of view on that changed.
It took me ten years to go public about my bankruptcy. I wrote about how I finally did publicly mention it in the article How the Washington Post Outed My Bankruptcy Secret. Finally opening up about my bankruptcy allowed me to begin to evaluate my personal experience outside of a state of fear of discovery. Now that the secret was out I looked at bankruptcy in a different light. And the experience we had in dealing with creditors with that comprehensive program changed my mind as well. It was from that time forward I began to embrace bankruptcy as a more logical solution in more and more cases.
In fact that comprehensive bankruptcy program, the expensive one, I mentioned had it’s client forms based on Chapter 13 documentation that clients could take to their bankruptcy attorney if they decided to file. We also wrote many educational articles and talked openly about how bankruptcy could benefit the consumer.
Not to bore you with more details but there came a point where we actually shed all of our debt management clients. It just got too difficult to offer a debt management program and speak out about the weak points of the DMP at the same time. A line in the sand was drawn and putting the consumer first, won. That eventually led to the closing of the non-profit.
I also used to tell people all the time they could not borrow their way out of debt with a debt consolidation loan. That point of view changed over time as well with the advent of LendingClub.com and other peer-to-peer lending networks that actually made a lot of unsecured debt consolidation loans at less than bank rates. Today it is possible to borrow your way out of debt using a LendingClub.com debt consolidation loan if the rate you are approved for is lower than the combined debt interest rate — and improve your credit at the same time.
In other areas we were just too far ahead of our time with our holistic approach. One program area I wish we had been able to continue was our personal money management where we managed the personal finances of clients. In that program the client’s bills came to us and we evaluated, managed and paid them.
Often we were able to save the client money by having staff trained and aware of potholes and deals. Since we received the client bills we were aware of other opportunities as well. For example, we scanned the incoming bills and scrapped the information off them. We knew who the creditors were and the interest rates they were charging but we also knew the credit score of the client. Armed with that information the system would generate an alert if a client was being charged an interest rate by a specific creditor that was higher than was being charged to another client with the same creditor and similar credit score. Armed with that information the account manager could call the creditor and get the interest rate reduced to the lowest rate. The creditor would balk and say “We don’t offer any such program,” but when we could give them the name of a customer they actually did offer that rate to their tune changed. It was great to be able to negotiate with the creditors from a position of strength.
Often the areas we found that needed attention was cell phone plans, home phone plans, and other service items. I remember we uncovered one person was paying double for their home alarm service for not good reason at all.
A review of the service packages and insurance costs could save the client hundreds of dollars a month. And then, rather than needing a debt intervention program they were able to make ends meet and pay their way out of debt.
It was an amazing program with incredible technology. But today, there are some similar services in development that will be rolling out in the next year. I’ve seen the Alpha demos of some of them and shared some of the successful ideas we developed way back when to incorporate, like the one above.
So you see that along the way I changed and learned a number of lessons. I also learned debtors are considered to be a disadvantaged class of consumers and right or wrong, if you charge advanced fees and the consumer is not able to resolve their problem, or fees and performance are not transparently disclosed, the outcome will not be favorable for anyone. Unhappy clients complain and complaints can lead to regulation and lawsuits.
Maybe the ultimate irony is just that that I once ran a non-profit group that did charge advanced fees for debt relief services and learned from the experience. An experience I try to share with my readers.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
P.S. If you want to know more lessons I learned, read this article from 2010, What I Learned From Selling Debt Relief Services. What I Got Wrong and Right On the Front Lines.
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