A couple of years ago I wrote an article asking, pleading really, for any debt settlement company (DSC) to explain to me how they could ever possibly “do whatever is in the best interests of the consumer” when they are unable to give any legal advice in what are inherently legal matters.
For example, as a matter of law they cannot discuss bankruptcy, let alone offer it. I went on to itemize a number of other similar concerns wherein legal advice is required to determine “what is best for the consumer”. These included things such as: when is income exempt, lawsuit response considerations, and post judgment problems, among others. What I heard in response was mostly crickets.
The time has come to call it what it is. If you are sick you go see a doctor, not a pharmacist. Only a fool would say, I know I should go see my oncologist, but my pharmacist makes me feel so much better. Only a crooked pharmacist would say I know what you need, don’t bother with your oncologist. But that is what happens when consumers opt to be a customer of a DSC rather than a client of a lawyer. I’m going to upset a lot of friends by saying this, but friends, it is what it is. Debt settlement companies and credit counselors are bad medicine no matter how you look at it. Let me tell you why.
First, the grand daddy of all debt relief options is bankruptcy. Yet DSC’s and credit counselors can’t discuss bankruptcy. And for good reason: they are not qualified to, let alone licensed to. Bankruptcy and its potential to entirely eliminate all debt (in some cases) is clearly an option every financially troubled consumer should at least review.
The failure to review bankruptcy with an experienced, licensed professional is just another example of poor decision making. Anybody who holds themselves out as a financial advisor to consumers deep in debt, so deep that they can’t pay their bills, and does not insist that consumer get bankruptcy advice, is a fraud. You are not a consumer advocate. You are a consumer abuser. You should be ashamed and should not be providing any debt relief advice or service.
Second is the collection lawsuit. Once again, the DSC or credit counselor cannot assist the consumer in any way. It seems to me that discussing a collection lawsuit with your DSC is like going to a physic when you get a toothache.
The DSC has never represented anyone in court, and again, is prohibited by law from giving the consumer any legal advice on the subject. Unfortunately, that does not stop many from doing so. Too many DSC’s tell consumers that judgments are acceptable by making such outrageous statements as: “you do owe the money don’t you?”, or “actually the judgment will be good for you”. You know something is wrong when your DSC is telling you the same thing as the collector! Although the decision of whether or not to contest a collection lawsuit is a legitimate topic of discussion, IT MUST BE DONE WITH A LAWYER. No legitimate financial advisor would dispute this. You’re a fraud if you fail to immediately advise anyone sued by a creditor to consult an attorney experienced in defending such cases.
The collection lawsuit causes another problem for the DSC and credit counselor. It allows the creditor to completely frustrate the DSCs ability to effectively represent the consumer. The DSC is absolutely powerless. When sued, the consumer’s only options are to ignore it, represent him or herself, or hire an attorney.
The DSC or credit counselor they hired to negotiate for them can only call and throw money (your money) at the collection attorney in an effort to avoid judgment. That is not a strong negotiating position. Worse, the DSC is absolutely powerless to assist in any post judgment enforcement such as levies, garnishments, etc. Again, each and every time a consumer gets hit with a legal maneuver like a bank lien, any financial advisor worth his salt is going to tell you to consult a lawyer. If they do not, they are a fraud.
But it gets worse if you can believe it. The DSC cannot stop the collector from contacting the consumer. Part of what makes the consumer sick is the calls they are going to get once they default (and lets be real, DSCs cannot be effective unless there is a default on the obligation).
In net effect, the DSC is going to get the patient sicker. They like to sell this as: “it’s going to get worse before it gets better” or “good medicine tastes bad”. I say BS. This bad “side affect” is totally avoidable. A lawyer can stop all contact from debt collectors. In California a lawyer can stop ALL calls, nasty grams, email, whatever, from anyone. Even creditors and original lenders. Why get sicker when it is totally avoidable? Not only is the grief completely avoidable, but the failure to utilize this rule (the law prohibiting collection contact when represented by an attorney) is to completely ignore one of the very best things the consumer has available to them. The collectors cannot help themselves and they will call, with or without a lawyer. If the consumer is represented by a lawyer when this happens, the consumer now has a claim that can result in money in the consumers pocket or even debt elimination. Using a DSC for debt settlement is like getting a tattoo removed with a butcher knife because your doctor has no laser!
These are among the most obvious, but there are many others. DSCs and credit counselors are a business and do not owe the consumer a fiduciary duty. It is buyer beware. If you get screwed there is not much the consumer can do. Report them to the BBB? Sue to get your money back? Good luck.
Lawyers are a much easier target if they screw you. Lawyers are personally responsible, cannot hide behind some corporate shadow, and can be disbarred. It seems a word about the commonly referred to “attorney model” for debt settlement is in order here. To be sure, if a consumer is a “client” as opposed to a “customer”, the consumer is better off, but that is not the end of the analysis. They are better off because they have better remedies against bad lawyers than bad DSCs. Also, the “attorney model” lawyer, properly organized and licensed, can stop calls and defend collection lawsuits. “Can” does not equal “will” or “do”, but at least it is possible. The lack of true attorney involvement is cause for concern. Another problem with many “attorney model” DSCs is that they are many times “one trick ponies”. Truth is anyone who only does one type of debt relief (be they a DSC, credit counselor, Debt Settlement Attorney or even a Bankruptcy only attorney) generally promotes their single service as the only or “best” solution. This is not always in “the best interests of the consumer” and should be avoided as much as possible.
Lastly, let’s get down to actually settling the debt. The DSC must rely on the creditors and collectors to cooperate to settle an account. They cannot force the creditor to do anything. They have none of the major consumer law rights behind them. Rights like bankruptcy, FDCPA, statutes of limitations, do not contact rights, etc. As a result DSCs have a weaker bargaining position.
I literally get sick every time I hear some debt settlement companies say they work with creditors. They often times say they have “special relationships” with creditors that they leverage to your advantage. Hogwash. Creditors would like nothing more than to squash DSCs like the cockroaches they think they are. Do they deal with them? Sure. Banks who say they don’t settle with DSCs are liars too. But banks only deal with them if it is to the banks advantage, not the consumers.
On the other hand, an attorney who can actually follow through on the “bankruptcy threat”, who will sue the creditor for violating the law, who will be in court on the collection case, who the creditor can’t get around to contact the client directly, is in a far superior negotiation position.
Moreover, after a settlement, the DSC cannot give you any advice as to the 1099-C that may come or what to do if the debt goes “zombie” and the cancerous account returns again!
I’m sure there are good and decent DSC operators and credit counselors out there. But given the history of fraud and abuse in the debt relief industry, the inability to provide any legal advice, and the carnage that can be done by defaulting on debt without some real protection, the debt settlement company and credit counselor risks are too great and the advantages too nominal.
I don’t go to my good friend the pharmacist for advice on how to treat my cancer. Until any DSC or credit counselor can explain to me how they overcome these issues “in the best interests of the consumer”, it is this juris doctor’s opinion that they are bad medicine.
Gregory M. Fitzgerald, Esq.
This article is not legal advice and should not be interpreted as such. It is provided for informational purposes only. You should consult legal counsel about your specific circumstances and law before making any decisions about your legal rights and how to protect them.
Gregory M. Fitzgerald is a California licensed attorney located in Anaheim Hills, California (CA Bar #153082). For over 20 years he has represented consumers with a particular emphasis on consumer rights in the field of debt and debtor harassment. He is a founder of Fitzgerald Campbell, A Professional Law Corporation. He is admitted to practice before all California state courts and all Federal District Courts within California. He is a member of the Western San Bernardino County Bar Association, the Orange County Bar Association, and Consumer Attorneys of California. He formally sat regularly as a Judge Pro Tem in the Orange County Superior Court. He can be contacted at 714-769-9151, 855-7-IN-DEBT, [email protected], or via the web at www.debtorprotectors.com.