She has been scammed, and it is affecting her health. I sometimes wish I hadn’t said anything to her. Please advise me how to help her. I have worked in small claims court and have a feel for the process. But I told her this was a scam and now she is scared to death. I need to help her before the worse case scenario happens.
There is a fine line between being scammed and making a bad decision. I think the issue we need to focus on at the moment is if the woman you are helping was sold an appropriate solution based on her situation.
I’ve written about American Debt Mediators and have been concerned about the marketing techniques.
Thank you so much for sending me a copy of their contract for review. What you will find below are my lay observations on the plain language of the agreement.
My recommendations are below the contract review.
The cover page.
This first page tells us a lot. We now know the fee is 12% of the enrolled debt and a monthly charge of $49.95 will be tacked on. If the consumer continues through the entire 42 months the monthly fee will add an additional $2,097.90 for a total fee of $6,394.08.
They also clearly state this is a debt settlement program and most interestingly that only upon the receipt of the first payment is a Welcome Kit with information about necessary items, sent out.
Additionally, it’s not till after receipt of the first payment and completion of unknown additional items that the account is even assigned to the Settlement Team.
Interesting statement in the next page of the agreement, “Client understands and agrees that Client is NOT paying Company any fees to “get Client out of debt.” Company only provides encouragement, negotiation and settlement services (collectively called Program.)”
The woman had better get a hell of a lot of “encouragement” for six grand.
The company also states it is the Clients responsibility to save the settlement funds but also that the money will go into an account with Global Client Solutions so the service fee and monthly fees can be paid.
The service fee and monthly fees are non-refundable.
The Client is responsible for settlement payments to creditors.
Please post your responses and follow-up messages to me on this in the comments section below.
If the consumer negotiates a settlement directly with the creditor they still have to pay American Debt Mediators the service fee.
The agreement states the Client is in a state of financial hardship. That’s an interesting statement since if the consumer is in a bad spot there are other solutions that might be more appropriate.
Note the Service Fee and Savings Schedule box that shows the fees are front loaded in the program.
At the bottom of the previous page is an interesting beginning of a statement which is completed on the next page. “Client’s specific creditor(s) may include accounts that require that Client handle the negotiations directly with creditors in which case Company will assist Client. (Client’s participation in settlement does not reduce or otherwise affect fees earned by Company.)”
So the client may have to negotiate their own debts anyway and still owe the service fee to the company? Really?
The impression from the first page of the agreement is the client is always in control over settlements. “Company shall present offer(s) from creditor(s) to Client, and Client will review, approve or decline each offer.”
But on this page we learn not all offers must be approved by the client.
“Client may accept or decline any settlement offer, unless authority has previously been granted to Company by Client to settle debt up to a certain percentage of original balance but in no event greater than fifty percent.”
“Client agrees that all Company fees must be paid before their final settlement is reached.” Which seems to indicate this is an advanced fee agreement.
The agreement authorizes American Debt Mediators “to accept any settlement offers on Client’s behalf that meet the following criteria: (a) the settlement offer is a discount off current balance of 60% or more; and (b) Client is showing enough savings to fund the settlement.”
This seems like a very disadvantages position for the consumer to be in. First, the discount if off the current balance, which will eventually include the original balance, late fees imposed by creditors, accrued interest, and other penalties. Second, it appears if the consumer does not have sufficient fees saved in their Global Client Solutions account, great settlement offers won’t be considered. But what is the consumer had access to other funds?
The agreement states the consumer will not have to pay fees and debt repayments in excess of their original enrolled debt. Does that happen? It must, otherwise why put it in the agreement. If the situation arises where the settlement offers and fees paid exceed the original enrolled balance American Debt Mediators will refund the difference in fees down to the original balance.
The agreement has an arbitration clause that limits the client access to the courts in case of dispute.
And then it gets good.
The consumer must agree “The Company can not stop any collection efforts that may be employed by creditor(s) including collection calls, letters, lawsuits or garnishments. Client understands that their credit rating will be adversely affected should client default or be delinquent in their payments to their creditor(s).” “Client understands that their accounts will continue to collect penalties, fees, and interest until the accounts are settled.”
American Debt Mediators says they do not provide the consumer with any advice or recommendations about reducing or terminating payments to creditors but they also say, “Client is currently unable to pay or unable to continue to pay the minimum monthly payment obligations on Debts to Creditors without further extreme and severe hardship.”
No oral statement made by the company count. So anything a sales person might have told the consumer on the phone, is not to be trusted. Only the written agreement is the sole agreement between the parties.
Consumer owes Chase and Citibank.
Then there is an additional disclosure statement in which American Debt Mediators states they “cannot force negotiations and cannot force creditors to accept a settlement.” So what special powers is the consumer paying so much for then?
The company also says it will generally receive “your first offer of settlement within seven (7) to ten (10) months of enrollment, which is coincidently just about when a big chunk of advance fees have been paid.
The next page appears to be a general power of attorney form, but called a “Permission Letter.” It gives the company the power to communicate with creditors and third parties but it also sneaks in a waiver as well. “I understand that Company is not a law firm, is not licensed to practice law or provide legal advice, and I expressly agree to waive, forgo, indemnify and defend any claim against Company relating to the practice of law.” Who knows what additional financial liability that could impose?
I can’t imagine American Debt Mediators would send a copy of this “Permission Letter” to creditors with that statement in it.
Cancellation page which when signed, holds the company harmless from “any and all claims arising from this agreement.”
What is interesting is American Debt Mediators said they were located at:
15950 N. Dallas Parkway
Dallas, Texas 75248
But they are also at:
6200 Tennyson Parkway
Plano, Texas 75024
I would suggest if the person who signed this agreement has not already done so that they quickly visit with a local bankruptcy attorney to discuss their situation. The ADM agreement goes on and on about how the company can’t provide legal advice so I question if this option was adequately explained to the consumer.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
The homepage of this group seems to confirm my suspicion they are trying to steer the consumer away from bankruptcy and make a comment about “no obligation.” I don’t know what specific obligation they may be referring to but the client agreement is jammed full of obligations.
The company said in the agreement they had reviewed all the possible options with the consumer as well. If the review was similar to what they say on their website, I’d be very concerned.
American Debt Mediators says bankruptcy is not as easy as it once was which I find to not be an accurate statement. They also say it will stay on the credit report for ten years but a chapter 13 bankruptcy only stays on for seven. And they say you have to live under court supervision but their ten year statement seems to be directed at a chapter 7 bankruptcy, where that will remain on your credit report for ten years. But in a chapter 7 bankruptcy the debt is fully discharged in about 90 days and there is no “living under court supervision.”
They make it see as if good debt consolidation loans are not available. That’s not true. I find that Lending Club offers many people good access to unsecured debt consolidation loans. In fact the majority of their loans are for debt consolidation.
The company also states the consumer will approve the settlement offers but the agreement says there are a segment of offers that will be pre-approved. – Source
It does not appear the person has been in the program long so getting out quickly and losing the first months fee might just be the cost of a lesson learned.
Of course if the consumer was willing to pay for settlement encouragement, credit damage, higher balances, no legal representation, have to pay a settlement fee if they settle their own debt, and not to “get Client out of debt” then they apparently enrolled in the correct program to achieve those goals.
It appears from the information you provided the company is collecting an advance fee for debt settlement services and must be trying to use a perceived loophole to do so.
And just in case there is some doubt about who the consumer might have dealt with when she called and spoke to a “credit specialist” let’s look at a recent job posting for the position.
As you will see, it’s all about sales, no advice. – Source
In case you are interested, you may want to read my guide, How to Try to Get a Refund From a Debt Relief Company.