The other day I published the debt settlement recommendation report from The Center for Responsible Lending (CRL), click here.
As vocal as critics have been in attacking this site and myself for being outspoken about consumer unfriendly debt relief practices I felt certain people would have comments to offer about the CRL recommendations.
But silence, except for one commenter.
Some have asked me what my opinion is of the new suggestions, and while I did not offer them in reporting the CRL paper to give people a chance to share, I will now.
My opinion is the CRLreport is on target but does not go far enough. While the report is just about debt settlement I would like to see a much more comprehensive position by CRL about debt relief in general.
The same issues of appropriateness, screening, do no harm, detailed reporting, and fair and reasonable fees are not problems faced only by debt settlement alone and creating the impression only debt settlement is deficient in these areas would be a gross mistake.
These exact same issues are core deficiencies in credit counseling, student loans assistance, loan modification, and other non-legal services that intervene between a creditor and consumer.
Credit counseling seems to always get a pass because of their nonprofit foundation but aside from the Cambridge Credit Counseling transparency initiative nearly all nonprofit groups and the national NFCC have been silent on the exact same criticisms CRL leveled at debt settlement.
The CRL report does a really good job of pointing out the other considerations that should be part of any logical and healthy debt intervention strategy by all providers.
Currently, debt intervention providers (credit counseling, debt settlement, student loan assistance, mortgage modification, foreclosure assistance, etc.) all attempt to primarily do one thing, sell their widget rather than provide fair and balanced best advice based on the financial situation of the consumer and goals the consumer wants to achieve.
Despite of all of the venom, rage, anger, and attacks the debt settlement industry has leveled at myself and critics, the debt settlement industry as a whole has been ridiculously stupid and shortsighted in embracing healthy changes, such as those CRL recommended, to help preserve and grow their own industry.
Let’s not forget the predecessor of the American Fair Credit Council (AFCC), The Association of Settlement Companies (TASC) fought hard to ban seemingly all regulation of the industry, both federal and state. Debt settlement was against all regulations till they were for some.
It sure seemed like debt settlement associations and companies spent more to fight back than be fair and reasonable to consumers. The fighting and pushing simply resulted in a failed approach of eliminating all up-front fees when they could have easily had $400-$500 in up-front fees in the early suggested UDMSA approach.
While the AFCC made the right noises in the past couple of years about openness and transparency, it seems their members could not deliver on the promise according to the CRL report. And AFCC can only be as good as the membership companies want them to be.
The debt settlement industry got a black eye and severely discredited not because debt settlement isn’t appropriate for some but because profit takers and marketers tried to push it as a high commission solution where one size fit all. It never was and still isn’t.
I am not against debt settlement, never have been. As I said in my public testimony to the FTC, “A for-profit debt counseling or debt settlement industry in the U.S. would give consumers the opportunity to have groups want to move forward with new solutions, to lobby against creditor abuse, to fight for the consumers that are not well or properly served now, and to allow profit to attract the best and most talented staff.” – Source
And that profit was not intended to attract better salespeople but smarter advocates to fight for consumers. That simply has not happened.
Personally, I would love to see CRL create a paper that independently looked at the same issues and compare all debt relief options side-by-side to show results and effectiveness.
No one solution is going to tick the boxes for every consumer and credit counseling has been grossly inadequate in recognizing this. Generally critics have missed the mark on credit counseling as well. While some feel credit counseling does no harm since payments continue to be sent, I strongly disagree.
We have an exploding retirement crisis on our hands in America. The corrosive danger of enrolling someone in credit counseling who is not a best fit is not they will be sued but they will sacrifice a safe retirement. Don’t believe me? Read this.
For example, a consumer who would only qualify for a chapter 13 bankruptcy but has cash on hand to settle should first consider a debt settlement approach and not credit counseling. And on the flip side, a consumer who can make their minimum payments and afford to save money each month but wants to get out of debt with reduced interest rates should consider credit counseling over debt settlement.
And for consumers who don’t have enough emergency funds on hand, can’t save for retirement, and would qualify for a chapter 7 bankruptcy, they should first consider that solution above anything else.
So to my CRL friends I say, the report is awesome, but it’s only a start. I challenge you to deliver that comprehensive report and look at debt relief in general before it is too late for the entire debt relief industry to find a future.
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Thank you Steve, I do agree with you that there should be a report on company performance. But that’s a tricky one in my eyes, I don’t feel that a consumer that cancels in the first few months because they were sold by another company or program and didn’t pay anything towards savings, creditors, fees, ect.. should be counted towards a companies performance. In that case the company never had a chance to provide the services that were offered so it shouldn’t be negatively looked at. Also if a client were to cancel 6 months down the road, for example if their balances went up and they were upset about it, but a company like mine fully disclosed this from day one that the balances would go up, this shouldn’t count negatively because the client didn’t give the company a chance to settle the accounts. I feel, and I might just start implementing this soon, if a client cancels to file BK, or go to credit counseling that should be disclosed, and it should also be disclosed the number of clients that finished the program on or before the projected time frame and the number of clients that were not able to get all of their accounts settled in the projected time frame for a program. But a client that cancels because they do not want to pay the fee after the account was settled, or cancels because they just didn’t feel like paying their debt anymore, I don’t feel this is a good reflection on the performance of a company.
It is unreasonable to say that a client has the expectation that the vast majority of their debts will be settled in a short time. If a client is in a 36 month program it means they are to make the monthly savings payments for 36 months as agreed, and as proposed the clients debt are supposed to be settled in the 36 months. If the enrolled accounts are not settled in that time frame, the percentage should be disclosed to prospective clients. As you know most lenders do not settle first party and the client has to accumulate funds in order to settle so there are many variables that come into play on how quickly debts can be settled.
On another note, I didn’t put my company name here because I to do not want to be the target of attack by these problematic companies. As we all know the majority of the problematic companies will do anything to keep the scam alive to keep raking in the money off of the innocent Americans in debt. If you would like to contact me personally to the email that I provided when I started this post I would be more than happy to discuss detail on problems that I see, and maybe take some advice from you on making myself more compliant and finding a way to keep this industry honest.
Your suggestions are certainly reasonable. But I think the best of both worlds is to disclose how many people cancel and why. The FTC has made it clear performance numbers should include all people enrolled but I can’t think of any reason you could not breakout “of the people who cancelled, here’s why.” The FTC provides this great guide on how to deal with performance numbers. See http://www.business.ftc.gov/documents/bus72-debt-relief-services-telemarketing-sales-rule-guide-business
While those rules may feel restrictive, everyone should assume the CFPB rules and interpretations will be even more conservative.
My personal opinion is that full disclosures are smart insurance against consumer actions and lawsuits.
It seems there is much greater protection for the company to say X% of enrollees were sued instead of “you might” be sued. I look at these disclosures as cheap insurance.
We both know that most consumers are not going to make a decision about going with you simply based on the rates but based on their impression and comfort level they feel about the services you say you will provide. Where you will run into trouble is from the companies who fail to provide detailed and comprehensive disclosures and then sell against you.
I think full disclosures are a great sales tool to say to people, “here is how we do” and then ask the consumer to ask for matching performance data in writing from any other company.
As it stands today, you will be in a league of your own.
Lets talk about what the real issue in debt settlement is . . . THE ATTORNEY LOOPHOLE . . . Attorneys and “Attorney Models” are ripping off consumers at alarming rates!!! For profit debt settlement companies are not able to charge a client a single penny until they settle the clients first debt, thus putting the client at minimal risk. I agree that clients need to be informed about other options, and I also agree that a salesperson will not do that, but an ethical company should have a client checklist that states all of the negatives and risks so the client ultimately can make an informed decision on their personal situation before to much time passes. I am the owner of a “for profit” Debt Settlement Company and the following are some points that I put on a client checklist that I have the clients go over on day one to make sure that they are not put in a position that will ultimately harm them, to make sure they are informed completely –
– that my firm will not make monthly payments to the creditors
– that creditors will continue to call to try and collect on the delinquent balance
– that the clients credit score will be negatively affected
– that program will most likely be longer than projected due to the nature of the debt if the following accounts are enrolled –
credit union accounts, medical bills, payday loans, unsecured lines of
credit, and accounts that are less than $1000.00.
– that the creditors will still charge interest and the balances will go up from the amount enrolled
– that if any accounts are left out of the program that the open accounts may be closed due to the enrolled accounts going delinquent
– that being in the program will hinder the ability to refinance / purchase a home, or make any major purchases while in the program and for some time after until the credit score improves
– that enrolling military accounts can affect benefits from the government
– that enrolling may affect a clients employment, promotions, or security clearance if credit is looked at for any of these.
There are about 20 more points on my checklist that aren’t listed above. Now I know this isn’t a “fix all” but its a good start. I personally do not want to put a client in a worse position than when they enrolled. That being said there are easy steps that can be implemented to better inform clients as not to put them in further distress.
One more thing – there needs to be more information readily available to clients about the “attorney loophole” and “debt elimination” scams!!!!!!
Tim,
Thank yo for your comment. I appreciate your participation. As I said in my article, I really don’t see this as a debt settlement only issue so please don’t take my response as such. And I am not aware which company you are with so my comments have nothing to do with your company.
The one point I wanted to blab on about was the statement that since there is not advance charge the client is put at minimal risk. I would disagree for one of the reasons in the report but also for the loss of life and time in moving forward with a solution that fits their situation.
What do I mean? Take the consumer who might have a minimal level of expectation the vast majority of their debts will be settled in a short time. The absence of an advance fee does not mean they were not harmed.
I applaud your checklist and disclosures but continue to believe consumers should also get disclosures on company performance that are meaningful and complete. Consumers get disclosures on performance when buying a car or applying for credit, but no such performance disclosures are made available when buying debt relief.
I write about many of the debt relief issues that hit my radar. Many of those are brought to my attention by people inside the industry who care about pointing out bad practices. But you also need to know in doing so I have repeatedly been the target of attacks by those very allegedly problematic companies.
I’ve said for years the debt relief industry needs a band of good players who will stand up against bad actors in order to protect the future and viability of the industry. As far as I am aware, no such group exists. Maybe you and your friends can form just such a group?
How do you get someone to understand something when their paycheck depends on them not understanding?
How can we have an open and thoughtful discussion about the efficacy of debt relief services, without someone talking their book; someone hitting the bash button overly much; without the bias of profit goals (or even survivability) etc?
I’m not sure that’s possible until the debt relief industry stops looking at commissions first and starts valuing the potential impact and fiduciary duty they have to the consumer.
A classic example of this was a recent attack against me where the objections were not the facts of the stories or points raised.
It feels seemingly impossible to have a smart, educated and informed discussion by members of the debt relief industry about solutions that put the consumer first.
Hell, I just got off the phone and learned about a debt settlement company who pitched a consumer a five year settlement plan when they knew the first priority of the consumer was not to jeopardize their security clearance. Which priority was first there?
The consumer Steve mentioned is a client of mine that luckily called me before enrolling in the stupid plan that the sales person was pitching for 12,000 dollars in fees. I won’t mention the name but the company is one of the “largest settlement companies out there.”
The problem is that the obviously ignorant, or simply greedy sales person was focused on making a commission. Had the consumer listened to the sales person and signed up for an idiotic settlement plan to stop paying the creditors for 5 years he could have jeopardized his job. So the damage could have been a lot more than just ripping off the client for $12,000. This consumer literally could have had his life ruined because some sales guy wanted to make a commission.
I don’t see this ever changing. The business model of these companies essentially requires that they make a sale rather than help the client.
Might I mention here that the bait and switch tactic of send out mailers offering a consolidation loan and then switching them into a settlement sales pitch was used here. This company is shameful but unfortunately typical.
As if the 5 year plan wasn’t bad enough, the sales person also stated that the client’s credit would only be effected for 6 months. How is that even remotely logical? Dangle thousands of dollars in commissions at a sales person and I guess they will say anything. I am not sure if the sales person was lying, or just completely uninformed, but either way, this person should not be on the phone pretending to help consumers.
This is the kind of “help” consumers find out there and the industry can talk about screening and suitability all they want, but until consumers stop talking to sales people, nothing will ever change.
“I’m not sure that’s possible” – Sure it is. Currently not all that probable, but changing market realities can speed us to possible faster.
“stops looking at commissions” – Generally would not apply to BK and CCA.
“starts valuing the potential impact and fiduciary duty they have to the consumer” – A problem in every single debt relief vertical, but not inherent in any particular solution. This concern is related to people, and not just a service provider. In fact, this responsibility is squarely on the back of the individual seeking help. While consumers are fairly ignorant about debt relief options, and the pros and cons associated with each and every one, they are responsible for getting informed.
“It feels seemingly impossible to have a smart, educated and informed discussion” – Agreed. I have, and continue to have, these discussions individually. But public discussion, at least here (no alternative site with diverse readership exists that I am aware of), seems to always be interrupted, then overtaken, by the elements in my original comment above.
“Hell, I just got off the phone and learned…” – While inadvertent, and seemingly topical, likely diminished the potential for productive dialogue from others in this comment string.