The debt settlement industry is exploding. Some say that many of these new companies are being run by failed mortgage brokers that want to get into the business. I don’t know about that but certainly there is a wave of opportunism evidenced by the exploding debt settlement industry.
The sad thing about this is that as the market gets flooded by newbies, opportunists and people who simply don’t know what they are doing, the industry will get a massive black eye and I predict, either a crackdown or heavy regulation.
A very good article in the New York Times today brought some facts to light that I had suspected but was unaware of. In a lawsuit by the State of Texas against a debt settlement firm, it is asserted:
The suit says the company misrepresents its success rate, noting that the company’s own data “show that over 80 percent of the debts enrolled in the program do not settle.” Those debts that are settled, the suit says, are for higher amounts than the promised 40 cents on the dollar. Source: NYT
Additionally, other problems exist in the debt settlement industry that are not discussed often.
- Heavy front loading of customer fees from monies paid in.
- Lack of disclosure about tax implications of settling.
- Debt collectors latter pursuing debt that was believed to be forgiven.
- Continued collection activity while money is saved to settle with.
- Clients enrolled in debt settlement monthly payment programs getting sued by creditors for lack of payment to creditors.
Now, again, for the record, I have seen some amazing results with lump-sum debt settlements when the consumer has the funds on hand to settle the debt right now. That is a process that takes days or weeks and not years as in the monthly payment approach.
I’m afraid that the respectable firms in the debt settlement industry, and you know who you are, are going to get tarred with the same broad brush that credit counseling groups did in the crackdown of that industry.
The most disturbing aspect of the inevitable crackdown on the debt settlement industry is that it is yet another effort that will take options away from consumers that want to resolve their debts. It would be a welcome relief to actually see a new option or regulated tool that assists consumer to resolve their debt in a fair, reasonable and sustained way, other than creditor sponsored credit counseling. No new sanctioned or regulated tools have been brought forward in fifty years.
In a perfect world, the debt settlement would race towards government regulation of the debt settlement industry to provide a legal and recognized framework in which to operate that independently represents consumers, provides transparency, and operates on a united set of operating rules.
I doubt that will happen.
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BTW: I am told that the largest debt settlement companies in operation today are:
- Credit Solutions
- US Debt Settlement
- Freedom Financial
- Debt XS
- Century Negotiations
- Credit Answers
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