Debt Collectors have been increasingly whiny lately.
For the past year, I have seen weekly reports that provide a breakdown of how many consumers have filed suit against debt collectors for violations of the Fair Debt Collection Practices Act (FDCPA). I have also seen an increase of people working in the collection industry commenting online as relates to these reports. The comments typically convey a “woe is me” attitude about the increase in the amount of consumers who are taking them to task on the abuse.
Should anyone feel sympathy for the industry with the most complaints filed against it nationally for several years running?
Let’s take a look into some recent articles in major publications covering the volume of debt collection lawsuits being filed vs. consumers filing suits after experiencing abuse from collectors.
The Star Tribune ran a great article a few weeks ago. It is a fantastic source for detail into the growth of attorneys specializing in representing consumers who have been abused by collectors. From attorney Pete Berry in that article:
“Why did you call my client a low-life piece of shit?” Barry asked the collector, according to the transcript.
“In about 10 seconds you’re going to have that answer, Mr. Barry,” the man replied.
“I’d like the answer now, please,” Barry said.
“Well, you have to get it when I give it. …” the collector said.
“I’m asking you, and I’m going to ask you again, the question is, why did you call my client a low-life piece of shit?” Barry said.
“Because in my opinion, a person who doesn’t pay his bills … is a person who in my opinion is a low-life piece of shit,” the man replied.
Also from the Star Tribune article:
“Federal lawsuits by debtors against collectors have soared sevenfold over the past decade, in a mirror image of the huge jump in collections judgments that Barry and others accuse debt collectors of churning out mill-style without regard to accuracy. And while collectors usually win judgments when they go to court, debtors are finding success when they fight back.”
So how many suits are filed each year?
“9,290 cases were filed nationwide in federal courts against collection firms in 2009, according to WebRecon.”
The article goes on to say:
“High-volume consumer law firms are churning out lawsuits as efficiently as the collectors they battle. Many of these suits are cookie-cutter complaints that are skimpy on details — just like many collection actions clogging the nation’s court systems.”
Then we have the excellent NY Times piece from a couple weeks back discussing how the courts are clogged with boiler plate lawsuits filed by debt collection law firms. The article highlights the practice of just one firm’s volume:
“Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades. The firm has been filing roughly 80,000 lawsuits a year. With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.”
“The firm filed 59,708 cases in 2005, 83,665 in 2006, 87,877 in 2007 and 80,873 in 2008, records… show.”
So, umm…. One attorney in one firm in NY files in one year more than half as many suits filed on behalf of abused consumers nationwide? Debt collectors doth protest too much!
“One afternoon last spring, Deborah Poplawski, 38, of Minneapolis was digging in her purse for coins to feed a downtown parking meter when she saw the flashing lights of a Minneapolis police squad car behind her. Poplawski, a restaurant cook, assumed she had parked illegally. Instead, she was headed to jail over a $250 credit card debt.”
“She spent nearly 25 hours at the Hennepin County jail.”
These articles are just a small snapshot of the problems with debt collectors running rough shod through the courts and through the lives of financially disadvantaged consumers. Collectors generally could give a rip about consumers. They want their money! Whether a person can afford to pay, whether they have the right to collect, whether the debt is time barred from using the courts, whether they have documentation to back up their claim, whether they are even trying to collect from the right person!
Today I found an article published on a collection industry website which, in my opinion, typifies the attitude of the collection industry as relates to the gall of consumers to bring claims against collectors.
From the article at InsideARM: “let’s move on to another class of debt collection-related suits that is growing so rapidly, it has the potential to “clog” the court system before too long: FDCPA claims against ARM companies.”
How much of a clog you may ask? Here are the numbers that so offend the author:
“According to… WebRecon update, through July 31 there have been 6,267 cases filed by consumers claiming violations of the FDCPA, well on pace to exceed 10,000 for the year.”
So, umm… Here again, just two lawyers at the Slamowitz firm in NY file more debt collection cases in one year than all of the combined suits filed by consumers against collectors nationwide.
Please excuse me for not having compassion for collectors whining about an increase in consumers protecting their rights by fighting back with an extremely small amount of civil claims for abuse.
May I suggest Gouda with that Merlot?
If you are, or feel as though you have been, a victim of collection abuse, go to NACA and search for a consumer advocate attorney in your area who specializes in FDCPA violations. If you have an attorney, but he/she is not experienced with debt collection violations, get them in touch with the attorney referenced above, Pete Berry: lawpoint.com
Debt Settlement is a very real option for consumers who are trying to avoid bankruptcy. Unfortunately, the decision to try it is too often made from an emotional perspective. This has, is, and will forever be; The WRONG perspective to use in your decision making.
Unsure, Scared, Overwhelmed?
Those promoting debt settlement for high paid commissions have been able to capitalize on the emotional appeal of avoiding bankruptcy, even when the math would clearly show settlement to be an unwise choice in your particular circumstance. It will be increasingly difficult for those selling debt relief services to do this after 9/27/10.
Knowing What to Expect
One of the more dynamic requirements found in the recently announced FTC rules that will govern the for profit debt relief industry, is the requirement for Good Faith Estimates. There are several estimates that will be required, such as:
Total fee for service
When an offer to creditors will be made
How much money a consumer must set aside before an offer will be made
How long it may take to achieve represented savings results and thereby complete your settlement program
These estimates, combined with; savings claims having to be backed up by the ACTUAL experience of the service provider (more on how HUGE this is in future posts), account balance increases, estimate of the service providers fees and a few other whammy’s – make for fantastic features for consumers evaluating a debt settlement service!
These fact-based estimates of total savings, fees and program lengths must be provided along with key disclosures PRIOR to consent to pay. In other words, before you sign up for a service. Now you get to see the numbers! Your decision to attempt settlement should always be factored on a very clear understanding of:
—> How much it will cost and how long it will take <—
When all costs are considered, it may not be worth it. If a program would take too long due to your limited resources, you expose yourself to increased risks of creditors using the courts in order to collect.
CRN, for years now, has broken this down in detail during our initial consult with you prior to even suggesting working with us. We do not take a file if we cannot settle one or more accounts within 180 days of membership, nor do we accept a person into a program unless we can see clearly prior to enrollment that you can complete your work with us in 18 months or less (except in rare circumstances).
The required compliance with these new FTC rules will show consumers considering settlement that the program length of 36 months (even longer) hyped by the industry are so problematic, they should avoid debt settlement all together.
The poor image that debt settlement gets is due to the massive enrollment of people who were not suitable to try it from the outset. Companies and sales people have inappropriately signed up the wrong people in order to make huge commissions.
WARNING:
Get any company you are thinking of hiring after 9/27/10 to put estimates in writing prior to hiring them. If they are unwilling to do so, I would suggest finding someone who will.
Companies whose front-end sales people lack sufficient negotiation experience (pretty much all sales people) will likely have to use blanket percentages and timing estimates that may not accurately reflect the reality of your situation. This may cause you to conclude settlement is not a good option.
Companies whose fees are set too high may cause you to conclude settlement is not a good option. Look for credible companies with low fees.
CRN has no sales staff. All initial consults are performed by our specialists who work with our members and their creditors daily. This means the numbers we share with you are based on real time data – as it pertains to you – at that moment.
CRN has, all things considered, the lowest fees in the industry.
Schedule a consultation online or call 800-939-8357 in order to get the facts, numbers, and accurate estimates and see if settlement can work for you! Have a question? Get answers on line, go to: ASK CRN
Last Thursday saw the anticipated signing of new laws governing debt settlement operators in Illinois.
Fee Caps
This came on the heels of federal rules announced the prior week that are designed to curb consumer abuse at a national level. Illinois went further than the FTC by capping fees. Companies providing settlement services can only now charge 15% of savings.
A 15% of savings fee, after the work is performed, is precisely what we at CRN have charged since 2006.
We support Illinois efforts to reign in companies’ business practices that have often been found to be a source of harm rather than help for consumers.
The new rules in Illinois did carve out an exemption for attorneys. This is unfortunate, as many of the companies that have been shut down in the past, have used the attorney business model. Some of these attorney led companies (whether in fact or in name only) are well documented to have created worst problems for the consumers they solicit for their programs.
“Turning to a debt settlement operator to help you pay off your credit cards is like turning to a cinderblock to help you learn how to swim,” said Attorney General Lisa Madigan. “Debt settlement operators take money from consumers and usually provide them with no services. With this new law, which is the toughest in the nation, Illinois sends a clear message to debt settlement operators: If you want to do business in Illinois, you have to provide real services to help consumers pay off their debts.”
Madigan’s comment is just as relevant when working with many attorney models that are mass marketed to the public by affiliate sales people.
I would encourage any Illinois consumer looking for outside assistance to settle their debt, locate a company who will charge no more than 15% of savings. Anything over that, and you are paying too much!
Due to business practices that have been deemed unfair and abusive used by many companies offering debt relief services (primarily debt settlement), new federal laws will come in to play that take aim at what are recognized as some of the worst practices.
Those companies and industry associations that are most affected by the rules the FTC added to the existing TSR’s, which will ban charging upfront fees starting 10/27/10, are rumored to be coordinating a legal challenge.
It is, in my opinion, a silly effort.
“For the Love of Money”
The motivation to do so is rather predictable. If the figures thrown out there by debt settlement trade groups are to be believed, they claim their members have settled a couple billion dollars of debt. Given the average fee charged by the trade group’s members is 15% of the debt a consumer submits to them to settle, that would amount to 300 million in fees generated. That’s for what has been settled, not submitted to attempt to be settled. This means the fees paid could far exceed 300 million.
That’s worth fighting over, no doubt.
What’s the Problem?
There are big problems with starting this fight however. All one needs is some clear forward thinking to know that any challenge, even if successful, will only result in more regulatory muscle flexing.
Let’s say industry files a challenge and a temporary injunction is granted where by debt settlement firms can continue their advance fee, pay go fee, or whatever you want to call it (I call it profiteering on the backs of the already financially disadvantaged). What do they gain? Several months, or even a year of continued money grab practices, until the court is able to grasp the issues?
If industry does challenge the FTC rules, here is what I see happening along the way:
States will pass even more aggressive laws in an effort to protect their residents. Illinois just passed a fee cap of 15% of savings only. That’s a cap on fees where there are no caps in the FTC rules. Incidentally, 15% of savings is what CRN has had as our fee for direct settlement services since 2006.
You have a bill that has been put forth in the US senate that contains verbiage to cap fees nationwide at 5% or 10% of savings only. Aside from fee capping, there are even more stringent guidelines in the Senate bill, such as not impeding a creditor or its assignees from communicating with the consumers enrolled in a settlement program. This little gem would further cut into industry profits as consumers would then realize that most banks are willing to work directly with them to settle their debts and that there is no need to pay a company to do it for them.
The momentum for passage of a congressional bill lost a little steam, but could become re energized if the industry throws a hissy fit in the courts. I understand senate staffers have continued some efforts in this regard since the announcement of the FTC rules. Industry may soon find they have battles with regulators on multiple fronts.
There is the Consumer Financial Protection Bureau (CFPB) that will be up and operational shortly, which could easily smack the industry around with its significant enforcement ability.
State regulators came out in huge support of the FTC rules leading up to their being announced. Several states are aggressively pursuing bad actors in the debt relief industry right now. If industry challenges the rather fair measures for regulation put forward by the FTC, look for a ramping of actions taken by state regulators to quickly ensue. I would suggest that ALL members of industry trade groups have penciled in targets currently on their backs. Legal challenges to the new rules could bring out the permanent markers.
There is absolutely no one in support of debt settlement companies being able to continue to operate in the way they have, other than those who have profited most from it.
Companies whose business structure can survive with a shift to only collecting fees for service when they settle a debt have already started making adjustments. These companies will join the ever so small ranks of companies who had already been charging the majority of fees on the back end. They will thrive in a period of time where the press may look to highlight their fair practices while continuing to hammer those companies with unfair practices. Companies fighting for the upfront fee status quo will lose further ground in a media war that began a couple years ago.
This blog is likely not read by many in the debt relief industry, but I would encourage anyone with an opinion to participate in commenting here.
What possibly can be gained from challenging the rules other than a few more months of fees followed by an even worse operating climate?
Is your company making adjustments to comply with the fee ban?
Are you hearing its business as usual, there is nothing to worry about, or are you actively looking for new employment?
Do you think the rules reach too far, or fell short of needed regulation?
“In August 2009, I had $140,000 in personal unsecured debt. By March 2010, I had settled that debt for $40,000. 28 CENTS ON THE DOLLAR. My family and I are forever grateful for their commitment to our financial recovery. Michael, Dayna and the whole CRN family create a top notch debt settlement firm. Honest, efficient and inexpensive. Here are top 3 reasons I love them: (1) You will talk with a highly educated intelligent counselor NOT a salesperson. (2) Their commission is performance based and you pay them AFTER you pay your creditors. (3) Once enrolled in the program, they provide UNLIMITED support! Thank you CRN!!”
—Jonathan Grossman, www.debtsettlementstory.com
“I want everyone to know what you guys can do for them and that there really is a better alternative than these debt settlement companies we hear about on the radio. I can't believe what you guys have helped me accomplish in just 6 short months.”
You have a bill that has been put forth in the US senate that contains verbiage to cap fees nationwide at 5% or 10% of savings only. Aside from fee capping, there are even more stringent guidelines in the Senate bill, such as not impeding a creditor or its assignees from communicating with the consumers enrolled in a settlement program. This little gem would further cut into industry profits as consumers would then realize that most banks are willing to work directly with them to settle their debts and that there is no need to pay a company to do it for them.
