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?
A friend and I were having a conversation several years ago about his and my companies approach to working with consumers who are struggling financially. The context of the discussion was centered on how we both approach consulting with potential customers. His company, like CRN, is direct and honest in their assessment of consumer’s options, nearly to a fault. At the time, the CRN business model was still relatively new and competitors would win over business by saying anything they needed to in order to close the sale (many still do). While expressing my frustration, my friend said something that I have not forgotten since:
“You Can’t Compete With Liars.”
The reality of that statement has persisted in the debt relief industry prior to his stating it and since. I have covered the topic at different times, in articles and interviews. Nothing I have done can compare to the content put out by Steve Rhode over on his blog: getoutofdebt.org
Steve puts out regular content about the debt relief industry. The theme of his coverage can be best described as “Debt Industry – The Good, The Bad, and the Ugly”.
When it comes to competing with liars though, his recent piece outshines anything I have heard or read to date – on tape even! He published an extremely well-put-together investigative piece about false and misleading claims and the straight up willingness to lie, by those offering debt settlement services for a large attorney law firm and some of its affiliate marketing partners.
You Can’t Make this Stuff Up!
He did not even have to try very hard. He batted 1000%. He only made 3 calls during peak hours to the sales reps and all 3 were willing to lie, deceive, and connive to make a sale. HAT TRICK! The fact that these sales reps are working for and/or fronting themselves in direct relation to a law firm provides even more of a “greasy” feel to the whole thing.
The practice of “say anything” to close a deal has been so wide spread, and the abuse now so well documented, that the FTC has published new rules to reign in the crazy profiteering. The new laws will be aggressively monitored for compliance as they become effective in the next 8-12 weeks. The attorney-modeled debt settlement companies are not exempted in the form many are known for today.
The industry gnashed their teeth and wailed about how the abuse and misrepresentations were the result of a few bad apples. They have only come off as disingenuous. What we have seen to date, and will continue to see for a while longer, may prove that this kind of “scammery” was more the norm for selling debt settlement. One thing for certain, the company(s) exposed in Steve’s piece likely have some “‘splainin to do”.
“...with the help of my debt specialist and Consumer Recovery Network I am now debt free."..."I am so grateful. I have an amazing credit score and only one major credit card that we pay off every month now. Thanks so much.”
“...and I came across a company called CRN. I talked with them and knew within 15 minutes of talking to Michael that this was the way to go."..."Their fee, being the most reasonable, made sense to me too. Most everybody wanted 20% of the total debt load; CRN wanted 15% of the debt reduced. Also, CRN sent me a whole debt settlement packet which included good information on DS as well as very informative CDs..! That information along with Michael's acute consultation helped me settle my debt of $60K in 6 months! Nobody I talked to was even close. Thanks to CRN, I have settled all 3 of my accounts for 30~35% on a total balance of almost $60K!”
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.
