Collection industry insider, Bill Bartmann, has started an electronic petition he will submit to Congress where he suggests the following amendments to the Fair Debt Collection Practices Act (FDCPA):

We hereby petition Congress to amend the current debt-collection rules by adding the following provisions:

1. Increase the penalty for violations of debt-collection rules from the current $1,000 to $10,000 for each violation.
2. Ban all collection activities on debt that is older than the relevant statute of limitations.
3. Raise the requirements necessary to file a lawsuit on credit-card debt.
4. Require collection agencies to provide clear and understandable history of debt.
5. Require all collection agencies to be licensed.
6. Require all collectors to be licensed.
7. Require an annual compliance audit for all collection agencies.

Learn more about the petition here:  http://www.stopthesecriminals.com

The FDCPA regulates the collection of debt. It is well recognized that amendments need to be made to this consumer protection law from the 1970’s in order to bring it current with advances in technology, and to assist in curbing the steady increases in reported collection abuses.

Collection abuse has been #1 in industry complaints to the Federal Trade Commission several years running.

2010 saw quite a bit of interest and activity toward amending the FDCPA.  The process to amend the Act is well underway.

Want to see the collection industry cleaned up virtually overnight?

Impose a 10k penalty per FDCPA violation.

Think a penalty of ten thousand dollars is that far fetched? The FTC recently put in place an up to 16k penalty per Telemarketing Sales Rule violation that is primarily imposed upon debt relief advertisers, marketers, and service providers – companies who promote they help consumers resolve delinquent debt.

Congress could certainly impose similar statutory penalty caps for violations of the FDCPA against collection agencies – companies who work with creditors and debt buyers to resolve delinquent debt.

I have continuously written articles and spoken out in interviews about the practice of “selling” debt settlement. Selling someone into debt settlement is the number one reason the industry has been tarred and feathered in the media. The over hyped selling by profiteers and sales groups has resulted in enforcement actions by many states, and new FTC rules, in order to curb abuse.

DEBT SETTLEMENT SHOULD NOT BE SOLD!

Steve Rhode, on his blog, getoutofdebt.org, regularly covers the debt relief industry and its foul ups, bleeps and plunderers. He has recently covered several lawsuits filed by employees against the firms they sell/sold debt settlement for. The lawsuits allege failure to pay wages related to work performed. Steve has posted about lawsuits against: Lloyd Ward and Associates, ABC Debt Relief, The Debt Answer, Debt RX USA, Silverleaf Debt Solutions, CreditAnswers, and Credit Solutions of America. Key assertions in these lawsuits provide a clear view into the sales culture at some of these companies. I will focus on Steve’s post about the employee suit against Credit Solutions. Credit Solutions are also the target of multiple state legal actions.

From Steve’s post where he excerpts from the court record (my comments are in bold):

For at least three years prior to filing of this complaint and continuing (hereinafter “Liability Period”), CSA had a policy and practice of not correctly compensating its debt consultants for work performed for the benefit of CSA over and above forty (40) hours per week, to wit: virtually all debt consultants received a $2,000 forgivable draw their first 90 days of employment and a non forgivable draw of $2,000 per month thereafter. Debt consultants qualified debtors for debt settlement plans of Defendant by verifying the debtor possessed at least $10,000 in debt. Next debt consultants analyzed each creditor comprising the $10,000 is owed at least $600 and there are contracts in place between the creditor and CSA. The debt consultant sets up a CSA account for each creditor. Lastly, the debt consultant verified the debtor’s bank accounts and assisted the debtor in picking a payment plan. Once a plan was chosen the debt consultant, using CSA guidelines, would set up a monthly draft on the debtor’s bank account whereby CSA would obtain its fee and moneys to satisfy the debtor’s creditors. Eighty-five percent (85%) of CSA’s fee is collected from debtors’ accounts within the first 90 days. Debt consultants received a fee from the first monthly draft which was a percentage determined on the total volume of draft’s occurring monthly attributable to that debt consultant.

Here we learn that “debt consultants” are what I would more correctly define as sales people. The way this alleged fact is laid out would actually describe more of an order taker. What do they actually do by way of a consultation? It appears they just hit the immediate qualifiers, and then help you pick a payment option that will work for you. There is an obvious motivation for “picking” a payment that you will agree to. That is how they get paid! They have to do it though (more on this below).

Debt consultants were required to work a minimum of 12 hours per day, but were expected to work as many hours as necessary to reach assigned sales goals. Debt consultants regularly worked 14-16 hours a day and CSA provided debt consultants a room to nap and sleep when necessary to reach company goals.

Imagine the pressure to hit sales goals. In the current job market, these sales people HAD to perform to keep the job. They HAD to hit sales goals even if it meant sleeping at HQ to do it! No pressure, right?

Debt consultants were not provided a rest or lunch break, but instead, CSA served debt consultants “cup of noodles” for lunch so they would not have to leave their desk and could continuing selling the debt settlement services.

This allegation is one of the most descriptive of the debt settlement sales culture I have ever seen. Why not just put a shackle from the desk to the ankle of the sales person? Were there bed pans nearby?

Debt consultants worked six (6) days a week.

Ever see Ben Affleck in the movie “Boiler Room”? “ALWAYS BE CLOSING” – The sale that is.

As stated above, debt consultants do not receive overtime for hours worked over 40 in any week.

And why should they? You think cups of noodles are free?

CSA’s revised compensation/bonus plan containing an overtime component does not correctly calculate debt consultants’ regular rate of pay for purposes of calculating overtime; i.e. commissions paid on top of consultants’ hourly rate are not included in their regular rate of pay. – Source

Other than the outright lies that are told, there is no single more frustrating fact about the selling of a debt settlement service than the pick a payment plan approach. It is sold that way because it has to be. A consumer who is struggling to pay their creditors the required monthly minimum is focused on the dollar amount they cannot come up with. When a debt settlement sales person suggests all you need is to establish a monthly dollar figure that you can do, the hook is set!

Imagine if the sales people at Credit Solutions actually shared the TRUTH of the matter with you. If they told you that in order to be successful with settling your delinquent accounts, you are in a race. You have to come up with the money to fund offers as fast as possible. You would not feel the sigh of relief that is purposefully designed into the sales approach by the majority of people selling debt settlement.  Instead, your heart would palpitate. You would know that debt settlement is a tough choice, not an easy one. You would have a much clearer idea if debt settlement is even right for you. The sales person for CSA would not close as many sales. Do you think they would ever get to go home?

Don’t consult with a sales person offering debt relief!

If you are asked what you can come up with each month to put toward settlement, or someone “helps” you come up with a figure they are confident you will bite on, you are talking to someone offering “pick-a-pay”. Pick-a-Pay is a suitability test that everyone will pass. Using this approach means virtually any one breathing will qualify for debt settlement. That is, and has been, absurd (absurdly profitable that is).

Look to speak with someone who actually works with consumers and their creditors/collectors on a daily basis. If they have any experience and are what I would consider a responsible service provider, they will TELL you the amount of money you will need to come up with, and how quickly, in order to SUCCEED with settlement in your particular situation. Armed with this knowledge, you will then be able to evaluate whether or not filing bankruptcy would be the better choice.

You can speak with just such an expert by scheduling a consultation with a CRN negotiator. All CRN consults are conducted by people who, every day, actually settle debt or provide detailed information to CRN members on how to settle their own. There is no one more prepared to provide you the necessary details about how this approach will apply to your unique set of circumstances.

For more on how debt settlement is inappropriately SOLD, read:

• Dude Meets Debt Wall
• Shocking Eye Witness Debt Settlement Report
• Debt Settlement Marketing: The Gist, The Juice, and the Lies

The Debt Relief Industry will be forever changed by the announcement and publishing of new rules from the FTC today. The rules are designed to protect consumers from those marketing and providing debt settlement services.

The most contested  measure anticipated in the new rules is a ban on companies charging upfront fees. Upfront fees have been held up as necessary by the majority of debt settlement companies who have lobbied heavily to maintain the status quo. Consumer advocates and regulators have argued that upfront fees are the equivalent of an abusive business practice. We, at CRN and Debt Bytes, agree! Which is why CRN fees for full service debt settlement have always been based on SUCCESS, after the creditor is paid.

Stay tuned to Debt Bytes, as we will be covering the impacts of these changes in the coming weeks.

For Immediate Release

July 28, 2010
**MEDIA ADVISORY FOR TOMORROW**

FTC Chairman to Announce a New Debt Relief Rule to Protect Financially Distressed Consumers at Middle Class Task Force Event

WASHINGTON – Tomorrow, Thursday, July 29^th, at 1:30 PM ET, Federal Trade Commission Chairman Jon Leibowitz will announce a new rule to protect consumers of debt relief services at a Middle Class Task Force event at the White House. Following the Chairman’s announcement, Vice President Biden will discuss the administration’s consumer protection agenda and the importance of consumer protection to middle-class families.

This event will be POOLED for TV cameras, and OPEN to print, online, radio and still photographers. An RSVP is required to participate.

WHAT: FTC Chairman to Announce a New Debt Relief Rule to Protect Financially Distressed Consumers at Middle Class Task Force Event

WHO: Vice President Joe Biden, Federal Trade Commission Chairman Jon Leibowitz

WHEN: Thursday, July 29, 2010, 1:30 PM ET

• Gather time: 1:00 PM ET at the White House stakeout location
• Camera pre-set: 12:30 PM ET

WHERE: Eisenhower Executive Office Building, Room 430

RSVP: Press who wish to cover this event should RSVP to press@ovp.eop.gov by tomorrow, Thursday, July 29, 2010 at 8:00 AM ET. **Press who DO NOT have a White House hard pass should include their Date of Birth and Social Security Number. All press must enter the White House at the Northwest Gate.**

Many people we work with write in to express their gratitude for the assistance we, at CRN, provided in helping them get out of debt. We decided to create a way for people to share their experiences with others by posting to this blog!

You are Invited…

…to share your story, feedback, and/or review of your experience working with Consumer Recovery Network in the comment section of this post.

There are no rules for posting. You may want to follow an outline of what brought you to CRN, how we compared to other options or companies you looked into, what happened along the way, and what the ultimate result of working with us has been, to date. Or, just have fun and express yourself!

ALSO:

Not everyone we consult with qualifies for our more aggressive approach to dealing with debt. Many of you we consult with still appreciate the time we take to inform you of what debt settlement really involves after having contacted other service providers. Our consults are often a refreshing dose of blunt honesty for people just looking for information and answers they can trust. You are invited to share too!

Tell you what….if you having anything to share about CRN, the Debt Bytes Blog, or any facet of the work we do…. chime in! We look forward to hearing from you!

P.S. You can identify yourself using your initials or first name only, unless you are comfortable sharing your identity, like Jonathan Grossman, who blogs about his experience with CRN at Debtsettlementstory.com

Today, the Detroit Free Press ran an article about how consumers have the option to negotiate a reduced balance pay off with creditors (debt settlement). Read the full article here: Debt Settlement in Michigan

I was interviewed by the reporter for the story, as was a CRN member who was quoted in the article. The article gave some good advice, but I would like to expand on it. The article correctly stated many companies “have taken outrageously high upfront fees — as much as 13% to 20% of your debt”. The average fee charged by most settlement companies is 15% of the debt you ask them to settle for you.

The CRN member quoted in the article settled $35,000.00 of debt for $12,000.00 by implementing the tools and following the guidance she received as a CRN member. Had she hired a typical settlement company to settle her debt she would have paid an average of $5,250.00 in upfront fees. However, as the Detroit Free Press article stated, she paid CRN just $1,200.00 to do the same thing. Would it really have been the same thing though? Not hardly!

If you hire the typical settlement company, you’ll find:

• By paying high upfront fees before the company achieves any real substantive results for you, you are prolonging your success, and often dramatically reducing your odds of achieving any success at all.
• The company will probably send notices to your creditors letting them know they are now working with you. This means the creditors will know that you are now paying a settlement company instead of them. Often, the reaction to this information will be to become more aggressive about collecting what you owe them, possibly by referring your account to a law firm in your area earlier than it would otherwise and giving the firm authorization to sue for the money you owe.
• The settlement company will generally not be negotiating with your original creditors because they mostly wait for your accounts to charge off. Charge-off usually happens at about 6 months of nonpayment. Once creditors charge off bad debt, they will typically do one of three things with your account, assign, sue or sell.

Settlements are still available when your account goes someplace other than with your original creditor after charge-off, but depending on who your creditors are, you’ll save the most through debt settlement by negotiating with the original creditor BEFORE the account charges off. In other words, you could find yourself paying more, sometimes much more, when settling with a 3rd party.

The article in the Detroit Free Press seems to suggest that the CRN member was still hoping debt settlement would work for her by saying “She’s crossing her fingers that this arrangement works.” It did work. She enrolled with CRN in September of 2009 and completed her settlements in March 2010. She got out of debt in 6 months rather than the 3 to 5 years it would have taken her to resolve her debts if she had filed for chapter 13 bankruptcy instead or the average of 4 to 5 years if she had enrolled in a debt management plan.

Credit Reporting

Debt settlement is an option for someone who can no longer continue making timely payments on their debts and whose credit score is, therefore, either already suffering, or soon will be.

What happened to the credit score of the CRN member quoted above?

The CRN member gave me permission to share an excerpt from an email exchange I had with her on 3/22/10:
“…Two days ago, I re-ran my credit and 3 of the 4 settlements had already posted. My credit was already 671-677 from each of the three bureaus! I think my credit ranged from 670-710 in the year prior to starting the settlement process so this is amazing.”

The effect of debt settlement on an individual’s credit score will differ based on several factors, so please do not take the experience of this CRN member as an indicator of what will happen to yours.  The points here are: Getting out of debt should be your first priority, and once you do, your credit will bounce back regardless of the option you choose to get out of debt.

The US economic engine is based on roughly 70% consumption. In a tough Michigan economy, this CRN member and her family can return to responsible spending in 6 months rather than 3 to 5 years. Furthermore, not only did she avoid bankruptcy, but also, her creditors got something rather than 90% odds they would have gotten nothing were she to have filed chapter 7 bankruptcy.

If you find yourself running out of money before you run out of month and live in Michigan (or anywhere in the US for that matter), please call CRN a call at 1-800-939-8357 when you are considering debt settlement as one of your 3 legitimate options to deal with debt.

Michael Bovee
CRN President

FICO Data Reveals That Settling Your Debts Damages

Your Credit Scores Less Than Filing for Bankruptcy

FICO, the company that calculates consumers’ FICO scores — the scores that are the most widely used by American creditors to determine whether or not they will extend credit to a particular consumer and the terms of that credit — recently released data showing how different negative actions consumers might take in regard to their credit will affect their scores. Among other things, the data shows that settling your debts is far less damaging to your FICO scores than filing for bankruptcy. In other words, the data helps make the case for why settlement rather than bankruptcy is an excellent alternative for many cash-strapped consumers, assuming that they either settle their own debts or work with a reputable settlement firm that charges fairly for its services.

The data released by FICO and available on its web site at: http://www.myfico.com/crediteducation/questions/Credit_Problem_Comparison.aspx, shows that as a consequence of filing for bankruptcy, consumers may see as much as a 240 point drop in their FICO scores. In contrast, if they settle their debts, their FICO scores may drop by 125 points at most. Interestingly because of the way that FICO scores are calculated, when consumers have higher scores prior to either filing for bankruptcy or settling their debts, their credit scores are harmed more by settlement or bankruptcy than are the scores of consumers who had lower FICO scores to begin with. According to FICO, the reason for this difference is that the scores of lower scoring consumers already reflect their credit missteps.

Despite the FICO data, I must caution you not to base your decision about which debt relief option to pursue based on that information. All debt relief options — credit counseling, settlement and bankruptcy — will have a negative effect on your credit histories and/or FICO scores for some time. (See my recent blog, Debt Relief Options vs. Your Credit Score).

When you are deciding how to deal with your debt, your primary concerns should be gaining a clear understanding of how each option works and its pros and cons, and determining whether the numbers associated with a particular option make sense for you. For example, your first test if you are considering settlement should be whether or not you can accumulate the money you need to fund your creditors’ settlement offers before your risk of being sued by them for what you owe begins to escalate. If you cannot come up with the money you need to settle your debts relatively quickly, then bankruptcy is probably your better option.

For free help determining which debt relief option would work best for you, fill out CRN’s consultation request form.

Do-It-Yourself Settlement is a Great Option for Most Consumers

Despite advertising to the contrary by some debt settlement companies, you are well-positioned to settle your own debts with your creditors. In other words, there is no need to pay a lot of money to a debt settlement firm to negotiate for you, and doing it yourself means that you’ll have more money to put toward your debts so you’ll get out of debt faster. However, you’re more likely to settle your own debts successfully if you have a clearer understanding of the settlement process and know how to make it work for you. For these reasons, the services of a debt settlement firm that will support your do-it-yourself efforts with information, advice and encouragement can be invaluable. If you decide to get this kind of help, here is some of what you will learn:

• Something is almost always better than nothing. Although creditors understand that a certain percentage of the consumers they extend credit to won’t be able to repay what they owe and therefore set aside a reserve for losses as a result of defaults, they also want to minimize the amount of those losses. One way that most of them do that is by agreeing to settle past due debts for less than the full amounts owed. However, each creditor has its own policy regarding what it will settle a debt for. For example, you may find that you are able to save 60% with one creditor, but only 45% with another. For more detail read Debt Settlement-Why Banks Do It.

• Timing matters. The creditor you’re negotiating with may reject your offer, maybe because it’s too small, in which case you may want to increase the size of your offer, if you can afford to. It’s also possible that your offer was rejected because you’re off on your timing (See the next bullet in this post) or because there was irregular activity on your account prior to your default. For example, before you stopped paying on the account you tapped it for large cash advances, used it for balance transfers, or you suddenly began using your card much more than you had in the past. Of course, some creditors may simply refuse to settle with you, in which case you’ll have another shot at settling if your account is sent to collections or sold to a debt collection agency.

• Settle sooner rather than later. If you are going to negotiate with an original creditor (the creditor who extended you credit), usually you must do so before the account you want to settle is more than six months past due. Otherwise, you’ll have to try to negotiate a settlement with the collection agency that your creditor may hire to collect your debt or with the agency that may purchase the debt. It’s also possible that after the six months are up, your creditor will give your debt to an attorney who is authorized to sue you for the money. Complexities do exist. The more accounts you have with different creditors the more strategic you will need to be in how you prioritize the accounts so that you maximize savings and defer risk.

• Be ready to roll with the punches. Although settling a debt is not difficult, when you are doing it yourself, you may end up feeling lost, frustrated or unsure about what to do next. That’s why having the support and assistance of a debt settlement firm can be so helpful. Not only will the firm make sure that you understand the details and nuances of the process and provide encouragement and support when you need it, but it will also be available to help you figure out when you should take a dive and when you ought to throw your best punch.

Consumer Recovery Network provides consumers with all of the information and tools they need to settle their own debts as well as unlimited support throughout the settlement process. We also guarantee that if you don’t want to settle your own debts or try and are unsuccessful and hire us to do the negotiating for you, we will charge you for our efforts only if you accept the offers we get. And, if you do, we don’t expect you to pay us our fee until after you’ve paid your creditors what you agreed to. Furthermore, in 19 states we don’t charge anything for our negotiating services. In these states however, we do encourage the consumers we work with to donate what they would have had to pay to us if they were living in a state that did allow us to charge a fee for those services to a low income legal aid organization in their community or to donate nonperishable food items to their local food bank.

By: Michael Bovee

CRN President

Settlement with creditors is a great way to deal with debt when you are unable to maintain consistent payments. It is however, not a cake walk, though many in my industry will sell it as such.

This post was inspired by a consult I did this morning with a gentleman in Pennsylvania looking at settlement as an approach to dealing with his unmanageable debt. He wondered onto our website while searching out his options, after having already consulted with another company in the industry.

His unsecured debt totaled $22,000, spread out over 7 accounts. His minimum payments are just over $900.00 a month. His interest rates on most of the accounts are over 20%. That is what’s killing him. He would be able to meet minimums, but for the higher interest, and likely be very successful using an aggressive debt rollup, or debt snowball strategy, to get out of debt quickly and unscathed. His plight, when outlined to creditors, has thus far resulted in “Dude meets wall”.

The company he consulted with prior to me outlined a 36 month program where he could pay into an account roughly 300.00 for 36 months and poof, his debt is gone. Never mind that $3300 of that money set aside over that time will go to the settlement companies fees, I’ll get to that in a moment. The sales person with whom he consulted is selling rainbows and unicorns for a commission. The 36 month plan for his situation is ridiculous for some of the following reasons.

Two of the accounts we discussed have balances of about $1000.00 and another one for $1500.00. Enrolling these accounts in a plan like this, unless they are the first ones settled (even then not advisable, unless left with no choice) is futile and silly. The math doesn’t work. Optimum balance reduction through settlement only happens when you are delinquent, often very delinquent (5 months or more). When you stop paying, default interest rates of 29-32% will be applied, late payments will be assessed, all of which could result, in some cases, in over limit fees being tacked on. Depending on when settlement is reached the amount of the debt could now be double. Can the debt be settled? Absolutely, but using 50% savings as an example, what did you actually save? Nothing, or close enough to nothing to prove that the math doesn’t work.

What if we take these 3 smaller accounts out of the equation? We are now working on $18,000. By aggressively saving and setting aside every penny, this family could be out of debt in less than 12 months and limit to near nonexistent, the risk of being sued on unpaid debt.

Now, I was completely upfront with this consumer about the way I saw his situation and perhaps he appreciates the candor and becomes a member. Perhaps the other consult he had sounded more appealing, with its 36 months, low (too low) payment to his savings for settlement and easier sounding approach. He will pay the typical fee in this industry, which by their very nature is harmful to the settlement process. The sales person will make his commission (some cases I have seen, commissions are in excess of 70% of client fee) for selling rainbows and unicorns.

He may ultimately be out of debt in 36 months, but it will have been a very long 36 months, and he will have paid too much, experienced too much grief, may be sued on one or more accounts and may miss out on strategies that could have been beneficial to recover his credit standing much faster (this is whole different topic for another post).

Moral to this post: Don’t buy into rainbows and unicorns unless you are into paying a salesman’s bills when you can’t afford your own. The settlement industries frontline is, for the most part, populated by sales people motivated by commissions. Rarely do you find a place where you can consult with, and talk to an experienced debt specialist on first contact, prior to forking over any fees and whose motivation is your success, not your money.

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, learn about becoming a member of Consumer Recovery Network (CRN), with no risk to you, and find out if you should pursue debt negotiation.

By: Michael Bovee
CRN President

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