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

Every day I receive a daily Google alert in my e-mail inbox that features links to articles, press releases and blogs about some aspect of debt settlement. It’s one of the ways that I stay abreast of what is happening in my industry and it’s the kind of information that any financially-troubled consumer might find by searching on the Internet for helpful resources using key words like debt settlement, debt problems, debt settlement firms, or debt negotiation. However, I’ve been dismayed to see that more often than most of what I read in these alerts is not factual and appears to have been written by debt settlement firms or their representatives with the goal of getting unsuspecting consumers who are confused and scared about their financial situation to work with them.

Here are common examples of the kinds of misleading blather I read in the alerts that show up in my e-mail box each morning:

• Press releases that supposedly are announcing news about a particular debt settlement firm or some aspect of settlement. In fact, the releases contain no news content of any sort and are being used by unethical firms to get consumers to click through to their web sites. At least one of the wire services transmitting these “press releases” appears to be little more than a vehicle for posting articles on the web and not a true wire service at all.

• Poorly written articles about settlement with titles that have been chosen to make it appear as though the articles actually provide valuable advice and information to consumers who need help managing their debts. In fact the information in these articles is marginally useful at best and sometimes totally misleading. You’ll find the real purpose of these articles in a closing paragraph where readers are encouraged to contact a debt relief network, which the articles claim is comprised of highly ethical settlement firms with proven track records for helping consumers. Don’t believe it!

• Half-written blog posts about some aspect of debt that are surrounded by lots of ads for debt settlement firms. I assume that the agenda of whoever writes these posts is less about completing the post and providing readers with truly useful advice and information and more about getting readers to click on one or more of the ads.

• For-profit debt settlement organizations that use names to make them sound like they are non-profits or that imply that they are affiliated with a federal government debt settlement program. The theory here is that consumers will be more apt to trust a non-profit or a firm that’s affiliated with the government. Fact: Debt settlement firms are businesses, not nonprofits, and there is no federal debt settlement program.

• Articles, blogs and press releases encouraging consumers to visit specific debt settlement forums before choosing a debt settlement firm. Supposedly, consumers who participate in these forums will have an opportunity to communicate directly with other consumers who are working happily with a debt settlement firm or who have already settled their debts with the help of a particular firm. Although there are legitimate forums where consumers can obtain truly useful information, some forums have been created by debt settlement firms or their representatives and if you participate in one of them, the consumers you communicate will be nothing more than people who are being paid by the firms to share information with you, to gain your trust and to recommend the firms to you. Other forums work a little differently. For example, in some of them, someone will try to get you to provide him with your name and e-mail address and then that individual will sell your information to a debt settlement firm. Not long after, the firm will contact you offering to help you resolve your debt problem.

Obviously you must be very, very careful when you search for debt settlement assistance online because there are a lot of firms out there who are willing to use underhanded and misleading tactics to gain your trust and who are all too ready to promise you the moon, take your money and give you little or nothing of real value in return. Therefore, before you share any information with anyone on a debt settlement forum, before you agree to work with any debt settlement firm or to pay the firm money, check it out with the Better Business Bureau, http://www.bbb.org/us/Find-Business-Reviews and with your state attorney general’s office, http://www.naag.org/attorneys_general.php. In other words, when it comes to debt settlement the old adage caveat emptor, or buyer beware, definitely applies.

Michael Bovee

The gist:

Here is the link of a company that solicited Consumer Recovery Network to buy live transfer leads from them last month (These come in virtually every day):

ineedyourleads.com

Commercials like this are aired on television; the consumer calls the number and is asked perhaps 3-4 qualifying questions and re-routed to a call center or settlement firm with their own internal sales floor. Perhaps the number provided will go direct to a sales floor without a pit stop for a 4 question qualifier.

This type of advertising, at its peak last year (perhaps some will pay this even today) ran anywhere from $75.00 to over $100.00 per live transfer. A good (meaning productive–not necessarily ethical) call center in this industry, paying for, and working these leads, has a cost per acquisition (CPA) of anywhere between $600.00 to $1200.00. They have to run a 20% close ratio or higher, in most cases, to hit their numbers. That means they have to approach what they do as a sales process rather than a consultation process.

The majority of people sold into settlement, in my opinion, don’t belong in it. Either the process was sold as butterflies and rainbows, or the plan, due to high upfront fees, which are often successfully disguised to the average consumer stressed to the gills and looking for relief, provides for high incompletion and program drop rates. The higher the fee, no matter how it is calculated or paid, is one of the bigger stumbling blocks to being successful in working with a settlement company. The fee itself can prevent the consumer’s success. Fees average 15% of the total debt that is submitted for settlement. Why so high? Often enough, the fee amount is related to the juice, but I am getting ahead of myself.

The only ethical way to promote settlement as an option is from a consultation/informative perspective where there is no pressure to hit a quota due to high CPA. If a company does any national advertising or purchases live transfers from a national advertiser whether radio or television, it is nearly 100% assured that they are using a sales approach. They must closely monitor closing ratios of the phone staff, and cut anyone occupying a chair who doesn’t hit the numbers. I have visited a few call centers. The majority of men and women in these call center atmospheres are best defined as telemarketers. There are, I am sure, exceptions. In fact, I have met some. That is not the norm though. These are the same people who will be just as effective at telemarketing residential home siding, as settlement services.

The juice:

Your future… sold to the highest paying servicer! On first contact, if you are not talking to the company that is actually going to handle your file, you are talking to a sales guy. His motivation is selling you into settlement, whether or not it’s a good fit for your situation, in order to get a commission. The criteria for where the sales guy will refer you, in my opinion and industry experience, will not be based on who does the best work, who has the most success with consumers, who will best serve your actual needs for getting out of debt with a settlement process, or who is going to charge the least so that your money actually goes to your creditors. It is absolutely (and unfortunately) predictable that the vast majority of those selling settlement, will gravitate to referring you to where they will get paid the most. You will seldom be referred to a servicer whose fees do not maximize the commission sought by the sales person or the company they work for.

The investment required to run one of these centers requires their owners to search out the companies that pay the highest commission for the referral. I have both seen and heard reference to as much as 70% – 80%, payouts of client fees for referrals. Ridiculous? Absolutely! This model is unsustainable for any long period of time. The marketing firm will just move onto the next back end servicer who provides the highest commission. I have witnessed it. Hess Kennedy gets shut down, the sales center then refers to Allegro. Allegro is now shut down, so they will move onto the next. If you’re reading this and are wondering if you are a victim of the “gist & the juice”, the fact that you’re wondering means you probably are.

The price for all of this is passed onto the consumer. They are the ones paying for it through their wallet/purse, and also in the form of lost time and opportunity for the fact that settlement was never the right option for many of them in the first place. They were sold into it.

The lies:

One of several fabrications, or shall I say “massaged facts” used by the settlement sales person is a manageable monthly payment into your settlement fund, thereby extending program length. This is huge, and is used repeatedly because of its success. For example: You have $30,000 in unsecured credit card debt and are paying interest rates somewhere in the 20% range. Your struggling to meet minimums and are looking for options and respond to an ad to “settle for pennies on dollar” or “Get your piece of the bailout and settle with your creditors”. The sales pitch is to put you into a settlement program where you will not be paying your creditors and saving $416.00 dollars a month for 36 months. This is half your current debt. Well Shazaam! That sounds like the kind of relief you are looking for! Your monthly minimum payments, at the high interest you are stuck at, equaled a thousand plus, and this nice man or woman is saying you can be out of debt for the low-low price of $416.00 a month. This is e-a-s-y to sell. This type of relief being offered is what many of us would focus on, no matter how much more there is to the pitch. It’s human nature. It’s the relief we need, and we found it. Some will outline a 42 month plan, or even longer. E-A-S-Y.

Here is the problem. The longer it takes to settle with your creditors, the higher the risk one or more of your creditors will sue you in court in order to collect the debt. Where is your sales guy when this happens? Did he mention you could be sued? Maybe in passing, and if so, he probably said it is very rare to have that happen. What you were not told is that the longer your program lasts the more risk you face of being sued. That would take away all of the relief you felt from having been paying over $1000 a month, to now saving less than half of that a month for settlement. That little massaging of facts goes a long way for the sales close ratio.

The truth about settlement is; you have to be aggressive. You have to put every available penny aside to settle the debt as fast as possible in order to avoid something as adverse as a lawsuit. The relief you will find by using a settlement approach is not going to come until the debt is gone. Settlement is the “rip the band aid off” approach, rather than picking at the corners.

How big is your risk of being sued along the way? It will be different for everyone. It can depend on how fast you can settle, who your creditors are, who they may assign the debt to, who a creditor sells your debt to, what your credit report looks like, the state you live in, transaction history on the account leading up to default. Is a debt settlement sales person going to go over all of that with you?

Lawsuits filed, in order to collect on unsecured credit card accounts, are generally a pretty low percentage compared to how many accounts default each year. I believe those numbers will start to increase in what’s left of 2009 and into 2010. The two largest card issuers in the U.S. have been huge participants in submitting defaulted accounts for arbitration, an alternative dispute resolution done outside of the courts. The National Arbitration Forum (NAF) and the American Arbitration Association (AAA) have ceased all arbitration activity relating to consumer credit cards this summer. Card issuers will likely increase the accounts they place with collection law firms as a result.

At Consumer Recovery Network, we do NO paid advertising. We do not have sales people. When you consult with CRN, you are talking to a specialist on first contact, someone who works with our members and their creditors every day.

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, with no risk to you, and schedule a consult to find out if you should pursue debt negotiation.

By: Michael Bovee
CRN President