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.

You absolutely have to listen to some of the brief audio clips in Steve’s piece. (Most are around a minute long)

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”.

For additional reading here on DebtBytes: Sales Guy Represents Attorney Providing Settlement – Lies a Bunch

CRN Supports Changes to the Telemarketing Rule Just Announced by the FTC

Yesterday, the FTC announced important changes to the Telemarketing Sales Rule, http://www.ftc.gov/opa/2010/07/tsr.shtm. The changes are intended to protect consumers with too much credit card debt from abusive debt settlement practices. One of the most important changes is that settlement firms will no longer be able to charge consumers up-front fees to settle their debts as of 10/27/10.

Overall, I am thrilled that the FTC is reigning in abusive debt settlement firms. For too long, these firms have been allowed to prey on consumers with too much credit card debt. Sadly, in far too many instances, consumers who worked with such firms saw their financial situations grow worse, not better, because of the large up-front fees they had to pay, and many of those consumers eventually ended up in bankruptcy.

The rules will shape the industry and promote the best practices moving forward.

I am concerned that some settlement firms may charge a large fee at the back end of their work for consumers. I have always contended that the fee amount charged by a debt settlement service provider directly correlates to how long it will take an individual to be successful in settling all of their debts. Program duration is directly attributable to increased risk of aggressive collection efforts such as filing lawsuits against a consumer in order to collect.

When consumers are looking into debt settlement as one of the few legitimate options available to deal with crushing debt, it is IMPERATIVE that they still weigh the COST for the service.

I will be posting more detailed comments about the amendments soon. Stay tuned!

Well… maybe shocking to some.

I do not often post on consults I do. This one from about six weeks ago provides both warning and sound advice.

A gentleman in Indiana called in to the toll free line here at Consumer Recovery Network after hitting our website while researching debt settlement. I answered the call and proceeded down a list of general things I ask during a typical debt consultation.

He had already spoken to a representative of a NY law firm after hearing a radio commercial advertising services to reduce debt. He felt he had a pretty good foundation of what settlement was. As I started to lay out some facts about debt settlement, he started to lay out a little confusion. His confusion is a direct result of things that were not covered in his consult with the representative of the law firm.

The end result of the consult I did was that he now knew about the knock on effects of settlement and that it should only be considered as an alternative to bankruptcy. He recognized he was not close to bankruptcy, but did have a need to get out of debt. During the consult he recognized he could quickly sell 2 cars he was not using for under blue book and pay off his credit cards.

I heard from him the next day.

Being the considerate type, he had called the law firm rep after speaking with me, to inform him he would not need to enroll in his program. The rep (obviously the consummate closer) tried to overcome his objections and continue to sell him on settlement.

He told the rep that he did not want late payments reported on his credit report for the next 7 years. The rep told him “Oh, that’s only for corporations”!

He told the rep that he was not willing to risk being sued. The reps response was “Well… I suppose it could happen, but you would be the first”!

First what? First person the rep lied to that day? This guy exemplifies what is wrong in the industry! He should be answering his telephone with “Thank you for calling the Bib-N-Fib. Can I take your order?”

I could tell my car selling buddy thought I would be shocked to hear that someone was so willing to deceive in order to make a buck. Instead, I shocked him when I informed him it came as no surprise at all. I did tell him that I was highly skeptical that the representative that he was speaking with was an actual employee of the law firm. The rep was likely just a sales guy at a call center where callers from radio and TV ads are funneled, and whose only purpose is to sell callers on settlement so they can get paid a commission. Even if they have to lie, omit or deceive to do it!

I don’t think car guy would have gotten the same nonsense if he called the law firm directly.

The point of this article:

Consumers should only speak to the actual service provider they would work with. Any middle man has one motivation and that is the commission. Some are far more artful in their selling techniques than who car guy talked to (let’s hope most), but why would you need to speak with anyone other than who you are going to work with? You wouldn’t.

If you are looking into bankruptcy and have a consultation (do more than 1), you are speaking to the attorney or an employee of the firm on their direct telephone line or standing in the office.

If you are looking into a debt management plan offered through consumer credit counseling, you are speaking to the counselor or an employee of the agency on their direct telephone line or standing in the office.

Why in the world should you look into a settlement company any other way? You shouldn’t.

There are thousands of places on the internet offering a consultation to see how they can help you get out of debt. There is a daily bombarding of radio and television commercials offering debt help. The vast majority have no direct connection to the company that will actually be providing you a product or service.

If you hear from whom ever you are speaking to that they are going to “refer” you to the best, most reputable this that or the other thing, your talking to a sales guy. He or she gets paid by selling to you and will not be working with you after you start. They often have no accountability to the actual service provider.

ALWAYS start at the source!

I cannot identify one exception to this. Can you?

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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