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!

We launched our newly redesigned Consumer Recovery Network website and this brand-spankin-new Debt Bytes blog this week! We have plenty of tweaks to make still, but things are shaping up.

I was editing the FAQ page today over at CRN (long overdue) and needed a break. I called a friend of mine who is quite knowledgeable and active with all things consumer debt and asked him for suggested additions (I hope to get him over to debtbytes for some guest posts in the future).

He emailed a brief list. I may later put some of these up on the CRN FAQ, but for now I needed another break from updating the new CRN site. Writing and editing site content knowing it is more focused on corporate image and branding can be a bit tedious. The debt bytes blog is where we at CRN can let our hair down a little (those of us that have much).

Anyway, here is the list of additional questions he sent me and my responses below each:

• Do I have to sign an agreement to use your services?

• Can I see it without giving up personal information?

All CRN members must complete and submit a Membership Enrollment Form prior to purchasing even our basic educational materials. Why? There is some pretty powerful stuff in there about getting out of debt, improving your attitude about money, planning for your financial future etc… Not everyone is ready for this stuff! There is just a little bit too much “truthiness” to it all. Someone could get hurt!

You can definitely see the agreement prior to speaking with us by downloading it from our web site: Debt Settlement Truthiness Purchase Form

• What are your fees?

CRN Full Service Settlement Fees are currently 15% of what we save you – AFTER we save it. There are costs for our materials. We refer to this cost as membership fees. Membership fees are fully credited against any future success based settlement fees as an offset. Rather fair, if I may be so bold…

You even have a limited and life time refund policy! Check out the Truthiness Form for all the details!

• How do I know you are legit?

There are a myriad of ways to check us out and compare us to other companies offering debt relief services:

1. Length of time in business.
2. You have many mainstream media articles and radio interviews about us which you can find links to on our press and media page.
3. Regulatory participation encouraging measures be taken to curb abuse in the debt settlement industry.
4. There is no shortage of members who have shared their experience working with us by writing to CRN. The CRN site has many customer quotes alternating throughout the pages.
5. We are also starting a new way for people to share their experience with us by having a testimony blog post here at debt bytes. This is where people can share openly and unedited (unless they use harsh profanity). How do you know those quotes are real? If we faked it and got caught it would be false and misleading advertising. We have a record of all. What if I am just saying this to get one over on unsuspecting consumers? Well, I just admitted to knowing it would be false and misleading to do so. That would be like…. fraud or something.
6. You have the BBB – Consumer Recovery Network has an A – Folks, that’s not easy to do in this industry!
7. Also, Google (not to leave out all the other fine search engines out there – but I did) the name of any company you want to research, add a plus sign (no spaces), then add the words scam, complaint or review. Like this: Consumer Recovery Network+Review

I am sure there are more ways to complete your due diligence. You could call my mom, for example.

• How do I know I can trust you?

This is a HUGE question! This is especially important given the track record of many companies offering debt settlement and the massive amount of negative media coverage surrounding the industry. The CRN business model is designed to build your confidence in us as well as the product & service we support – from day one. We will earn your trust.

• Why should I listen to you?

• Aren’t you just trying to sell me something?

You should listen to what our specialists have to say when we do a consultation with you because you could avoid making a huge mistake! One of which might be trying debt settlement on to see if it fits – this would include working with us!

We do have a product for sale. We do have services you pay for AFTER you see and like the results.

We DO NOT have sales people!

Our Specialists you consult with can often be found discouraging you from going down a path that would involve working with us – thereby paying us anything. I personally deter more people from trying to avoid bankruptcy through debt settlement than I encourage into it.

That’s a free service by the way, those consults. If you feel the consult was of value and are thankful, please consider donating a bag of non perishable food items to your local food bank in return. We know times are tough for you, but there are those for whom times are even tougher.

For those of you reading this post that have already talked to a debt Settlement company (or you call one later); call them back and pose these questions. They may not have as much fun answering them as I have.

If you have a question for us, you can click on ASK CRN (and get mostly serious answers too). And, as always, your comments are welcomed below! Break’s over. Back to work for me.

Edit: Merriam-Webster
truthiness (noun) – 1 : “truth that comes from the gut, not books” (Stephen Colbert, Comedy Central’s “The Colbert Report,” October 2005)

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

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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