REFORMING AN INDUSTRY

After 10/27/10, virtually all of the companies offering to settle debt for a fee, will have to charge those fees based on a contingency. In other words, you pay for the service contingent upon who you hire, having successfully negotiated a reduced pay off amount with your creditors that you then accept and fund. Makes a ton of sense right? Yes indeed!

People will, however, still need to approach the idea of hiring someone to settle debts with caution.

Where We Were

Debt negotiation companies have, for the most part, been able to charge upfront fees. Often, the fees have been spread out over 6 to 18 months or more. This practice has long been recognized by some of us in the industry as one of the leading causes for consumers to “fail and bail” from their settlement program.

• The reason for the fail; money that could have been aggressively saved up to fund the earliest settlement offer went to the service providers fees instead.
• The reason for the bail; creditors and their assignees continue down a relatively predictable path to collect on unpaid accounts which can eventually lead to filing a court action to force you to pay.

Being sued does not necessarily mean the death of your debt settlement plan, but you need resources to address the lawsuit before it becomes a judgment. Without the money needed to address the issue, it will often mean the end of the road. Having paid upfront fees to a company who put their profit ahead of your success means you have limited, or no, resources to maneuver through the different stages of collection.

Where We Are

You may have, or currently do, recognize a debt settlement plan to be a realistic approach for you to avoid bankruptcy. Having enrolled (or thinking of enrolling) in a plan with a company whose fees were/are/still paid prior to successful negotiations is equivalent to gambling. You bet you can get through the settlements before getting sued. The company you hired bets they can get you to pay them all their fees before you bail.

Many companies who sell or perform debt settlement today will find that, without the ability to charge the high upfront fees, they will not be able to keep the marketing machine going. They will leave the industry. In their wake, we will hear from many more consumers who were sold the hope of avoiding bankruptcy by sales people whose only motivation was to meet a quota, keep their telemarketing chair and get paid. For more than a year, the media and internet has been ablaze with stories of people being taken in by the promises of many players in the debt relief industry. They are a statistic of the “fail and bail”. The statistics will get worse as several companies close their doors and leave their customers in a lurch, having paid in advance for a service that now will not be completed. At least, not by the people who were already paid for it.

Where We’re Headed

Do I sound a bit jaded? That’s because I am. So much so, that I can see where we are potentially headed in this industry.

Beginning in September, I think we will start to see some similarities with new and existing companies offering debt settlement  based on the now required (in most cases) contingency fee structure. Two of the similarities will be:

1. The new sales approach; “You need to come up with money as quick as possible to settle with your creditors”. – This is a good thing! It has been missing from the message of the majority of people selling debt settlement for a decade.
2. Many of the companies offering success fee debt settlement will charge between 25%-30% of savings where possible (some states have limits or caps on fees –Illinois is capped at 15%). – This is a bad thing!

When comparing 50% of your account balance as an average settlement, 30% of savings is roughly the same as charging the 15% of debt enrolled that has been the average in the industry to date. Fees could actually be higher than before with debts settled early in the program and for less than 50%.

We will still see high “fail and bail” statistics because companies will settle a debt and collect their contingency fee first, before moving onto the next settlement. There really is no problem with that per say. They did a job and should get paid for it. It is the correct model to have. Always has been. The problem is if the fee is too high, it still takes just as long to settle the debts as it did prior to the FTC banning upfront fees for a settlement service.

Where We End Up

I estimate it will take a year for the industry to settle in to the new business and operational realities created by the new FTC rules. Some companies are going to try to adapt, only to quickly find it no longer worth their while. Some will find that they should have been doing business this way all along, and will thrive. The amount of companies around a year from now will be far fewer than we have today. Within 12 to 18 months, the industry will have completed the all too necessary cleansing of those who came to it in order to make a quick buck.

BOTTOM LINE:

If you are a suitable candidate for debt settlement, which is someone who otherwise would have to file bankruptcy, look for companies with the lowest contingency fees. Even better, look for a company that: Offers low fees and other flexibilities that will lead to your success!

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)

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

Why does debt settlement work?

Banks in the process of lending, know that a percentage of accounts will not perform, meaning some accounts will default and go unpaid. There is a multi-billion dollar industry built around the known fact that not everyone will be able to repay their debt. This collection process is centered on a lenders effort to “lose the least”. The tools and mechanisms in place for this “lose the least” effort are by and large, predictable.

Once an account becomes seriously delinquent, the odds of ever being paid another penny on it decrease dramatically. Creditors have the option of accepting less than the balance in satisfaction of the entire debt, or drop the account into the collection pipeline and see what they get on the other end. This pipeline consists of 3 options, assign, sue or sell, or what I jokingly refer to as A-S-S.

I could write several chapters on each of these collection pipelines, but the purpose of this post is to focus on the math your creditor has to work with when you are unable to pay them.

Assigning your debt:

Assignment collectors are companies who, on behalf of the creditor, are attempting to collect on unpaid balances. Generally, whatever they collect, they are paid a percentage. Credit card issuers will grade the performance of those they assign debt to and will continually award collection files to the best performers, the companies who get them the most money. Assignment of debt also has different tiers. You may be contacted by one debt collection company for a few months, then a different one after 90 days, and even another one 90 days after that. The collector’s job is to get as much as they can for their client, the bank, and to secure the best return for themselves on their performance based fee. Assuming the collector is able to collect 50%, the creditor may see a return of as much as 35% of the assigned balance. This number is a moving target, and will likely be different per account, per portfolio, per tier, per creditor.

Being sued to collect your debt:

Creditors select accounts for immediate referral to law firms in order to collect. Some law firm’s collection attempts will be very similar to an assignment collector where the firm is paid a performance fee just like assignment collectors. Others may start off with that appearance, but will then begin legal process in order to collect. Attorneys who sue in order to collect will generally add legal fees to the final judgment amount. Most law suits for unpaid credit card debt go uncontested and default judgment is entered against the debtor. The judgment itself is a piece of paper, but with legal enforcement implications that allow for collection of the debt via lien, levy and garnishment. Being sued in order to collect has its own costs that will vary, with no guarantee the judgment can be collected on. For your creditor, this means higher cost’s with an unknown return (rest assured the return as an aggregate justifies the expense enough to keep this part of the pipeline in tact-otherwise it would no longer be supported).

Selling your debt:

There are different tiers of debt sales. Your account can be sold several times and will have a different value at each sale. I want to focus on the sale done by the original creditor, who you opened your account with. Five or so years ago, while attending a collection industry seminar, I sat down briefly with a VP of risk management for the now defunct WAMU, who told me at that time, WAMU was catching bids of 15 cents on the dollar for freshly charged off debt (that number was consistent with the daily updates I was seeing from industry newsletters I receive). Charge off generally means the creditor is no longer expecting to be paid and is recording the debt amount as a loss. That was then and this is now. In the current economy, portfolios of charge off debt are being bid at 8-9 cents.

When your debt is purchased, the buyer will then subject the accounts it purchased to the A-S-S principle described above. The buyer has risked their capital with an expectation that they will be profitable by making an ASS of themselves. Sorry, couldn’t help myself.

Historically, the percentage of non-performing credit card assets has been low, less than 5%. In today’s economy, that number has skyrocketed to all time highs. Default on mortgage debt, commercial debt, revolving unsecured consumer debt (credit cards) are all approaching, or have surpassed any prior precedent.

Focusing on unsecured credit card debt; how has all this affected settlement? Well, look at the math. Your creditor will often “lose the least” be reaching agreements with those in serious delinquency before they drop it into the collection pipeline. This is why settlement works, whether 10 years ago or today.

With these increased portfolio losses at all time highs, banks would prefer to work with the consumer in order to lose the least. Consumers, whose financial situation suggests settlement is a good option to pursue, will find by working directly with their creditors they will often be in the position to save the most.

There are a few of the larger card issuers with whom the best savings will not be achieved until the account is placed with outside collection, but for the most part, reaching an agreement with the original creditor is in the best interest of the bank and the consumer. It is why our focus at CRN is to design an individualized plan that will get our members out of debt in the quickest way possible. Our approach is one of the most affordable and effective in our industry. We are the crash diet and crash course for debt reduction.

To learn more about how you can succeed with negotiating and setting debts, not matter what stage of collection your accounts are in, you can get started as a CRN subscriber by clicking here: CRN Membership Enrollment. Affordable access to information the pros use, and access to professional assistance if you need it – is a click away!