Consumers – Be Warned – Most Settlement Companies will go Bankrupt soon
If you only have the time to read one of my articles pertaining to debt settlement, then you must read this one if you are considering hiring a debt settlement company. I believe that we are about to witness a mass exodus of debt settlement companies closing their doors and leaving their existing clients in very bad financial shape. I have been warning consumers for years that these companies who front load all of their fees are very bad news. It seems like the jig is up and now the regulators are on to these shysters also.
After watching Senator Rockefeller and Senator McCaskill pointedly lambaste debt settlement trade organizations TASC and USOBA on their blatant BS, and consumer rip off programs, there is no doubt in my mind that the nail is in the coffin, and the fate of most front loaded fee debt settlement companies has now been sealed. They might not know it yet, but for the record, let me just say, Nah Nah Nah Nah…Nah Nah Nah Nah…Hey Hey Hey…Goodbye.
These two Senators you could say were less than thrilled with the debt settlement industry shenanigans and were not shy about expressing their opinions. You absolutely must set aside 90 minutes and watch them in action. You need to watch this video now. I can promise you, after you watch this, you will not make a mistake and enroll in a program that will likely be out of business very soon.
You can also visit GetOutOfDebt.org for more commentary on this hearing. Steve Rhode is the go to guy when it comes to investigating these debt help companies who are actually helping themselves more than they are helping consumers. In fact, the Senator actually used one of Steve’s graphics at the hearing when he mocked USOBA’s claim of openness and transparency.
How Does This Effect Me?
Now what does all this mean to you as a consumer and potential client of a Debt Settlement Company? I don’t know for sure until I see the final legislation. At this point I believe there will likely be some sort of legislation at the federal level very soon, that bans the practice of front loading fees.
How do you protect yourself as a consumer? There are many ways you can protect yourself from falling victim to a bad debt settlement company. I have quite a few tips and insights for consumers in previous articles I have written on my blog.
However there is one very important rule that is so critical for a consumer to understand. The good news is that it is simple to identify companies to avoid like the plague at this point.
That Rule is:
NEVER, EVER, EVER, EVER, EVER, did I mention Never? Sign up with a debt settlement program that charges you all of their fees before completing all of the services. Hint: More than 95% of companies do what is called “front loading” their fees and they are the programs that are likely to go out of business soon, once the new legislation is passed and enacted.
Don’t be fooled by the debt settlement sales person, who will try to pull some razzle dazzle to distract you from their bogus, front loaded fee structure. They are there to tell you what you want to hear, and sign you up into their program. If they charge you all of their fees before your settlements are completed then that is a huge red flag. How confident are you that they will be in business very long? Confident enough to gamble your family’s financial future?
A typical debt settlement company might enroll a client on a 36 or 48 month program, but yet they collect their entire fee over the first 12 or 18 months. Well who pays for the client’s services in months 19 through 48? Ahh, that would be the new clients coming on board right. Well what do you think is going to happen when new state and/or federal laws get passed shortly that ban companies from charging their fees in this way?
Well, for most of these companies that is going to create a severe and very likely fatal cash flow shortage. They will have thousands of clients who have already paid and are demanding services and will not be allowed to charge new clients upfront to support the old clients. In the end, most of these programs will simply close their doors.
If you sign up with a company with this sort of fee structure today, it is highly unlikely that the company will be around when you need them. In fact USOBA openly testified to the FTC a few months ago that 85% of their members will go out of business if the advanced fee ban becomes law. A front loaded fee structure is horrible for consumers under normal circumstances, and it is basically financial suicide to enroll in one of these programs now with the proposed legislation looming.
There are only a very small handful of programs that are performance based, and charge their fees after they perform the service. These programs that have been operating in this fashion for many years will not have the huge legacy costs that most of these front loaded settlement companies will not be able to overcome. It is difficult to find a performance based company, but take your time, do your research and you will find them.
If you are in debt, it is absolutely critical that you first have a financial professional look over your situation and help you outline which strategies are viable to accomplish your goals and which are not. Debt settlement is certainly not the only option. However, if you feel it is your best option and you are looking to hire a company to assist you, under no circumstances at all, should you ever enroll in a program that front loads their fees. If they are so confident in the glorious outcome you are supposedly going to obtain, then why are they afraid to tie their fees to that performance?
If you have recently signed up into a program like this, you should seriously reconsider your decision before it is too late. If you are not sure if the program you are in, or are considering, front loads their fees, then send me over their contract and I will tell you.
It is important to take steps to protect yourself now, so when these companies start to disappear you will not be one of their unfortunate clients who paid for a service they will not receive.
As always, if you would like to contribute your thoughts, and have something to add to the article, please do so by commenting below.
Be sure not to miss out on any of my future articles, where I frequently expose rip off programs and provide insightful financial tips to consumers. You can get them delivered directly to your inbox the moment I publish them.
Please help other consumers and share my article via Twitter, Facebook, or your Favorite social network by clicking one of the icons below.
Damon I wish I had come across your articles before I was swallowed by the beast.
This is a very useful article in alerting consumers. But debt settlement is not the only industry where front load fees are extortionate. If taking out any sort of insurance policy linked investment be sure to ask how much of the first year’s investment goes in commissions to the broker. Observe the broker’s reaction closely!
“NEVER, EVER, EVER, EVER, EVER, did I mention Never? Sign up with a debt settlement program that charges you all of their fees before completing all of the services.” I get what you mean and I think your advice makes a lot of sense. Debt settlement companies who charges all fees way before completely rendering the service are certainly of questionable credibility and professionalism. It does pay to read any contract of services carefully before signing up. Thanks for emphasizing it.
Thank you Gina, I couldn’t have said it any better myself. 🙂