For quite a while now, I have been under attack from debt settlement companies and sales people for educating consumers on the facts of life when it comes to debt settlement. Most notably, the undisputed fact that charging a consumer a front loaded fee is against the consumers best interest, and makes them much more likely to get sued by their creditors and drop out of the program. In fact, the only benefit to this fee structure is that the debt settlement company and the sales person is guaranteed to get paid. That’s it. It is black and white and there is no logical argument that has been or can be made to the contrary.
Since I expose this fact and warn consumers every chance I get, I am of course under constant personal attack by these hucksters that don’t want consumers to understand how bad of a rip off these programs really are. Of course the attacks are usually personal in nature, because they can’t formulate a coherent argument to contradict what I am saying. Sure a few have tried and failed miserably with my two favorite bombs being:
1. It is impossible to operate a debt settlement company without charging consumers all of the fees upfront.
2. It is better for consumers that we charge all the money upfront because that will ensure that consumers get better settlements from the creditors. (Don’t spend to much time trying to figure this one out.) Freedom debt relief actually submitted this argument to the FTC. I almost feel sorry for them.
Now argument number 2 died about the same time it was released simply because of its sheer absurdity. However, argument number one seems to be the one all of the rip off debt settlement programs were running with and crying in their soup about when the FTC amended the TSR to ban this practice of front loading fees.
So I have been under almost constant attack from sales people claiming that it is impossible to help people without ripping them off. (Ya, they don’t say it in those words, but that is what they are saying). I would always respond with the fact that you can run a settlement company without front loading your fees, a small number of them have done it for years and not only does it work really well, it can be very profitable. A real win win situation for the client and the company.
Up until now, I would just get attacked personally with arguments like I don’t know anything about business and unless I actually ran a debt settlement company I couldn’t possibly know what I was talking about. Aside from the shear absurdity of the argument, it should be common knowledge that debt settlement businesses do not operate in a parallel economic universe to all the other service oriented businesses in the world that can provide a service prior to collecting all of their fees. They just don’t want to do it that way because their service sucks and most of their clients drop out long before any debt is settled. So they stick to the illogical argument that it just can’t be done and I must be an idiot for saying anything to the contrary.
Well you can imagine how pleased I was to see a recent article by Loeb and Loeb advising debt settlement companies to comply with the TSR and any attempt at a loophole around the law would not be wise. They encouraged companies to give a performance based fee model a shot, because they have seen evidence that it can actually be a great way to run a settlement company.
Hmmmm imagine that! Here is my favorite excerpt:
While the way the FTC has gone about amending the TSR to reach debt relief companies is subject to serious question, the change the FTC is trying to make to industry-wide practices, though draconian, may ultimately benefit rather than burden the industry. Industry participants should carefully consider a business model that complies with the advance fee ban. Economic modeling and firsthand reports by some companies that have tried settlement-based fee models indicate that benefits include higher conversions, lower marketing costs, higher retention, earlier settlements and improved consumer satisfaction (translating into lower regulatory and legal complaint rates). In addition, rather than creating a portfolio of accounts that must be serviced over time, even after upfront fees have stopped coming in, the settlement-based fee model may help companies build a portfolio of future revenue events, increasing the company’s value and eliminating the need to continue to generate new clients to remain profitable.
Oops. Correct me if I am wrong, but Loeb and Loeb seem to be saying that this performance based model is not only possible, but dare I say it, actually a better way to run a settlement company. Well who the heck is Loeb and Loeb and what do they know about this stuff anyway? Oh, they are just a major law firm that many debt settlement companies rely on for council about the legal and regulatory aspects of debt settlement. They also regularly speak at many of the USOBA conferences. It must really sting these guys that have been yelling at me for so long that charging consumers all of the fees upfront is the only way a debt settlement company can operate. To turn around and see their own attorneys actually having to tell them that it wasn’t only possible, it would be very beneficial for the companies to make the switch.
Uh oh. So now what are debt settlement sales people that peddle bogus programs going to do to attack me? They can’t very well continue to say I am an idiot for saying their front loaded fee model screws consumers. I guess they will just revert to the old stand by and continue to attack me personally. To those debt settlement sales people that lashed out at me for informing consumers that there was a better way to run a debt settlement program, before your company goes out of business, I would like to properly express how I am feeling right now…