Charles Phelan

Since the whole financial world melted down about a year ago, I’ve been so busy here at ZipDebt coaching clients that I’m overdue to post various updates to the main portion of the website. As a consequence, I’ve been getting more and more questions like: “I see that your debt settlement audio seminar was released in 2008. Is the information still up to date? Should I wait for a new version?”

The first version of my Debt Settlement Success Seminar was published in 2004, and the 2008 version was four years in the making. I have no plans to release a new version of the audio training course anytime soon.

Virtually 100% of the information contained in the 2008 version of the seminar is still valid. Yes, a lot has happened in the financial world in the past 18 months! However, nothing has really changed with respect to the *mechanics* of debt settlement.

Also, and this is a VERY important point – all three of my program levels (Basic, Enhanced, and Premium) include a Personal Telephone Strategy Session. The purpose of that phone conversation is to lay out the roadmap for you – specific to YOUR list of creditors, balances, and other pertinent factors. There are a lot of differences between the major credit card banks, and settlement practices, tactics, and policies do change on a frequent basis. In the training course, I don’t get into specific creditors by name, because things change too fast in that regard. What has NOT changed are the basic principles of this system – that’s why all the content of the CDs is still valid and extremely useful.

What does change from time to time is the percentage a bank might settle for, or the tactics they might employ during the collection process. Sometimes the lowest I’ve seen in several months with a particular bank is 40%, and then all of a sudden a bunch of settlements start coming through at 35%, and so on. This is where live coaching is essential to the process.

The bottom line is that the audio course will teach you the system – after that, we fine-tune your “debt settlement roadmap” (via the Strategy Session) based on CURRENT creditor trends, who you’re up against on your specific list of accounts, what your settlement resources are, and so on.

So please don’t wait around for the 2009 or 2010 version of the seminar kit – the 2008 version + live coaching support remains THE state-of-the-art DIY debt settlement system available today.

Beginning in 2000-2001, several major credit card banks started using a tactic called “consumer arbitration” as part of the collection process. It was a rigged game from start to finish, and I’m pleased to report that consumers have finally won a major victory, thanks to a lawsuit filed by the Attorney General of Minnesota. Forced arbitration, used as a collection tactic, is about to go the way of the dinosaur. It’s been a long time coming, and this is a huge win for consumers.

First, a little background. The original idea behind arbitration is to provide businesses and individuals with a means of resolving disputes outside the formal legal system. Instead of lawsuits, why not sit down with a neutral arbitrator and negotiate an out-of-court compromise? Makes sense, right? This also goes by the name of “alternative dispute resolution,” but is usually simply called “arbitration.”

The banks all originally started including *mandatory arbitration* to their credit card contracts with the aim of blocking consumer class-action lawsuits. In other words, the banks were tired of being on the receiving end of class-action lawsuits, so they inserted a clause that basically says, “Use this card, and you waive your rights to sue us, and are required to use the arbitration process for dispute resolution.”

Leaving aside the questionable legality of forcing consumers to give up their day in court, the real fireworks began when the banks started using it the OTHER WAY AROUND – as part of the collection process. The banks would forward delinquent files to a collection law firm, who would then send a demand notice coupled with a threat of filing an arbitration claim. The supposedly neutral arbitrator they used was the National Arbitration Forum (NAF). If the consumer failed to comply and resume payments, the file went to the NAF for “arbitration.” The NAF would then promptly grant an “award” to the credit card bank. This award represented nothing more than a piece of paper, and did not carry the same legal weight as a formal court judgment. However, the bank (or the law firm that initiated the action) had the option of forwarding the award to a law firm in the client’s home state, where it could then be converted to a legal judgment against the debtor.

Here’s the problem: Arbitration, by definition, is supposed to be conducted by a NEUTRAL third party that has no conflict of interest – that is, no direct involvement with either party to the dispute. Yet the National Arbitration Forum was literally nothing more than a rubber stamp for the credit card industry. The creditors hardly ever lost! They got their award almost every single time, with exceptions being very rare. Statistics (assembled by consumer groups rightfully concerned about this tactic) indicated award rates in excess of 94% in favor of the creditor. Basically, it became nothing more than a paper mill – a corrupt system that in the end had nothing to do with its original intention.

Yet this sad state of affairs dragged on for nearly a decade. Flash forward to 2009, and the Attorney General of Minnesota decided that enough was enough. The MN AG sued the National Arbitration Forum. The AG’s written complaint is a thing of beauty, the product of some very expert detective work performed by the AG’s staff. The complex web of interlocking relationships between the banks and the forum has to be seen to be believed. Heck, Bernie Madoff could have learned a thing or two from these guys!

Rather than admit any wrongdoing, the NAF “voluntarily” agreed to suspend all consumer arbitration activity, citing a litany of self-serving excuses for this abrupt shift. Since virtually all of the NAF’s business came from the credit card banks, this essentially means that the NAF is no more, at least relative to consumer debt arbitration. Folks, this is a major win for consumers.

The fireworks are far from over though. Hundreds of thousands of consumers were victimized by this rigged procedure, and the class action suits against the NAF (and their cohort banks) are just kicking into gear now. The fun will likely drag on for several years, with the class-action attorneys being the only real winners. But at least it means that consumers will no longer need to dread the “kangaroo court” that was the National Arbitration Forum.

Predictably, one major creditor just announced it will forgo the mandatory arbitration clause from their card agreements. Naturally, the announcement was pitched in such a fashion as to make it seem like they were being high-minded. In reality, it was nothing more than self-interest. They can’t arbitrate anymore anyway, now that their captive arbitration forum has folded its tent, so why not get a little PR value out of a major announcement on a new consumer-friendly “no mandatory arbitration” policy? The other major credit card issuers will probably jump in soon with similar announcements. Time will tell whether or not they craft some other equally duplicitous collection scheme.

The purpose of this blog post is to warn consumers looking into do-it-yourself (DIY) debt settlement that a lot of bogus information is being published online about the DIY approach to debt negotiation and settlement. Just as most of the online information published by debt settlement firms is misleading at best, a lot of the DIY material coming out now is produced by that same crowd, and is therefore equally misleading or simply wrong. So there are copycats, imitators, and direct rip-offs of my ZipDebt program popping up all over the Internet. Buyer beware! These folks are completely clueless about what it takes to coach consumers on settling their own accounts.

A little background information will help you understand what’s going on. First of all, debt settlement is not my invention, although when I started in 1997 I was one of the first people negotiating credit card debt on behalf of U.S. consumers. My current approach to debt settlement, however, IS my invention. As far as I know, I was the very first person to provide a do-it-yourself (DIY) training program for debt settlement, combined with *personal one-on-one live coaching support*. There may have been one or two flimsy DIY debt settlement e-books floating around before I started ZipDebt in 2004, but I’m not aware of anyone before that working the way I do. When I started ZipDebt, no one else was out here with me in the trenches, working directly with consumers, *coaching* them to negotiate and settle their own debts without third-party representation. So I guess that makes me a pioneer. And one definition of “pioneer” is the guy with the arrow sticking out of his back.

I started feeling those arrows in my back about a decade ago, when I published online the original version of my consumer report about debt settlement, “How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.” Not long after that, I discovered that someone had copied my booklet word-for-word, signed their name to it, and then published it on their own website. After a phone call from my attorney, the other fellow backed down, blamed the “error” on his web designer, and pulled my report from his website.

That scenario was repeated many times over, and to this day, whenever I read various websites published by debt settlement companies, I still find exact wording of mine all over the place. It tends to show up in company FAQs, as well as the side-by-side comparison chart that I invented to visually illustrate the difference between minimum payments, credit counseling, and debt negotiation. And the sales presentation too. As a writer, I’ve come to expect the rip-offs and copycats, and I mostly ignore them unless they are so far over the line that I feel compelled to take action. I don’t get too excited about such things because I know that the imitators will be gone in a year or so anyway. They never last. How could they? They aren’t prepared to do the hard work necessary, or they would not have copied me in the first place, right?

Nowadays though, I see knockoffs, copycats, and imitators all over the place. “Do it yourself debt settlement! Save thousands in fees!” Ads like this are starting to pop up all over the Internet. What’s happening is that the debt settlement industry is under tremendous pressure from consumer groups and various regulatory officials like Attorneys General at the state level, and the Federal Trade Commission as well. (For further discussion, please see my blog post, “Debt Settlement Industry in the Crosshairs.”) Hardly a week goes by where we don’t see another debt settlement firm sued by an Attorney General or the FTC. (Here is a link to an article discussing the recent shut-down of one of the industry’s worst violators – Allegro Law Group.) It’s getting tougher and tougher to make a go of it as a third-party debt settlement firm. Also, there are clear indications that industry regulation is coming soon. It’s been too long in coming, but it’s very likely that a new Federal bill will get passed in the next 12-18 months. That bill, depending on how it finally turns out, will probably regulate the industry out of existence, at least as it exists in its current form. Gone will be the huge fees, rip-off contracts, and lack of licensing requirements. Very few settlement firms will survive what lies ahead. The people who own these companies are seeing the writing on the wall.

So let’s say you own a settlement firm and you see the train wreck coming. What’s the logical solution? Hey – let’s set up a do-it-yourself settlement program! Do a little research, and up pops ZipDebt. Hey, if this guy can do it, so can we! Let’s buy a copy of Phelan’s course, change it up, and sell DIY settlement instead.

I’ll leave out a very complicated discussion as to the marketing costs of debt settlement, and skip to the bottom line. These companies will fail at trying to do the DIY settlement model the way I do it. I’m not bragging or being arrogant here – it’s just that I already know it won’t work because the cost to market debt programs *in large volume* greatly exceeds the fees that a consumer is willing (or should be willing) to pay to learn how to do something themselves. Companies get away with charging huge fees for traditional third-party settlement programs because consumers have the illusion that they are buying a professional negotiator’s services all the way down the road. But paying 15% of your debt to handle it yourself simply will not fly. So there will be all kinds of ridiculous fee models, and none of them will work because of one simple fact: As long as they gun for large monthly volume of enrollments, they will have to purchase “debt settlement leads” at great expense. And it will cost these companies more to acquire a new client than they will be able to charge for the service. The result is a very unprofitable business model. If you have ever wondered why ZipDebt has no true competition, that is the reason. My monthly budget for advertising? Zero dollars. I only make a living at this because I am NOT trying to “sign up” gazillions of new clients on a monthly basis. Besides, I am trying to keep what little hair I have left, and coaching people is a LOT of work! 🙂

Now, not everyone out there dabbling in DIY settlement is out to soak the consumer, and I do not mean to imply that is the case. I don’t have a monopoly on this approach, which after all, is really nothing more than teaching people how the collection process can be turned to their advantage. It’s not exactly rocket science! However, the quality of the advice I’m seeing out there is very poor, and I want consumers to understand that just because someone claims they can coach you on DIY settlement does not mean they know what they are talking about.

Here’s a good example of bad advice: One article I read recently on the DIY approach informs consumers that debts are best settled *after* charge-off takes place at the 180-day point. WRONG! That is horrendously bad advice, since with most creditors you’ll be better off negotiating a settlement BEFORE charge-off, where you can get a better deal with the creditor before a collection agency gets in the game (and with far less risk of litigation). The reason this person wrote that comment was because they did not know any better – they had been promoting a regular debt settlement company, and with those outfits, most debts *do* only get settled after charge-off. Why? Because the banks don’t directly talk to settlement firms! (And also, settlement firms charge so much up front on the fees that the average consumer doesn’t have any money to settle with before then anyway.) If you took the information in this article at face value, you would have a very false impression of the way DIY settlement should be conducted. But this person, posing as a “guru” in the debt industry, gave people the exact wrong advice, based on his prior knowledge of how third-party debt settlement works.

Another example – I just reviewed a website that offers an e-book for sale on DIY debt settlement. On the sales page for the e-book, the author makes the statement that it is not necessary, when settling with an original creditor (i.e., the bank itself), to obtain a written agreement on the settlement. Further, the author states that the banks will not agree to issue such letters anyway, and because the phone calls are recorded, it’s safe to settle on the basis of a verbal agreement.

Folks, this is the single WORST piece of debt settlement advice I have ever seen. There really is only one unbreakable rule in this game – no settlement letter, no deal, no exceptions – EVER! Granted, there can be some “tricks of the trade” involved in extracting such letters from creditors, but it’s not a difficult thing to accomplish. I assure you — ZipDebt clients NEVER agree to settlements without first having proper documentation in hand. The reason the above “professional” advice is so horribly wrong is because, quite simply, the banks are not to be trusted! Recorded conversations mean nothing, because you will never be able to obtain a copy of that recording unless you sue the creditor to obtain it. Good luck with that if something goes wrong!

We insist on settlement letters because people who settle on a verbal basis have no leg to stand on when the bank continues trying to collect on the unpaid balance and simply pretends the settlement was never authorized. Also, sometimes banks “accidentally” sell the forgiven portion to a debt purchaser. Then it’s your word against theirs, and guess who will come out on top. When you have a settlement letter, you can put that situation to bed in five minutes by faxing over a copy of the agreement letter. Without a letter, it’s almost impossible to resolve that type of situation.

If you want to negotiate and settle your debts, ZipDebt has all the information you need to do the job quickly and safely. Skip the websites, e-books, and “forums” filled with amateur advice, and come to the source! Learn the state-of-the-art tactics for settling your debts, from someone who does this on a daily basis, day in and day out, week after week, month after month, year after year. Just as you should not fall for the settlement company sales pitches, you should also be skeptical of this new crop of “experts” on do-it-yourself debt settlement. The moral of the story is the usual one – let the buyer beware!

Congress recently passed the “Credit Card Bill of Rights,” and the new law was signed by President Obama and will go into effect in 2010. I’ve been getting a lot of inquiries about whether or not the new legislation will have an effect on the debt settlement process, so in this blog post I’ll take a look at the changes and discuss some of the potential benefits (and pitfalls) for consumers.

Back in 2005, there was a lot of discussion about the change in the bankruptcy law, and we heard a lot of speculation on what effect the changes would have on the debt settlement process. As I wrote in an article published in August 2005, my prediction was that it would be “business as usual,” and there would be no effect whatsoever on debt settlement. That prediction proved to be totally accurate. Well, my take on the new credit card law is that it will still be “business as usual” when the new law goes into effect next year, and the banks will be settling accounts just as they always have.

A summary of the major changes to the way credit card banks are allow to conduct business under the modified rules can be found in this Boston Globe article.

What do I think of the new law? It’s partly a fig-leaf designed to give political cover to Congress. A lot of these folks will be up for re-election in 2010, and with millions of consumers hopping mad at the banks, politicians want to be able to say they stood up to the banks and voted in favor of credit card reform.

There are some pretty good provisions in the bill. For example, the requirement for simplified contracts will really help. It will no longer be necessary to have a law degree and an electron-scanning microscope to read the 30 pages of fine print that is a modern credit card agreement.

Better yet, some of the really outrageous industry practices will be blocked. Universal default, where Bank “A” gets to jack your interest rate because you fell behind on payments to Bank “B” will be a thing of the past. Retroactive interest rate increases on existing balances will be gone, as will double-cycle billing and a number of other truly sneaky practices.

So overall, I do believe this bill is beneficial to consumers. It will probably help many people to avoid falling into the clutches of the credit card trap. But for consumers who get into financial trouble and fall behind on payments, the trap will still be there, and this is why debt settlement will not be affected by these rule changes. All of the factors that motivate a bank to reduce the loss at time of charge-off will still be in place. But hopefully fewer consumers will get in trouble and need to take such a strong dose of medicine to solve their financial dilemma.

That said, the reason I still call this bill a fig-leaf is because the single most important provision the law could have included was stripped out. I’m referring to an interest-rate cap. Let’s face it, folks. We have legal loan-sharking in this country. There should have been a rate-cap included with the bill, but the banks got their way on that all-important factor. (See my blog post from April 12, 2006 on why we have legal usury in this country nowadays.)

Also, let’s be candid here. Credit card banking, by definition, is a predatory industry. Take away the revenue stream from late fees, over-limit fees, and penalty interest, and the banks would have posted losses in the years where they were otherwise profitable. Does anybody seriously think that the math wizards at these institutions won’t simply craft new ways to soak the American consumer in order to remain profitable? We’re already hearing about the restoration of annual fees for credit cards, and that’s just the start.

In the context of debt settlement, there is absolutely nothing in this new law that will affect how the settlement process works. Consumers who fall behind on their credit card payments will still be treated to a bombardment of collection calls and threatening letters. People will still be misled by an army of “debt experts” ready to take their money for rip-off “programs” that don’t work as advertised. And yours truly will still be here doing his best to help people sort out the truth about debt settlement from the hype and the nonsense.

One final word to the wise – expect debt collectors to start telling tall tales about how “the rules have changed, so we can’t settle anymore.” It happened when the bankruptcy law changed, and it was total bunk then. It’s already happening today, as collectors try to exploit the news headlines to trick and confuse consumers about their options. So if a debt collector tells you that “we can no longer settle because of new Federal guidelines,” don’t believe it for one minute!

Given that the whole country is still in the grips of the most severe financial crisis since the Great Depression, with millions of Americans falling behind on credit card payments, you would think that this would be boom times for the debt settlement industry. Well, I for one am truly glad that I do not own or manage a debt settlement company! The industry has been under attack for many years, by regulators, consumer groups, and of course the credit card banks. Lately though, the bad news for the industry just keeps coming thick and fast.

The New York Times recently published an article that essentially describes the entire industry as being far more harmful than helpful to consumers. I feel sorry for any settlement sales rep trying to “sign up” consumers who have read this article first!

Consumer Reports then joined in the fun with an article that basically calls debt settlement companies “scams.” Ouch! (Full disclosure: Yours truly was interviewed a couple of months ago by a reporter from Consumer Reports. Sorry guys, I only told the truth!)

But the industry’s problems don’t end with bad press. The Illinois Attorney General’s office recently sued two prominent debt settlement firms, and those cases are pending resolution.

Then came the kicker – an announcement by Andrew Cuomo, Attorney General for New York, that his office had launched a nationwide investigation into the debt settlement industry, with subpoenas issued to 14 prominent firms. It will be very interesting to see the published report issued after the investigation is completed, but I doubt there will be anything positive in it with respect to most of the companies listed.

Hopefully, all this negative publicity will make consumers more aware of the pitfalls of using a debt settlement company.

IMPORTANT: The reason for all these attacks by media and regulatory bodies has nothing to do with the concept of *negotiating a settlement*. Settlements, after all, are what the banks do in order to reduce their losses. Rather, the problems are with the *companies* that charge huge fees to do something consumers can do just as well on their own (better, actually). Folks, stay away from third-party settlement companies! Learn how to negotiate and settle your own debts. If you are a good fit for settlement in the first place, there is absolutely no reason you can’t learn to tackle the project on your own, with a little help from ZipDebt. 🙂

Recently I was trying to find a way to explain to someone how I conduct myself in the business world. It’s sometime difficult for me to explain why I do things the way I do. My “business model” often makes no sense to others, simply because I make decisions that are often surprising to people who don’t know where I’m coming from. One example is the lack of paid advertising links on my website. I have a high-traffic website, free of any external paid advertisements, and sometimes website owners get in touch wanting to pay me for ads they wish to place on my site.

I always say no, and they are amazed. “You don’t want to earn thousands per month in ad revenue?” Well, no, I don’t want your debt-related service ads on my website, because that would make it a junk website like every other one out there. My website is different from others, on purpose. How would it make any sense for me to strongly criticize third-party debt settlement companies or debt elimination scam promoters, only to turn around and get paid for running their ads on my website? Sure, it makes business sense, but it would not meet my standard of ethics.

Here’s another example. I often hear from debt settlement company representatives or owners who want to license my do-it-yourself debt settlement training materials. Their idea is to offer it side-by-side with their front-loaded 15% fee traditional settlement program. “Hey, we’re paying all this money for debt leads, and some people don’t have enough debt to qualify for our $15,000 minimum. We can sell those people your program instead.” No, thank you. People with less than $15,000 of debt are not good candidates for debt settlement in the first place. In fact, most of my clients have a LOT more debt than that. But my attitude doesn’t make much sense to the person who is only focused on the bottom line.

The best way I can explain my approach to business conduct is by using an analogy from “Star Trek.” In the original TV series produced in the 1960s, the creator of the show (Gene Roddenberry) came up with the idea of the *prime directive*. Star Fleet officers were sworn to respect alien cultures that were less advanced, and not to interfere in the natural development of other civilizations. (Yeah, I know. Captain Kirk violated the Prime Directive just about every other episode, but the idea is still a good one.) 🙂

So what does this have to do with ZipDebt? Well, the ZipDebt “Prime Directive” is based on a very simple principle – the consumer’s best interests ALWAYS take first priority over my bottom line. My prime directive is to HELP consumers with their debt issues, even if that means *leaving money on the table*. From my perspective, if you enroll someone in a 48-month debt settlement program that you know is doomed to fail, just so you can make a buck, that means you are a dishonest crook, period. When I do a consultation with someone, I tell the truth. It’s really that simple.

If I don’t think settlement will work in your situation, I will tell you that, straight up, even if it costs me a sale or a refund later on. If I think you need to go see a bankruptcy attorney, I will tell you that. On the other hand, if I think you should use debt roll-up instead, where you pay back your balances in full, I will tell you that as well. People are frequently astonished that I never push to “make the sale” or “close” them on my service.

So the ZipDebt Prime Directive is really nothing more than simple honesty and personal integrity. Yet by conducting business in this fashion, it sets me apart from more than 99% of the people operating in this industry. And that, my friends, is a sad comment on the times we live in.