On September 25, 2008, the Federal Trade Commission held a workshop on the debt settlement industry. Representatives of the credit card industry, consumer protection groups, the credit counseling industry, the debt settlement industry, and the FTC were present at the day-long event.
Over the past few years, concern has mounted within various state and Federal regulatory agencies that the debt settlement industry is harmful to consumers. And the purpose of the workshop was to provide a forum for discussion of different viewpoints on the industry. A transcript of the workshop is available directly from the FTC website.
I’m not going to blog about the whole content of the conference, a lot of which pertained to such matters as fee structures, regulatory compliance, deceptive advertising practices, and so on. What I want to focus on, however, is a statement made by Ms. Virginia O’Neill, from the American Bankers Association. I’ve been arguing for years that, to put it as bluntly as possible, the debt settlement industry is unnecessary because consumers can obtain the exact same (or better) settlements by negotiating on their own. Yet time after time, consumers quote the typical settlement company sales pitch. “They told me they bundle their settlements, and I’ll get a better deal by going through them, since they’re settling all the time with these banks.” I already debunked this sales claim in a previous post. And today, in further support of my position, I will quote Ms. O’Neill at length:
“When the FTC asked us to look into it [i.e., the debt settlement industry], what we did to get sort of an industry view was to reach out to members of several working groups, our payment systems and our credit card council and raise discussions with them about the things that FTC wanted to hear. I also had very detailed one-on-one conversations with seven large credit card banks. My point is to let you know what I am saying I do believe is representative of the industry view on this. Obviously all the banks aren’t in lock step but my remarks today represent a majority opinion. Their message was very simple and it is that they do not see debt settlement industry as a necessary player. They see it as very harmful. Both to the consumer and I know you’ll be less concerned with this, but to the bank. They don’t see it as providing any value. They want above all to come out of this with y’all understanding that the banks when they agree to a settlement that has been presented by a debt settlement company it is no different than an agreement that they might have reached had that customer come to them directly. The banks do not — when they consider a person who is in hardship, they take a very careful look at that person’s individual hardship, their finances and their accounts and that’s what they make their decision based on applying their own parameters and policies. It doesn’t matter that a debt settlement company is in there. The analysis never changes. So this notion that a consumer needs to go to debt settlement that they can’t possibly get the same kind of a deal is just simply false.”
There’s a lot more, but I’m sure you see my point. I’ve been saying the same thing all along. But I would add to the above. It DOES matter that a settlement company is involved, but it matters in the WRONG way. Also as part of Ms. O’Neill’s presentation, she discussed what banks do when they receive third-party notification from a debt settlement company. What they do is suspend normal collection procedures, which are designed around CONVERSATIONS DIRECTLY WITH THE CONSUMER TO EXPLORE OPTIONS, and they handle the account the way they would if the consumer had hired an attorney-at-law. Unfortunately, this normally means that the bank also escalates to a third-party representative, and this can often include placement of the account with a local collection attorney. Why should the bank do otherwise? If their customer gets a third party involved, why shouldn’t they do the same thing? They do, and I see this difference on a daily basis. People who I hear from AFTER they have hired a settlement company (that sent in their power-of-attorney document) quickly begin to hear from collection agencies or attorneys, or see arbitration claims filed against them. But the folks who talk directly to their creditors have a much more straightforward path to settlement of their accounts.
Based on some of the feedback gathered in this FTC Workshop, I believe the debt settlement industry will eventually be regulated (either by Federal or State laws) the way “credit repair” has been regulated. About 10 years ago, a Federal law was passed called the “Credit Repair Organizations Act,” and it essentially nailed the coffin shut on legitimate credit repair. The law accomplished this by forbidding credit repair companies from charging in advance of performing their advertised service. It’s pretty tough to run a business on that type of financial model. And for settlement companies, it would literally be impossible to do so. My expectation is that fees will be capped to the point where very few companies would be able to survive as currently structured. Meanwhile, until this unregulated and risky industry is scrubbed clean, consumers are strongly advised to avoid third-party debt settlement companies. Settle your own debts! You can learn how to successfully negotiate and settle by obtaining one of my training and coaching packages at a tiny fraction of what a settlement company would charge you.
This makes perfect sense, in every way. I never doubted your view. Luckily I came across your website before I signed on with a Third Party Settlement Company. Thank you!! Can you post something on how the current financial meltdown on Wall Street will effect the banks willingness to settle? I am just starting the settlement process.
Sandi, thanks for your comment. I do plan to write a post soon about the current
economic conditions, although my view has not changed materially from what I wrote
in my blog post of March 28, 2008. Still business-as-usual, just a lot more of it!