In my blog post on “The Future of Debt Settlement,” published a little over a year ago, I assessed the state of the debt settlement industry in the wake of the FTC rule-change that banned the advance-fee model for third-party debt settlement. To summarize, in that earlier post I described the in-progress breakup of the industry into three different groups: (1) companies closing down or suspending all marketing operations, (2) companies seeking loopholes that still permit advance fees to be charged, and (3) those firms attempting to comply in good faith with the FTC rule-change.
It’s difficult to put statistics to the number of closures, since the debt settlement industry has always been murky in terms of publicly available information. But one metric is membership in the industry’s trade associations, and by that standard a large majority of such companies have gone out of business. USOBA (U.S. Organizations for Bankruptcy Alternatives) has stated that its membership roster has declined from around 200 to only 30 companies. And the AFCC (American Fair Credit Council) is down to about 35 firms from an initial 220 members. These figures represent a membership decline of approximately 85%. However, since both of these organizations published new policies requiring their members to be fully compliant with the FTC ruling, it’s possible that many of these former member-companies are still in existence and have merely dropped their trade association memberships as they continue seeking “creative” (i.e., non-compliant) revenue sources.
What about those “loophole diehards,” as I call companies still trying to charge hefty upfront fees? There are a number of firms still attempting to exploit the so-called “attorney model” for debt settlement, on the theory that attorneys are exempt from the FTC ruling. At least one of these firms has been on the receiving end of multiple lawsuits filed by Attorneys General from various states, and while they are still a big problem for unwary consumers, it is only a matter of time before we see such companies exit the marketplace under regulatory pressure. That will leave two essential choices for the consumer seeking relief via debt settlement: the “FTC-Compliant” firm and the do-it-yourself approach.
In a March 2011 blog post titled, “Consumers Should Still Be Wary of the New ‘FTC Compliant’ Debt Settlement Companies,” I explained why people should still watch their backs when hiring a firm that claims to be FTC-compliant. Please refer to the March post for full details, but briefly, there are four key reasons why “buyer beware” still applies even to the companies not charging upfront fees:
1. Program durations of 36-48 months are still being routinely quoted by these companies. Take that long to settle your debts, and the odds are heavily in favor that you WILL be sued by one or more of your creditors. (At ZipDebt, we coach our clients to complete their settlements in a 6-12 month timeframe, which greatly lowers the legal risk associated with this approach.)
2. The major credit card banks did not suddenly turn around and start working with these firms after October 2010. So this means consumers need to wait past charge-off (after 6 months of non-payment) for their “professional negotiator” to even begin the process of settling their accounts. (At ZipDebt, approximately 90% of our clients’ settlements are negotiated before charge-off.)
3. Hire a third-party debt settlement company, and you can expect a much higher risk of legal action, not a lower risk. Consumers often get the false impression that they are “protected” by enrolling in a debt settlement program with an established company. Not true! In fact, just the opposite is true! If you wanted to get sued sooner rather than later, just hire a third-party debt company who sends out a Power-of-Attorney to your creditors. (At ZipDebt, we do not use POAs. Clients negotiate on their own with our guidance and coaching. Our clients have a fraction of the legal risk of clients enrolled with third-party firms.)
4. How do you know your debt settlement company will still exist a few months from now? With companies closing left and right, there have been numerous examples of clients being left in the lurch with no idea what progress (if any) has been made on their debt accounts. The financial pressures that companies are experiencing are enormous, as they attempt to convert from charging 15% front-loaded, to a percentage-of-savings fee on the back end. Many (if not most) firms attempting this conversion to FTC-compliance won’t be around for another year. They have made it to this point by using the revenue from “grandfathered” clients enrolled prior to 10/27/2010, where the fees are still coming in advance. Those revenue streams are drying up now, and 2012 will be a very tough year for most of these companies. Many will not survive another year of these market conditions. Why hire a company if you aren’t sure they will be there when you need them most?
ZipDebt pioneered the approach of do-it-yourself debt settlement combined with professional training (via audio CDs) and live coaching (delivered via email and telephone). Our results are published here and here. (Note: In 2012 we will publish updated statistics.) We challenge readers to find a better published track record anywhere in the debt settlement industry. We believe that ZipDebt clients settle faster for less total money out-of-pocket vs. ANY competing company or approach other than Chapter 7 bankruptcy. Of course, good luck to anyone trying to find the published track records of other companies in this industry to compare us against. Even today, the vast majority of companies do not publish their results at all! And the ones that do only disclose what they are required to, instead of a more detailed analysis of what is actually happening with their clients. When you examine the results of those few firms that actually do provide this type of data, it becomes immediately clear that traditional debt settlement programs result in higher legal risk and higher total cost to the client than my ZipDebt approach. (Note to skeptics: Please feel free to provide published data to the contrary, but I will not be holding my breath waiting for you!)
As with any business model, when you are successful, you see a steady stream of others trying to ride on your coattails and exploit your hard work for their own greedy ends. There’s an old saying: “Imitation is the sincerest form of flattery.” But whoever said that was not the owner of a business that has been ripped off countless times by copycats and quick-buck artists. For example, I’ve had people take my 32-page report and just sign their name to it. Others have settled a few debts based on my advice, then try to set themselves up as “experts” in debt negotiation. Some have written books or e-books based on my material, without any type of credit or source citation. Still others have set up DIY debt settlement websites based on “coaching,” with training materials that sound all too familiar. And so it goes.
Again, BUYER BEWARE! There are at least half-a-dozen active websites attempting to copy my business model. How do you evaluate the difference between ZipDebt and its competitors and make the right choice?
How to Compare ZipDebt to Other DIY Programs
• BBB Ratings – A+ for zipdebt.com as an accredited business, vs. C, D, or F ratings for competing firms (or NO ratings at all, meaning it’s a very new company).
• Moneyback Guarantee – ZipDebt offers all programs with a 365-day moneyback guarantee, compared to 30 days for most competing firms (not enough time to properly assess the information).
• Time in Business – I have been assisting consumers with debt settlement since 1997, and ZipDebt has been online since 2004, far longer than any of the copycats.
• Who Are They? – I operate with full disclosure and provide detailed information about who I am and my background in this industry. Compare this to the faceless “corporate” websites offering DIY programs where you have no idea who is behind the product.
• Live Coaching – We deliver coaching via email and telephone, tailored to the client’s specific list of creditors and unique financial circumstances, not just generic advice provided via online forums or blogs.
• Published Track Record – We publish our results so clients have proper insight into what can actually be achieved with this approach. Good luck finding published results from ANY competing DIY solution.
• We Do Not Refer to Third-Party Companies – We do not receive any type of compensation for “up-selling” from DIY to the far more costly third-party programs the way some other so-called DIY sites do. We only do DIY-with-coaching, and we never refer prospective clients to ANY traditional third-party settlement firms.
We’re confident that once you’ve done your research, you’ll agree that ZipDebt is the ONLY choice for do-it-yourself debt settlement, and in fact, we are the most prudent and rational choice for debt settlement in general. To learn more about our approach, please read our free 32-page download, “How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.” You’re also welcome to request a free 20-minute phone consultation. We’ll give you an unbiased recommendation on whether or not this approach is suitable for your financial situation.