Advertisement
Collection Agencies Wary of Debt Settlement Firms, But See their Purpose
November 13, 2008
Collection agencies will work with debt settlement firms if needed. But many view the firms as unnecessary and even dangerous to consumers.
Collection firms have mixed views of debt settlement firms, seeing them as filling an important purpose, but also saying that collection agencies can fill the same needs without the fees that debt settlement firms charge.
“There is a place for them in the industry,” said Mark Neeb, president and CEO of The Affiliated Group, a Rochester, Minn.-based debt collection firm that employs 110 people. “There is no surprise that a lot of people today are looking for [financial] help. A lot of people don’t know where to turn.”
Consumers with debt trouble would be better off going straight to the collection agencies that are handling the accounts, argues Eric Medrano, CEO of California Recovery Systems, Inc., a Sacramento, Calif. firm with 28 full-time collectors. He points out that consumers have to pay a large upfront fee to a debt settlement firm before any money is paid to a collection firm (or directly to a creditor, if the account has yet to be turned over for collection).
“I’m grateful for the money that they bring to the table, but we could collect more if they weren’t around,” Medrano conceded, arguing that the fees paid to the debt settlement companies would be better spent to help settle the outstanding debts.
Neeb and Medrano pointed out that the debt settlement industry is unregulated. “There are no rules to limit or define what they can and cannot do,” Neeb said.
This fact is not lost on the Federal Trade Commission and even some debt settlement companies themselves. The FTC is now looking at regulation to reign in the debt settlement industry ("Debt Settlement Companies Put Under FTC Microscope," Sept. 29).
In a recent workshop held by the FTC, panelists agreed that the Treasury Department’s Comptroller of the Currency should be the national regulator, which would provide a better solution than individual state oversight.
Jack Craven, president of Debt Settlement USA, Inc. in Phoenix, Ariz., said there are indeed a number of bad operators in the business that put a reputational burden on firms like his that he said “believe in consumer protection and full disclosure.”
Debt Settlement USA has more than 19,000 customers. In the five-plus years since its founding, the privately held company has settled $165 million in debts, including $1.5 million in October.
“People that come to us don’t have the ability to pay any more. They’re not unwilling to pay, they’re just unable to pay,” Craven said. “If a collection agency has an account placed with it, it only knows about that one particular account.” The collection firm might be attempting to collect on a credit card debt, for example, but the debtor likely has other outstanding debts, all of which are brought to the debt settlement firm.
“We have the complete financial profile,” Craven said, adding that such a profile, including debts, assets and income, enables the company to better determine what a debtor can pay.
Some debt collection agencies are happy to work with reputable debt settlement firms because they aid in recovering funds that may not otherwise be collected, according to Craven. By working with debt settlement companies, collection firms can use their people on accounts that haven’t gone to debt settlement firms, Craven noted.
Craven wants to see regulation of the industry because he agrees with Neeb’s assessment that any firm can call itself a debt settlement company and may do little to help the consumer, with many making false claims.
For example, in Minnesota, “foreclosure consultants” have promised to eliminate borrowers’ mortgage debt, bringing a lawsuit from Minnesota Attorney General Lori Swanson.
So Craven wants to see auditing and licensure requirements.
“There are good companies, bad ones and ones in the middle,” Neeb said. Medrano has a much harsher view: “They’re all crooks. They’re nothing more than agents for the debtors. They take their money up front, and until they get paid, they don’t provide anything for the creditors.”
Typically, a debt settlement company will place debtors’ payments in escrow before approaching creditors -- and collection agencies -- with payment offers.
The FTC will be collecting comments on the debt settlement industry through Dec. 1, and will then decide how to proceed in regulating the burgeoning industry.
“There is a place for them in the industry,” said Mark Neeb, president and CEO of The Affiliated Group, a Rochester, Minn.-based debt collection firm that employs 110 people. “There is no surprise that a lot of people today are looking for [financial] help. A lot of people don’t know where to turn.”
Consumers with debt trouble would be better off going straight to the collection agencies that are handling the accounts, argues Eric Medrano, CEO of California Recovery Systems, Inc., a Sacramento, Calif. firm with 28 full-time collectors. He points out that consumers have to pay a large upfront fee to a debt settlement firm before any money is paid to a collection firm (or directly to a creditor, if the account has yet to be turned over for collection).
“I’m grateful for the money that they bring to the table, but we could collect more if they weren’t around,” Medrano conceded, arguing that the fees paid to the debt settlement companies would be better spent to help settle the outstanding debts.
Neeb and Medrano pointed out that the debt settlement industry is unregulated. “There are no rules to limit or define what they can and cannot do,” Neeb said.
This fact is not lost on the Federal Trade Commission and even some debt settlement companies themselves. The FTC is now looking at regulation to reign in the debt settlement industry ("Debt Settlement Companies Put Under FTC Microscope," Sept. 29).
In a recent workshop held by the FTC, panelists agreed that the Treasury Department’s Comptroller of the Currency should be the national regulator, which would provide a better solution than individual state oversight.
Jack Craven, president of Debt Settlement USA, Inc. in Phoenix, Ariz., said there are indeed a number of bad operators in the business that put a reputational burden on firms like his that he said “believe in consumer protection and full disclosure.”
Debt Settlement USA has more than 19,000 customers. In the five-plus years since its founding, the privately held company has settled $165 million in debts, including $1.5 million in October.
“People that come to us don’t have the ability to pay any more. They’re not unwilling to pay, they’re just unable to pay,” Craven said. “If a collection agency has an account placed with it, it only knows about that one particular account.” The collection firm might be attempting to collect on a credit card debt, for example, but the debtor likely has other outstanding debts, all of which are brought to the debt settlement firm.
“We have the complete financial profile,” Craven said, adding that such a profile, including debts, assets and income, enables the company to better determine what a debtor can pay.
Some debt collection agencies are happy to work with reputable debt settlement firms because they aid in recovering funds that may not otherwise be collected, according to Craven. By working with debt settlement companies, collection firms can use their people on accounts that haven’t gone to debt settlement firms, Craven noted.
Craven wants to see regulation of the industry because he agrees with Neeb’s assessment that any firm can call itself a debt settlement company and may do little to help the consumer, with many making false claims.
For example, in Minnesota, “foreclosure consultants” have promised to eliminate borrowers’ mortgage debt, bringing a lawsuit from Minnesota Attorney General Lori Swanson.
So Craven wants to see auditing and licensure requirements.
“There are good companies, bad ones and ones in the middle,” Neeb said. Medrano has a much harsher view: “They’re all crooks. They’re nothing more than agents for the debtors. They take their money up front, and until they get paid, they don’t provide anything for the creditors.”
Typically, a debt settlement company will place debtors’ payments in escrow before approaching creditors -- and collection agencies -- with payment offers.
The FTC will be collecting comments on the debt settlement industry through Dec. 1, and will then decide how to proceed in regulating the burgeoning industry.
Care to Comment?
(Please read our comments policy first.)
Interested in more stories like this?
Tell us what topics you're interested in and we'll keep you posted. Enter your email address below.
Tell us what topics you're interested in and we'll keep you posted. Enter your email address below.
Related Resources
News
Analysis
Publications
Research
Products and Services
Advertisement
Advertisement
Comments
Comment from Anonymous on November 13, 2008 at 1:36PM EST
debt settlement companies are instrumental in helping agencies recover money from people who may otherwise had filed bankruptcy. i think that if the debt settlement company does not charge a lot in fees and if they do not require their fees up front, then they are helpful. it's the companies that charge too much in fees and get them up front that are harmful to the consumer and to collections. as a debt settlement employee, i look forward to reasonable legislation that may eliminate the bad companies and create an environment where collectors are happy to work with reputable debt settlement companies. hey, there are bad collection agencies out there making a bad name for the collection industry too. not all are created equal. we must be careful not to paint with a large brush.
Comment from Victim of Debt Settlement USA - SCAM on January 8, 2009 at 5:23PM EST
It's funny that Jack Craven is speaking out against fraudulent debt settlement companies. My elderly father in law joined Debt Settlement USA, AZ and has been paying $800 per month for the past 6 months. When I learned about this, i looked at the paperwork he signed and ~$600 each month goes to pay "fees" while only ~$200 will be "stored" to pay off the debt settlement. These high fees will be taken for the first 11 payments. We are trying to get our money back via BBB and will file a complaint against Jack Craven's company with the FTC. I'm appalled he has the nerve to comment about unscrupulous debt settlement companies.
Comment from REPUTABLE DEBT SETTLEMENT on February 6, 2009 at 6:41PM EST
While I agree that many debt settlement firms are unethical in the business dealings, please refrain from making the blanket statement, "all debt settlement companies take their fees up front." Sorry, that's simply not true. I am employed in the debt settlement industry and our firm prides itself on the fact that our BBB record is spotless because our customer service is personal and impeccable. We DO NOT charge up front fees, and even work with our clients to make it easier for them to accept settlement agreements. As a matter of fact, one of the first things we tell prospective clients is that our goal is to get the creditors paid first, and if that means holding off on our fee, then so be it. We don't want our clients in debt any longer than they need to be, so creditors are first priority when it comes to getting our clients' bills paid. Bad business decision? Maybe, but we sleep well at night knowing that we're not robbing our clients blind.