The @GetOutofDebtGuy over at Credit, Debt, Life did a nice review of the Florida Attorney General’s efforts to change how debt settlement folks get paid. His letter to the FTC encourages the FTC to require debt settlement companies to only collect fees after services are provided.

Unlike credit counseling programs where consumers continue to make payments to their creditors, debt settlement services encourage the consumer to stop making payments. These moneys that would normally be paid to creditors are often reduced and then paid to the debt settlement company. These companies then negotiate settlements with each of the consumer’s creditors.

The Florida Attorney General along with the Attorneys General from Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia, and Wyoming sent a letter to the FTC citing the following problems with debt settlement practices:

“The States’ enforcement actions provide ample evidence of the types of unfair and deceptive practices that financially distressed consumers encounter when they seek credit solutions via debt relief services. The primary consumer protection problem areas that have given rise to the States’ actions include: (1) unsubstantiated claims of consumer savings; (2) deceptive representations about the length of time necessary to complete a debt relief program; (3) misleading or failing to adequately inform consumers that they will be subject to continued collection efforts, including lawsuits, and that their account balances will increase due to extended nonpayment under the program; (4) deceptive disparagement of consumer credit counseling; (5) deceptive disparagement of bankruptcy as an alternative for debtors; (6) lack of screening and analysis to determine suitability of debt relief programs for individual debtors; (7) the collection of substantial up-front fees so the debt relief company gains even if it fails to perform; (8) lack of transparency and information for consumers as to payment of fees, status of accounts, and communications with creditors; (9) significant delays in active negotiation or engagement with creditors, coupled with prohibitions on direct consumer communications with creditors; and (10), in the case of debt settlement companies, basing savings claims (and settlement fees) not on the original account balance, but on the inflated amount due (including late fees and default rates of interest) at the time of settlement.”

Debt settlement folks, what do you think? Is it time to clean up the industry or is this an over-reaction to a few bad apples?

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The FTC hosted a public forum on November 4, 2009 to discuss a proposed “advance fee ban” and continued tightening on “disclosures and misrepresentations” related to the debt settlement industry.

The meeting was certainly packed with all of the major players in the debt settlement industry from practitioners to industry advocacy groups, like TASC. However, also present were a cadre of Attorneys General from various States and representative of the Credit Counseling industry sitting in support of these new proposed FTC provisions.

Just prior to the meeting industry advocates were making their case to the press.

Credit Solutions one of the leading debt settlement companies in the market and a charter policy partner of the United States Organization for Bankruptcy Alternatives (USOBA) made the case that the FTC should not pursue an all out ban on advance fees, but rather apply additional restrictions. Their argument, laid out in this press release, is that an out-right ban would force 84% of debt settlement businesses to close. However, adding additional restrictions in line with the Uniform Debt Management Services Act (UDMSA), which they support would clean-up the industry without reducing options for consumers in trouble with their debt.

Meanwhile, The Association of Settlement Companies made a similar plea in their press release:

“Debt settlement has been and should remain an option for the tens of thousands of consumers who are facing financial difficulties,” Dave Leuthold, Executive Director of TASC, said. “Especially in this tough economic climate, consumers should have more financial tools at their disposal, not fewer.”

The FTC is reporting that results and transcripts from the meeting should be available within the next month. It will be interesting to review the discussion.

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This almost seems a silly topic, but I think it is often overlooked and regularly kills deals. Your customers come to you or buy from you because of your knowledge. After all if they could do it themselves they probably would. The question is-are you staying competent enough to do them a service?

Most of you have been in the business for a long time. You know that mortgages and debt solutions as a big concept don’t change all that much. However, this market has created an avalanche of new products, qualifications, and ways to “skin the cat” so to speak. That means if you want to maximize your business and your service to customers you need to bone-up on your product knowledge.

How do you do this?

1. Regulators - I always suggest starting here because these are the guys that can instantly shut down or change your business. You need to be constantly monitoring government legislation, as well as key regulators (depending on your business), like the FTC, FDIC, OTS, OCC, and others.

2. Lenders and Creditors - Again, depending on whether you are in the mortgage or debt business you should consider what your lenders or creditors that you work with or against are doing and how this affects your products. For mortgage, this is pretty straightforward as you get new rate sheets. However, in the debt business you are constantly negotiating with creditors-knowing their goals and objectives are great for your business.

3. Industry Groups and Associations - I have been blogging a lot more about these lately. They can add significant value to you business. Good ones are doing most of this monitoring for your-watching out for you best interests, battling for positive change, and blocking bad. Getting involved can put you closer to having direct impact.

4. Social Networks - Much like industry groups and associations these are networks of like-minded individuals. Add to that the growing power of social media for industry impact. It also gives you a great chance to learn more about your products, industry, and opportunities. LinkedIn groups are where I have been spending a lot of my time learning and participating.

5. Competitors - Don’t discount competitors as a resource for enhancing your own product knowledge. Learning what your competitors are doing and offering can spark ideas and make you more competitive for your own customers.

6. Customers - It is amazing what your customers can tell you about your own products and services. Listening is a great way to learn what your customers want. As you explain your offerings their responses and questions can improve your knowledge and presentation.

Staying competitive in the mortgage and debt business is all about tweaking your sales presentation. So, becoming more knowledgeable about your products, services, and the market that drives them will make your pitch better and higher converting.

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The FTC has significantly altered the Telemarketing Sales Rule (TSR) with two amendments. The first prevents unsolicited robocalls and the second modifies the method of calculating the maximum permissible “call abandonment” rate.

Both went into affect on September 1, 2009. And you can read the press releases from the FTC directly here and here.

“After September 1, sellers and telemarketers who transmit prerecorded messages to consumers who have not agreed in writing to accept such messages will face penalties of up to $16,000 per call.”

This significantly stiffens an earlier TSR restriction on robocalls:

“Under a previous rule that took effect on December 1, 2008, telemarketing robocall messages by businesses covered by the TSR must tell consumers how to opt-out of further calls at the start of the message, and provide an automated opt-out mechanism that is voice or keypress activated. Prerecorded messages left on answering machines must also provide a toll-free number that connects to the automated opt-out mechanism.”

Needless to say if you are in the telemarketing business then make sure not to leave prerecorded commercial messages, especially if you are a lead vendor or client of ours.

Interestingly enough it does not prohibit these types of calls of “informational” calls, like flight updates or other customer service related courtesy messages. The amendments also continue to exclude certain organizations that are not covered by the TSR, like politicians, banks, telephone companies, and charities.

I am not sure prohibiting the technology is fixing the behavior. If they are concerned, as their press release indicates, about harassing and malicious telemarketing calls then they should define and ban those.

Unfortunately, by banning the technology for all for-profit businesses you are penalizing legitimate efficiency for the sins of a few bad apples. Meanwhile, the offending businesses will just simply look for cheap call center solutions to live dial the same calls they were pre-recording.

Sometimes these laws hit the symptoms and not the problems. What do you think?

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According to a recent New York Times article the FTC‘s effort to shutdown misleading debt relief companies may reach too far.

Initiatives underway are calling for debt settlement to fall under the umbrella of debt collection style telemarketing rules. In addition, it will target many of the up-front fees that sustain debt-relief companies. According to the New York Times the proposal looks like this:

“The proposal calls for a regulatory switch that would apply telemarketing rules to debt relief companies that receive telephone calls in response to advertising, as well as to those that reach out to consumers. It would ban debt relief companies from charging fees before providing services; prohibit them from making misleading claims about how fast they can help or how much money they can save for someone, and from masking for-profit companies as nonprofit agencies.”

Many debt settlement businesses think that the FTC lacks an understanding of their business model and may end up hurting people that need their services.

One representative of the debt industry explained it like this:

”Our goal is to try to get people out of debt, but in a sense this would make us a creditor as well,” said Wesley Young, the legislative director for The Association of Settlement Companies, a trade group for the industry. He noted debt settlement can take two or three years, leaving companies providing lengthy services without taking in any revenue, and possibly then being left holding a bill if the consumer doesn’t pay.

A case involving numerous creditors and substantial debt could require numerous phone calls for settlements to be arranged, Young said. ”We think this will hurt the service we provide to the consumer and they’ll be less successful in the programs.”

What do you think? Is the FTC protecting the consumer or potentially wiping out the viability of the businesses that can help them?

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The Federal Trade Commission (FTC) is one of the primary policing agencies for online marketing compliance. If you are marketing online it is smart to get familiar with their guidelines for compliance.

Getting educated on these guidelines is as simple as researching FTC’s “Advertising and Marketing on the Internet: Rules of the Road.” However, getting the general concept is even easier–it boils down to two primary principles:

• Advertising must tell the truth and not mislead consumers
• Claims made must be substantiated

The FTC’s mission is simple and outlined in the Federal Trade Commission Act, which allows the FTC to act in the interest of consumers to prevent deceptive and unfair practices. So, what is a deceptive or unfair practice?

A deceptive practice is one that:

• Misleads consumers
• Affects consumers’ behavior or decisions

An unfair practice is one that:

• Causes substantial injury
• Injury is not outweighed by other benefits
• Injury is not reasonably avoidable

If you are responsible for marketing products and services to consumers it is important to conduct some due diligence:

• Review material that substantiates claims, products, and services
• Disclaimers and disclosures must be clear and conspicuous
• Demonstrations must show products and services under normal conditions
• Refunds, if promised, must be made on request
• Advertising directed at children has special rules

Marketing compliance is really a simple exercise in using good, honest judgment and talking to consumers is a clear way. Take a close look at FTC guidance to stay on the straight and narrow.

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I think the answer is relatively simple–refrain from being a vulture and focus on restoring hope to hopeless clients. Here is a brief framework that I think will help you stand head and shoulders above the rest.

Provide Education for Free

If you have a website (which you should, even if you buy debt leads) fill it full of your knowledge about managing debt. Most debt settlement business owners, especially the bad ones, somehow believe that this information is a trade secret and their core value. It shouldn’t be.

Education and information about debt management should be your free value proposition. After all, it is available all over the Web. The way I look at it is debt clients are going to look and try to find information–I want it to be accurate and from me.

Concentrate your big value and fee service on your expert counsel and process for navigating, managing, or negotiating them out of debt as well as explaining options, tips, and best practices.

Associate Yourself with “Good Neighborhoods”

This is the smartest way to build immediate trust. Associate yourself with the good guys. Show that you are willing to play by the rules. Here are some debt industry organizations I suggest you belong to and participate in:

• US Organizations for Bankruptcy Alternatives (USOBA)
• The Association of Settlement Companies (TASC)

I also recommend that you manage a good standing with the Better Business Bureau.

Keep Yourself Informed and Educated

One last big thing you should do to be a “good guy”…one suggestion often forgotten: Stay sharp and engage in continual education yourself.

The debt industry is very dynamic right now. State and federal legislators and consumer advocacy groups are moving very swiftly to protect customers. Some of these changes are good and some are bad. You can contribute your expertise to the process by being involved in the industry groups I cited above. However, once the legislation becomes law you are responsible to comply. Make sure you are on top of the changes.

Staying educated also allows you to offer the maximum opportunity to your clients. Many of these new legislative programs are opening up debt relief opportunities–make sure you know how to offer them to your clients.

Here are some websites to help you stay on top of the latest in debt industry changes and typical debt client questions:

• International Association of Professional Debt Arbitrators (IAPDA)
• Uniform Debt-Management Services Act (UDMSA)
• Federal Trade Commission-Bureau of Consumer Protection
• Zip Debt Blog
• Better Credit Blog

Being one of the “good guys” in the debt industry is certainly going to be a profitable position and make you sleep better at night. Won’t it be great to know you did your part to boost our economy with healthier credit consumers?

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