Credit Counseling Agency Protects Consumers from Becoming Victims of Debt Settlement Scams

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One size does not fit all: New debt resolution program guides financially distressed consumers to make the right financial decisions.

A national alarm and call to action was sounded during the U.S. Senate Commerce Committee’s hearing on “The Debt Settlement Industry: The Consumers’ Experience.” Chairman John D. Rockefeller, IV of West Virginia had the U.S. General Accountability Office (GAO) present key disturbing findings about the debt settlement industry as the prelude to a clear and urgent call that something be done to protect consumers. AAA Fair Credit Foundation in Salt Lake City has already stepped into the ring with an aggressive effort to unite lenders and legislators alike behind its innovative Debt Resolution Plan. AAA Fair Credit Foundation CEO, Preston Cochrane said, “It’s time for credit counseling to win this battle. The support of banking during a complicated time is long overdue.”

The Debt Resolution Plan™ (DRP), designed to help families struggling with consumer debt problems, was announced at a press conference sponsored by Utah Governor Gary Herbert and House Speaker David Clark in the Utah state capitol on February 17, 2010. This program—the first in the nation—is the result of bipartisan legislation that permits the ‘means-tested,’ partial payment program to be piloted by AAA Fair Credit Foundation, a licensed Utah-based 501(c)(3) nonprofit credit counseling agency. Cochrane explained, “Many governmental agencies and consumer advocates think credit counseling can help everyone. We cannot without the support and cooperation of banking. Testimony showed that billions of dollars of settlements are being made annually through debt settlement companies. It’s time that relief was offered safely through credit counseling.”

The DRP utilizes a proprietary algorithm designed by Dr. Robert D. Manning, one of the nation’s foremost consumer finance scholars and Founder/President of the Responsible Debt Relief Institute. The algorithm provides creditors a transparent assessment of the consumer’s debt repayment capacity together with comprehensive documentation that discloses all the facts regarding the consumer’s finances. Most importantly, this new consumer debt repayment program to be administered through nonprofit credit counseling agencies is designed to offer consumers a regulated alternative to consumer debt settlement and bankruptcy only when they do not qualify for enrollment in a traditional full-balance Debt Management Plan (DMP). Cochrane emphasizes the importance of the assessment as he cautions well-meaning regulators and enforcement agencies, “While we appreciate the focus on referring to credit counseling, the vast majority of debtors who call on us cannot be helped because they cannot afford to pay full balance. Without the DRP program, AAA Fair Credit Foundation – or any other credit counseling agency – will not be able to help consumers determine what they can pay if they can’t pay it all. That is why so many consumers find themselves in the hand of debt settlement companies or end up filing bankruptcy.”

The 36-month program protects financially vulnerable consumers with a transparent assessment of the consumer’s true financial situation. Only consumers who are rigorously evaluated and qualified will be offered a DRP. The DRP program was examined closely by the Utah Department of Consumer Protection, Utah Department of Financial Institutions, State Legislators, and the Attorney General and House Speaker David Clark. Clark, who is also a banking president emphasized, “Banks need to embrace a common sense approach of working with their customers to help them repay their debts to the best of their ability.”

Utah Attorney General Mark Shurtleff also spoke and lauded the effort saying, “this program will save many honest people from becoming victims of debt negotiation scams that promise to ‘get you out of debt for pennies on the dollar’ while paying thousands of dollars in fees and then in the end file for bankruptcy.” It is important to note that the National Association of Attorneys General were also represented at the senate hearing by Phil Lehman, Assistant Attorney General in the Office of the North Carolina Attorney General, who pointed out that the problems with the debt settlement industry are priority concern for them as well.

Missouri Senator Claire McCaskill challenged debt settlement representatives about their fees asking, “Why isn’t a contingency fee appropriate in trying to alleviate the situation?” The DRP program at AAA Fair Credit Foundation addresses that concern as well. Instead of aggregating funds over time to build up a reserve to reach a projected settlement offer which is the method used by debt settlement companies, DRP is based on a monthly pro-rata repayment schedule just like a traditional full-balance Debt Management Program (DMP) administered by licensed nonprofit credit counseling agencies. Fees are earned as services are performed. Cochrane underlines the divide between the DRP plan and debt settlement saying, “The suggestion that, “no business big or small can operate without revenue” may be true in the for-profit debt settlement model; however, nonprofit credit counseling agencies are organized to operate exactly as Senator McCaskill suggests.”

“Because of the public outrage that has been expressed over the debt settlement industry’s questionable practices, now is the time to educate consumers so they fully understand the potential pitfalls of enrolling in a debt settlement program. The DRP program addresses all of the major concerns of consumers, creditors, and regulators. There are no upfront fees, no aggregating of funds, no serial settlements, and no deceptive marketing claims that link to non-existent national federal stimulus programs,” says Cochrane. “We’ve heard enough about what is wrong which is why we are taking action, and doing what is right.”

More information is available at http://www.faircredit.org or by calling (800) 351-4195. To schedule an interview with Preston Cochrane, please call (801) 656-1600.

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Preston Cochrane

Jennifer Rohn
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