TASC to FTC: Debt Settlement Better Service for Many Consumers

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Credit counseling can fall short on debt relief

The Association of Settlement Companies

It should be noted that since credit counseling does not seek reductions in the principal amount owed while only getting some reduction in the fees and interest, a consumer using credit counseling can make payments for some time and never get ahead

The Association of Settlement Companies (TASC) continued its education campaign last week when it explained to the Federal Trade Commission in a meeting that consumers seeking to manage their debt can have higher success rates when using credible debt settlement companies rather than credit counseling services.

Credit counseling and bankruptcy would essentially be the only remaining options for consumers struggling with unsecured debt if the FTC passes its proposed amendments to the Telemarketing Sales Rule. Included is a ban of advance fees that TASC believes could effectively eliminate the industry because it would require debt settlement companies to work for free for the better part of the settlement process, which typically takes three years.

“One main difference between the services is that debt settlement companies work solely on behalf of consumers to reduce the outstanding balance of debt that must be repaid,” Dave Leuthold, Executive Director of TASC, said. “In contrast, credit counseling companies in essence work as a collector and agent for the credit card companies. As such, they not only receive fees from the consumer but they also receive compensation from the banks, so they may not have the client’s best interest at heart.”

Other differences between the two services:

  • Debt settlement programs are typically 36 months or fewer. Credit counseling programs are usually 60 months.
  • For consumers that complete programs, the total cost of a debt settlement program is usually far less than the cost of a debt management program offered by a credit counseling company.
  • Debt settlement programs are customized depending on a consumer’s circumstances and needs. Credit counseling payment plans are dictated by the creditors and the resulting monthly payment demanded by the program often is higher than the consumer can afford.

TASC, which gathered the information from various sources—including the Executive Office for the U.S. Trustees and testimony by credit counseling companies—supports responsible regulation and believes that, especially in this tough economic climate, consumers should have more financial options at their disposal, not fewer.

Debt settlement clients should expect to see higher success rates and fewer dropout rates through shorter program durations, customized programs and lower budgeted monthly payments, Leuthold added.

“It should be noted that since credit counseling does not seek reductions in the principal amount owed while only getting some reduction in the fees and interest, a consumer using credit counseling can make payments for some time and never get ahead,” Leuthold said. “In other words, credit counseling often does no better than a consumer simply making minimum payments, which often cannot be afforded anyways. In cases in which a consumer cancels within the first year, the consumer can be far worse off than when they entered the credit counseling program.”

About The Association of Settlement Companies
The Association of Settlement Companies (TASC) promotes fair business practices, consumer protection and industry standards for the debt settlement industry. TASC, founded in 2005, serves to protect consumers through an organization seal that represents best practices and standards of reputable companies. The organization also protects its member companies through lobbying efforts at the state and national levels, as well as awareness initiatives to educate consumers on debt settlement as a financial solution. All TASC member companies pledge compliance to strict association bylaws governing business practices and ethics. For more information, visit http://www.tascsite.org.    

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Ann Marie Austin
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