But the big changes could be in what fees the settlement companies charge and when they can charge them. Regulators are pushing for a fee structure that allows the companies to collect their fees only after a settlement has been reached. This is obviously a major concern for the debt settlement industry.
Putting aside the new rules, regulations and fee structure I have a bigger question. Can settlement companies even settle anymore? According to a negotiations manager of a debt settlement company three (3) of the top five (5) credit card issuers (Chase, Bank of America, Citi Bank, American Express and Capitol One) have already stopped dealing with debt settlement companies.
According to him those 3 creditors have sent letters out to their collection divisions and contractors stating that they are no longer with settlement companies and to no longer accept their calls. If this is the case can you imagine the consequences? Hundreds of thousands of people are paying millions of dollars in fees into a program that will do virtually nothing for them. And you would have to assume that the settlement companies are aware. Three of the largest credit issuers no longer making settlements with you is sure to ring all kinds of internal alarm bells. Yet, here we sit, with no warning or notice of any kind.
To be fair, I am somewhat skeptical. If the credit issuers did make the decision to no longer work with settlement companies, I doubt their resolve. Credit card companies are facing record defaults and the worst hasn’t even hit. The net charge-off rate on credit-card defaults could skyrocket to 10% in 2009 — double the average of 5% over the past 10 years — reaching $18.6 billion in the first quarter and $96 billion by the end of next year, predicts an October report from Innovest Strategic Value Advisers, an investment-research firm.
So given their disdain for working with settlement companies versus continuing their cash flow, in my opinion money will win out every time. The simple question is: where does that leave the consumer during all of this? If you thought debt settlement companies were risky before, imagine now that even the good companies may not be able to get credit card settlements from some of the largest, most popular creditors out there.
Do yourself a favor, if you’re already behind on payments, pick up the phone and call the creditor yourself. Several creditors have already starting to reach out to the consumer with settlement offers and some have even authorized some of their front line customer service agents to make settlements over the phone.
Try it, you have nothing to lose except being caught between two industries trying to stake their claim on your money.
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