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Document Sample
How to Evaluate
Debt Negotiation & Settlement
Businesses for Ratings Purposes
August 26, 2009
1
What is a debt
settlement business?
Definition: A debt settlement business is a business that
offers, for a fee, to assist consumers in establishing a debt
settlement plan.
A debt settlement plan is a plan established for a consumer
through which the consumer, instead of paying his/her
creditors on a monthly basis, accumulates funds in a third
party account to pay off the consumer’s debt for an amount
less than the full amount owed as negotiated by the debt
negotiation/settlement business.
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Understand the services the
business offers
It is important to understand the difference
between debt settlement businesses and other
businesses that assist consumers with debt issues
such as credit counseling, debt consolidation and
credit repair.
Some businesses will offer many of these credit-
related services.
Criteria applies to a business that offers debt
settlement services as well as other services
to consumers.
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What does a debt negotiation/settlement business
need to do to demonstrate that it does not belong
in the inherent problem TOB category?
Satisfy BBB all evaluation criteria have been met
Provide to BBB all of the required information
Agree BBB may perform a confidential review of
any documents in business’ possession
Transparency is essential!!!
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Criteria for removing a debt settlement
business from the inherent problem
TOB category
The business must establish, to BBB’s
satisfaction, that . . .
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1. It has been in business for at least
two years.
The clock starts when the business opens its
doors as a debt settlement business, not
when it is incorporated or files its dba
name.
Must have been actively conducting a debt
settlement business for at least two years.
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2. Maintains at least a $1 million
fidelity bond.
The business must provide proof of the fidelity
bond, including all pertinent information.
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3. It has substantiated all advertising
claims, including those relating to the
benefits or efficacy of debt settlement.
Examples of claims that need substantiation:
Consumers will improve their credit by using the business’
services
Consumers will save x amount of dollars
Average savings a consumer can expect
Business will eliminate x% of the consumer’s debt
Consumers will be debt free in x months
Length of time it takes to complete the debt settlement plan
Business’ services work better than other available options
Business’ debt settlement experience
Testimonials
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4. It makes adequate disclosures to consumers,
with clear and conspicuous disclosure of
fees and risks of debt settlement.
The following should be disclosed:
An explanation of how the debt settlement process works.
The nature of services offered.
Specific results cannot be predicted or guaranteed.
All fees paid by the consumer, including
(a) any setup fee
(b) any monthly fee and the estimated number of months for
which a monthly fee is required
(c) an estimate of the total amount of fees reasonably
anticipated to be paid
(d) the total amount of fees that may be charged.
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More transparent disclosures . . .
• Consumer may have to pay taxes on debt forgiven by a creditor.
• The consumer’s failure to make required payments to creditors will have a
negative effect on the consumer’s credit rating and may also subject the
consumer to increased finance or other charges and collection or legal
actions by creditors.
• What will happen to the consumer’s money if paid to the business or a
third party trust account.
• An explanation of when the business will begin contacting and negotiating
with the consumer’s creditors.
• The business cannot require creditors to negotiate or reach settlements.
• A complete description of cancellation terms.
• A complete description of business’ refund policy.
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5. It has adequate procedures for screening
out consumers who are not appropriate
candidates for debt settlement.
Must have objective written criteria to effectively
screen potential candidates.
Look for . . .
– Defined debt to income ratios
– Minimum/maximum amounts of unsecured
debt
– Limits on the consumer’s income level
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6. A majority of consumers that pay money
and enroll in its programs do not cancel or
otherwise withdraw from the debt
settlement plan prior to completion.
For each of the past three years, the business should state:
• The total number of customers who – for the first time that
year - paid them money for debt settlement services.
• The number of those customers who withdrew from the
debt settlement process.
• If a majority of customers – over a three year period - paid
money and then withdrew, the business does not meet this
criterion.
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7. A majority of consumers who complete
the established debt settlement plan show
a reduction in debt that is significant
and exceeds the fees charged.
The business should supply data for a three-year
period, with data broken down for each year.
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For each year, the business should state
the total number of customers
who completed a debt settlement plan.
For each customer who completed the plan, the business
should list:
– The total amount of consumer debt at the
beginning of the debt settlement plan
– The total amount of debt resolved by the debt
settlement plan
– The total amount of payments made by the
consumer to satisfy that debt
– The average savings for each consumer
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The business must establish that a majority of
consumers who completed the debt settlement
plan had a significant reduction in debt.
What is a significant reduction in debt?
BBB’s should look at the sum of:
Fees paid by the consumer to the business, plus
Payments to the creditor to satisfy the original debt
The sum of the two should be compared to the total amount
of the consumer’s original debt.
In order to be significant, there should be at least a
20% reduction from the original debt!!!
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Documentation from the Business
It is essential the business be transparent with BBB.
In order for a business to be removed from inherent problem
TOB, BBB must:
a. Receive all documents listed below, and
b. Be satisfied all seven criteria have been met
A business that does not have the following internal
procedures does not meet the criteria, and BBB
should advise them to develop and implement these
procedures before further BBB consideration.
BBB’s will agree to keep some information confidential; a form
confidentiality agreement has been developed.
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Information that must be provided by the
debt settlement business
1. List of principals and their past associations in any debt
settlement or other financial service business.
2. Screenshots of all Web site pages, including all pages
seeking information from consumers.
3. All promotional literature.
4. All written agreements with consumers. This includes any
power of attorney forms used as well as statement of
fees charged.
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5. Explanation of how fees are calculated, and all consumer
disclosures that explain how fees are calculated and when
fees are charged.
6. Scripts for telephone operators and other employees or
independent contractors.*
7. A description of (a) all training given to telephone operators
and other employees/independent contractors, (b) all
monitoring of sales personnel that is conducted, and (c)
all monitoring of debt negotiators.*
8. Screening procedures and criteria used to determine
whether debt settlement is appropriate for each
consumer.*
*Subject to BBB confidentiality agreement
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9. Procedures and guidelines for escrow of funds if
applicable.*
10. Procedures and guidelines for working with creditors.*
11. Procedures and guidelines for administration of the
consumer’s debt settlement plan.*
12. A list of names and addresses of any sub-contractors used
in marketing and/or providing services to consumers,
including a statement of each sub-contractor’s role.*
* Subject to BBB confidentiality agreement
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13. Data, listed separately for each of the past three years, to show:*
a. The number of consumers that have paid money for services
in establishing a debt settlement plan;
b. The number of debt settlement plans that have been
successfully established;
c. The number of debt settlement plans that have been
successfully completed;
d. For each debt settlement plan that has been successfully
completed, the amount of debt reduction; and
e. The number of consumers that have paid money for services
in establishing a settlement plan but cancelled or otherwise
withdrew prior to completion.
*Subject to BBB confidentiality agreement
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14. For each of the past three years, copies of all complaints
received from or on behalf of consumers as well as the business’
response to those complaints. Personally identifiable information
may be redacted. [Subject to BBB confidentiality agreement]
15. A statement of the business’ participation in any trade
association and/or third party self-regulation program.
16. A minimum of 10 consumer references. More may be requested
based on business volume. [To be contacted by BBB but
otherwise subject to BBB confidentiality agreement]
17. A list of states where business is registered and/or licensed to
perform debt settlement services, including a copy of any
required licenses for debt settlement services.
18. Copy of fidelity bond maintained by business.
19. Any other information requested by BBB.
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Confidentiality Agreement
1. ________ (“Business”) has provided the BBB of _____________ (“BBB”) with the following
documents if checked:
__ Scripts for telephone arbitrators and other employees or independent contractors
__ A description of (a) all training given to telephone operators and other employees/independent
contractors, (b) all monitoring of sales personnel that is conducted, and (c) all monitoring of debt
negotiators
__ Screening procedures and criteria used to determine whether debt settlement is appropriate for
each consumer
__ Procedures and guidelines for escrow of funds if applicable
__ Procedures and guidelines for working with creditors
__ Procedures and guidelines for administration of consumer debt settlement plans
__ A list of names and addresses of sub-contractors used in marketing and/or providing services to
consumers, including a statement of each sub-contractor’s role.
__ Data for each of the past 3 years to show (a) the number of consumers that paid money for
services in establishing a debt settlement plan, (b) the number of debt settlement plans
successfully established, (c) the number of debt settlement plans successfully completed, (d) the
amount of debt reduction for each debt settlement plan successfully completed, and (e) the
number of consumers who paid for services in establishing a debt settlement plan but cancelled or
otherwise withdrew prior to completion.
2. BBB will keep the above documents confidential and will not disclose them to anyone not working
for the BBB unless disclosure is (a) required by law or regulation or (b) pursuant to a lawsuit by
Business against the BBB.
3. Business has also provided BBB with names and phone numbers of consumer references. BBB will
call these consumers, and otherwise will keep this information confidential and will not disclose it to
anyone not working for the BBB unless disclosure is (a) required by law or regulation or (b)
pursuant to a lawsuit by Business against the BBB.
____________________ ___________________ ______________
Signature Title Date
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Inspection by BBB
Business must agree BBB may perform a
confidential review of any documents in business’
possession to confirm representations made,
subject to BBB’s agreement to keep such
information confidential.
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How do we know the information
provided is true?
Measure against any complaints received.
Compare with information given by consumers who
are inquiring about the business.
Call the consumer references.
Shop the business – Check the accuracy of sales
scripts, consumer screening procedures, etc.
Use common sense.
Ask for more information, if needed!
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XYZ
Business
Advertising
Be on the look
out for XYZ-XYZ!
questionable
claims
(Criteria #3) XYZ
Business
Request
substantiation!
XYZ Company
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