Richard Nikoley
Co-Founder and Chairman, Provanta Corporation.

rnikoley@gmail.com

Is It Ethical to Stop Paying Your Debts and Settle Them?

I know what so many of our prospective clients think. Sure, they would like nothing more than to be out of debt -- Debt Free! --  or at least a very long way towards that ultimate goal. But something holds them back. The truth is, what holds many people back is a sense of moral obligation. They feel a solemn obligation to pay back what they've borrowed.

But while there's certainly no fault in having such feelings, are we really talking about solemn obligations? You know, like when you borrowed money from a parent or other relative and promised to repay it in a way tantamount to staking your life an reputation on it?

...And, it's very convenient for the credit card companies, mortgage companies and even Uncle Sam to have you feeling that way. Don't they kinda spin it with a tinge of moral guilt when the subject comes up? Perhaps not without reason. Over the decades, we in America have become a nation of debtors, by and large. In the simplest sense, taking on debt is essentially selling your future labor. There's nothing inherently wrong in that, just when it gets out of hand and one day you wake up to realize that you've sold your next 20-30 years of productive life right now. Worse, you may have already spent it and have nothing much to show for it except to sack yourself with a much higher moving bill once that time comes.

Yes, indeed it's true. We've come to the place that if everyone stopped paying, all at the same time, it would be like a run on the banks and everything would collapse. And yet, if you feel your own money in the bank is in jeopardy, are you going to let it sit there so that other depositors not as contentious as you get their money back?

Ah, so you don't have an obligation to let your money sit in a failing bank? You're simply exercising your contractual rights as a depositor: to make a withdrawal? Well how about a credit contract? Does it really say in any of your credit card agreements (I know: you've never read them and either have I; and this should be a clue) that you 'solemnly promise to repay, no matter what,' or anything of the kind?

Of course not. A credit contract, just as mortgage contract, assigns certain obligations to each party and correspondingly, rights to each party in the event of default. Although...I'll bet you'll find that if you do actually read your credit card contract that you have most of the obligations while they have most of the rights.

Well, that's fair, as they are the ones taking the first risk.

Ah, so they're taking a risk? Like in business? Like, businesses take calculated risks and they price their products and services accordingly, so that they can weather the risks and losses and still make a profit? Maybe that's why you get the introductory interest rate and after a while, notice you're paying15, 20, 30 percent and more...(we have seen as high as 35% rates at Provanta). ...I'm not even going to go into the charges & fees.

The mortgage contract is the best way to illustrate what's going on. It's a pretty simple contract, at base. You agree to take on the obligation to pay interest, some principal (normally; amortized over some period), property taxes and insurance while they take on the obligation to treat you as the actual owner right now (not like a rental or lease); and if you default, they have the right to undertake a legal procedure that culminates in them getting the property back. And in most States, they have no recourse against you no matter what happens.

But credit cards are unsecured. They can't come and take your entertainment system, bedroom set, or anything else, so it's just you against them.

That's why you paid the higher interest rates and that's why they'll deal. And they do deal.

Before I close, I'll reiterate the original point but restate it in other terms: it's just business. The credit card companies, as did every lender you ever had, was looking to make a profit on providing services to you. They stringently calculated, they wrote up long and complex contacts to protect their interests, and they have their legal rights, which they know backwards & forwards.

But I know. You feel as though it's you suffering and not them if you decide to undergo the relative gauntlet that is a debt-settlement program. Frankly, it's a tough row to hoe for some, piece of cake for others, and how that's going to go is really unpredictable. In settling tens of thousands of accounts for hundreds of millions of dollars for small businesses and ordinary folks over nearly two decades, I have yet to come up with any formula that gives me any confidence in uttering any prediction in any individual case. Sometimes, they're aggressive, often not. The job can almost always get done; it's the level of difficulty that's unpredictable.

I won't lie to you, but most Debt Settlement companies do, at least in their advertising. It could be easy. It could be very hard, but what do you see typically in the advertising? The honest truth is that it's up in the air. Which means: the banks are conducting their affairs as the businesspeople they are, adhering to a contract they wrote, you agreed to...and there's nothing moral or ethical involved.

It's just business.

You really can get out of debt and we at Provanta can help. We can do it all for you. We've been doing it for thousands of clients for just shy of two decades. I hope it's a walk in the park for you but until I get a crystal ball, I simply can't assure you of that. What I can assure is that every client who has followed our instructions as best they can, consistently, has ended up 2-4 years later debt free, and including our fees...far less than they signed up with, and that's discounting even the continuing interest, late fees, and other charges.

Figure out what you owe today, total. Take 60% of that, give or take 10%, divide that into monthly payments over 24-48 months, and if you can make that payment, my bet is you'll be debt free. How easy, stressful, or un-stressful it is in your individual case is simply up for grabs and there's no getting around that. I would love to whisper sweet nothings in your ear if just to comfort you that it'll be alright, but I can't. I don't know your tolerance and I don't know the bank's resolve in your particular caee. What I can do it put my professionals to work on your behalf and we will absolutely do our best. That, I can solemnly promise.

A Better Business Rating to be Proud of

Provanta has been a BBB Accredited business since 1994. That's 17 years! What's more, we're "A" rated.

Are you aware that most Debt Settlement companies carry a "D" or an "F" rating, and that few are even accredited?

Recently, in an effort to give other Debt Settlement companies a chance at accreditation and a decent rating, the BBB at the national level pulled all ratings for all (including us, even though we've been "A" rated since 1994) and required that we comply with a multi-page set of operating standards, and that we supply documentation to substantiate our compliance with these standards. Fortunately, upon examination of the requirements, it was found that we had long been operating in compliance -- simply out of a sense of propriety, doing what's best for our clients and thinking in the long-term. As a result, we were quickly able to get our well-deserved "A" rating back.

Frankly, I don't now how all the other Debt Settlement companies out there rate in terms of the BBB, but you're certainly welcome to compare if you're interested in exploring your options.

Are You Considering Debt Settlement? Then Read This

I must admit: times were better back in 1992 when I first formed what was to become Provanta in my bedroom with about $250 to my name.

As you must have guessed — as I’m here writing this now–  it became successful; and almost immediately. But once I attained a bit of success, enough to pay my own rent at least, the only people I could really afford to bring on to help was family members (flexible about paydays). The very first, only months after the start, was my own mom who wished to get out of the daycare business. You’ll learn more about her later.

In subsequent posts I will delve more into Provanta’s unique history as a Debt Settlement company. For now, let me just advance from 1992 about a dozen years. By 2004 we had about 30 employees, many independent sales offices, three separate company owned offices and business was booming.

And I couldn’t sleep at night.

You see, in the pursuit of more and more business we took on a model of independent sales people, paid on what they produced. This was a mistake. For lack of a self-serving way to express it, I ended up employing a lot of liars. But it was my fault. You see, not being integrated with the business as a whole; that is, working in every aspect of the business before selling to new clients, they probably couldn’t help but be overly exuberant.

Debt Settlement is not a walk in the park. It’s kind of like going on a diet after you’ve spent years gaining that 10 pounds per year. At first, no big deal. By the time you realize you’ve racked on 30, 40, 50 pounds or more…well, it’s a lot like waking up to realize you have $30,000 of credit card debt — uncoincidentally, the amount of debt our average client has.

But while it’s not a walk in the park, it is possible to settle your debt if you do it right. Can you do it yourself? Certainly, just as you can re-roof your house, remodel your bathroom or kitchen, fix your own car and any host of other things. Never be fooled: this is simply about consistently hard work over a decent period of time; like 2-3 years. Kinda like loosing that 50 pounds.

It helps when someone is there to answer the phone during business hours when the best deals get done. We do that.

This is the introduction to a series of posts — a couple per week — about the state of the industry I helped create. I grew, then went smaller and “boutique,” and there are a lot of reasons for that.

I find the industry trend disturbing. It’s a lot of large companies now, with sales people promising you the moon.

The moon is not for sale.

Newsflash: Bankruptcy Lawyers Say Debt Settlement is a “Trap to be Avoided”

But only “For Most.” How very magnanimous of them. But one needn’t look far into the article to identify Craig Andresen’s — Attorney at Law — inherent and absolute bias.

In the past several years, there has been dramatic growth in the visibility of so-called debt settlement agencies. These are firms which advertise their supposed ability to “cut your credit card payments in half,” or promise they can “settle” your debt for only a small portion of what you owe — without filing bankruptcy.

We’ve got “so called;” there’s a “supposed ability;” and how could we leave out the very scary “‘settle.’” Well, Mr. Andresen, check for yourself. We actually publish our weekly and monthly settlement stats — even the “worst” settlement, which even you oughtn’t find all that scary, Mr. Andresen. What? Do you wrongly suppose that the concept of settling disagreements, disputes, or breaches of written or verbal contracts arose only after thousands of years of human interaction, only to be bestowed upon us lucky ones by the legal profession? Real people can’t arrive at settlements without a lawyer (or two or three…) in-between them, drafts upon drafts of legal documents; file endorsed to boot?

Well, I think that what Mr. Andresen really means by “For Most” is “None;” and “Never.”

[Read more]

Transparency

Probably the primary reason in going to a blog format for our corporate website was to demonstrate transparency in those elements of our services that might be of some concern to potential clients. The nature of our services are such that we set about to solve serious problems that some people find themselves in. You may be able to do without many of the goods and services you could buy — or consider buying — because not having those goods and services is not really a problem in your life. But when you can’t sleep at night, or when financial hardships cause friction between spouses, resulting in lots of stress on the kids, then there might be undue motivation to engage the sorts of services we have to offer.

Accordingly, we want to be particularly careful that you’re really, really sure that you want to do this. It’s not a walk in the park. It’s “surgery,” in a sense, and though the light at the end of the tunnel is indeed bright, warm and pleasant, the path to that light is not without risks and unpleasantness. You need to understand that potential, accept it, and commit yourself to doing the best you can to tolerate it. Some people can’t, and we want you to know that.

I could probably write a nice long post about all the aspects of transparency, why it’s good for everyone, and why it’s the future of business. But if I did, it would surely not be as good as Greg Swann’s post on the same topic. Greg is a Phoenix Realtor, a longtime friend and business associate, and he practices transparency against the prevailing tide.

Did You Know All This?

While we at Provanta celebrate and applaud the do-it-yourselfer, it’s a step that ought not be taken lightly without really considering what you need to know in order to set yourself up for success. Let’s consider one aspect of settling your debts, working with debt collectors.

Here’s a post from a lawyer explaining just a bit about the Fair Debt Collection Practices Act (FDCPA), as enforced y the Federal Trade Commission (FTC):

“No, A Debt Collector Can’t Threaten You With a Baseball Bat”

At Provanta, our negotiators know the legal rights of its clients. What’s more, the collection agencies know that Provanta knows, so this in itself tends to protect clients from the worst abuses. Even still, our clients file a significant number of complaints every year on the FTC website.

Recognizing Provanta’s Honesty and Leadership

Jeff Michael, author of Repair Your Credit and Knock Out Your Debt, as well as the proprietor of a debt recovery industry watch blog, has some very nice things to say about Provanta’s new approach to its corporate website. Jeff is from the credit counseling arena of the debt recovery profession, and he’s always been reasonable and fair in his assessments of debt settlement as an option for some people.

I really, really like it. At first, it’s a novel idea to have a corporate site that is essentially a blog. It’s a smart (and inexpensive) way for a company to set up their web presence that says a lot about the company.

But it’s also nice to see our efforts so well understood in our first outside recognition:

And after reading most of the site, it’s not just the fact that it’s a blog that is impressive, it’s the content of the posts. I don’t know else where you’re going to find this much honesty on a debt settlement negotiator’s site, or on any corporate web site.

It reminds of the the whole idea of public companies vs. private companies (Provanta is privately held). The basic idea is that public companies have a whole host of reporting requirements so that investors presumably have all they need to make an informed investment decision, should they be inclined to purchase stock in the company. Of course, as we’ve seen in one corporate scandal after another, it’s not only fraud (“cooking the books”) that’s a problem, it’s that corporate interests have the “advantage” of millions of dollars towards lobbying efforts. It’s hard not to view the plethora of barrier-to-entry securities regulation as “the best set of laws money can buy.” At Provanta, we want to do our part in leading the way to a point where one day, the chief competitive weapon small, private companies have against the massive ones is that they don’t hide behind elite spin public relations firms. That’s not to say we’re going to be posting our P&L or tax returns, but we do want to be as open and transparent about the true nature of the services we perform for clients as possible.

FTC Issues 2008 Fair Debt Collection Practices Report to Congress

According to the FTC website:

Issuance of Commission report to Congress: The Commission has authorized the staff to release publicly the 30th Annual Report to Congress on the Fair Debt Collection Practices Act (FDCPA). This report, which is available now on the FTC’s Web site, summarizes the Commission’s administration and enforcement of the FDCPA during 2007. It presents an overview of the types of consumer complaints received by the Commission, descriptions of the Commission’s debt-collection law enforcement actions, and a summary of the Commission’s consumer and industry education initiatives. The FDCPA prohibits deceptive, unfair, and abusive practices by third-party debt collectors. Section 815 of the FDCPA requires the Commission to submit annual reports to Congress. The Commission vote to issue the report was 5-0. (FTC File No. P084802; the staff contact is Karen Hickey, Bureau of Consumer Protection…

The 16-page report (PDF) can be obtained here. Among many items of note in the report…

These actions are part of the Commission’s ongoing effort to curtail deceptive, unfair, and abusive debt collection practices in the marketplace. Such practices cause substantial consumer injury, including payment of amounts not owed, unintended waivers of rights, invasions of privacy, and emotional distress.

[...]

The Commission staff held a two-day public workshop in October 2007 to examine the industry and a number of current issues. The staff invited consumer advocates, industry representatives, state and federal regulators, and other experts to provide information and their views on the collection industry and related policy issues.

Of course, what the FTC may likely be unaware of is that the debt settlement industry is the perfect “private enforcement” of professional debt collection practices. We see violations of the FDCPA virtually every day at Provanta, and while most are not of the most egregious sort (child answers the phone; debt collector informs child he’s going to put mommy and daddy in jail if they don’t pay up), professional debt settlement companies go a long way towards mitigating the embarrassment and abuse that can result from a sincere financial hardship.

A suggestion concerning the FTC’s workshop: The Association of Settlement Companies (TASC), of which Provanta is a proud member, ought to field representatives from our industry the next time around.

I’ll have more to say about the FTC’s report in subsequent entries.

We’re Live

Welcome. It’s an exciting time. In 15 years of serving clients in need of debt relief, and many website designs going back as far as 1994 or ’95, I have never been so pleased.

It’s not done, but that’s part of what’s pleasing. In fact, a website should never be done. It should remain fresh, relevant, and alive to the people kind enough to browse by. So thank you for your visit.

It’s not done. It’ll never be done. But hopefully it will provide free information about debt, credit, debt help and financial good sense that will be of some benefit to you whenever you come to check on our progress towards never being done.

New Look; New Everything

This marks the beginning of an entirely new website strategy for Provanta. When you think about it, most company websites could be generated a lot faster, easier, and less costly if one were to simply scan a business card and a company brochure, and put it up there to collect dust. Not even any need to publish text, because unless there are tons of other sites linking to you, unless you publish new and fresh information regularly (daily), you’re simply going to be uncompetitive and increasingly irrelevant in a new world that’s about “what have and can you do for me lately!“

So why am I revealing our new strategy to the world, to potential competitors? Well, they’ll figure it out anyway; but more importantly, I’ll welcome this kind of competition. If they think they can match our daily relevance, freshness, and interest in a wide array of personal financial topics focussed on getting out of debt and getting on with life, then they are invited to bring it.

More — much more — later.