The founders of a new debt-settlement firm called CreditAssist Financial Services are hoping their resumes will help the image of a business that they are not alone in criticizing.
“The whole industry is populated by a bunch of opportunists that have no understanding or background” in handling consumers, said Rick Wittwer, CreditAssist’s chief executive, who oversaw collections and recoveries as an executive vice president for Washington Mutual Inc.’s cards unit and as an executive for Providian Financial Corp. before Wamu bought Providian in 2005.
Mr. Wittwer founded the Euless, Tex., company with Carmine Dorio, its executive vice president. Mr. Dorio, a 40-year veteran of the collections industry, worked for Mr. Wittwer at Wamu and Providian. “With both of our presences in the field,” Mr. Dorio said, “there’s an element not only of legitimacy, but also of credibility, that wasn’t there before we arrived.”
Both men said in an interview last week that given the current climate, their experience and industry contacts — not to mention their willingness to charge consumers less than the average debt-settlement firm — will give them an edge over their competitors.
“We believe this is the fair way to do business: not to be predatory in any manner and to be able to withstand any regulatory scrutiny,” Mr. Wittwer said. “We’re accustomed to the compliance and audit requirements that are necessary to operate in a financial services market that none of our competitors are.”
CreditAssist, which opened to the public in January, says it plans to charge consumers about 7% of their total debts over the course of their settlement program. Nicolas de Segonzac, the president of the Association of Settlement Companies, a trade group, said that while fees and payment structures vary, the average flat fee is around 14% of the debt, which is usually paid over the first half of the settlement program.
CreditAssist is not a member of the trade group. Mr. Wittwer said the association’s members “don’t share the same goals, belief in lower fee structures, and level of compliance that we do.”
Mr. de Segonzac said his group stood by its standards. “Once this new company has been successful, they can make whatever value judgment they want, but first they have to be successful in the business,” he said.
There are many “good companies who have done a lot of good work for people,” but the industry’s reputation has suffered because most clients are too ashamed to openly discuss their experiences getting out of debt, Mr. de Segonzac said. “It is very difficult to get people to come in and voluntarily vouch for the industry,” he said.
CreditAssist is not charging its partner issuers or debt buyers, but is asking them to refer customers to it in their dunning letters or on cobranded Web sites. It is also relying on “a large amount of Internet advertising” to attract consumers, Mr. Wittwer said.
When a delinquent debtor comes to CreditAssist, its executives said, an account representative analyzes the client’s finances and helps establish a budget. CreditAssist also helps the client set up a savings account, which it monitors but does not touch; the client makes monthly deposits until the balance is high enough for CreditAssist to start negotiations with the client’s creditors.
“Once someone’s on a program,” Mr. Wittwer said, “our real job, other than negotiating the settlements, is being cheerleaders,” and there is no penalty for clients who drop out. “It absolutely is opt-in.”
But the venture faces obstacles, both within the industry and from its potential customers. Mr. Wittwer said CreditAssist has partnerships with several national debt buyers and collection agencies, but card issuers are more reluctant to work with debt-settlement firms. “These people worked for me” when he was in banking, he said. “Collections people like to control and they don’t like someone taking that control away from them.”
Though some major creditors use debt-settlement companies, they tend to do so sparingly. Tanya Madison, a spokeswoman for JPMorgan Chase & Co., said the banking company prefers to offer its own debt-management programs first. As a last resort, she said, “we do work with debt-reduction and debt-settlement organizations, but usually at the express consent of the cardholder.”
Irving Levin, the CEO of Genesis Financial Solutions Inc., a debt buyer in Beaverton, Ore., said that his company was “not actively partnering” with any debt-settlement firms but that he was “happy to work with the good ones.”
“Sometimes the industry is characterized by extremely high fees and questionable tactics,” he said. “In the best of cases, it’s a positive service — but it costs a lot of money and some of them end up charging their customers an awful lot.”
CreditAssist’s founders also acknowledge that they must overcome consumer wariness of debt-settlement firms. Linda Sherry, the director of national priorities for Consumer Action, said her group recommends that consumers go to nonprofits that belong to the National Foundation for Credit Counseling instead of for-profit debt-settlement services. Gail Cunningham, a spokeswoman for the foundation, which represents about 900 nonprofit counseling offices, said that even if a debt-settlement firm succeeds in negotiating away a client’s debts, “it’s going to show on the consumer’s credit report as ‘paid by settlement,’ ” hurting his or her chances of getting credit in the future.
Jennifer Openshaw, a personal finance author and commentator who started a for-profit counseling and referral service, DACA Inc., in October, sounded less than enthusiastic about companies that focus purely on debt settlement. “There are a lot of people in the debt-settlement space and it’s a very lucrative business,” she said, though “there are some legitimate players.”
Ms. Openshaw, who has her own industry contacts from her days at Bank One Corp. and Bank of America Corp., said the CreditAssist founders’ bona fides would probably help them. “Having come out of financial services and big banks myself, I know that there is a benefit from having worked inside them,” she said.
