Consumers who fall prey to the attorney model can end up with ruined credit.
Consumers who fall prey to the attorney model of debt settlement can end up with ruined credit and money spent out of pocket. Debt settlement companies technically aren’t allowed to charge fees until after lowering a consumer’s debt.
But a loophole in the Telemarketing Sales Rule — and a mish-mash of federal and state laws — allows predatory firms the opportunity for exploitation.has used a workaround regulators have dubbed the “attorney model” — taking money to the tune of tens of millions of dollars from consumers, according to Consumer Financial Protection Bureau actions since 2010. In this scheme, settlement companies masquerade as law firms, sometimes “renting out” a law license — since lawyers are allowed to collect advance fees, this provides a nifty if questionable way for these companies to cash in before doing any work. More often than not, however, these companies don’t actually connect consumers with attorneys.Pharmacy workers, others ratify 4-year contract with Kaiser Debt settlement is meant to fast track getting you out of the red when you’re in debt. Instead of walking away with less debt, consumers who fall prey to the attorney model can end up with ruined credit and money spent out of pocket. That’s what happened to Coya Davis, a 31-year-old ex-project manager in Atlanta. Davis was almost $27,000 in credit card debt when she learned about the Clear Creek Legal Debt Resolution Program in November 2023. After enrolling, Davis received a welcome email from the company telling her she’d made a smart choice and, with its help, would have her debts negotiated, settled and resolved for a fraction of what she owed. As is common practice, Clear Creek instructed Davis to stop paying her creditors and redirect her monthly payments into a trust account that could be later used for a settlement. It was the solution Davis thought she was looking for. “My minimum payments felt too high,” she says of her debt. “I wanted something that streamlined everything, maybe even a lump-sum option. While you can “DIY” debt settlement, hiring a reputable debt settlement company to negotiate your balances can be helpful when you’re juggling multiple creditors, interest rates and payment schedules. Though some firms can help consumers get out of debt sooner, others see financial anxiety as a means to line their own pockets. That’s what happened to Davis: When she left Clear Creek’s program, her debt was no lower than when she enrolled and her credit score had gone from the 700s to the 400s, she says. Davis was also out nearly $500, despite the clear Federal Trade Commission and CFPB rules that prohibit these companies from charging upfront fees. The size of the debt settlement industry waxes and wanes, but it historically rebounds in high periods of financial stress. Although it currently remains below Great Recession levels, the U.S.-led global debt settlement market is expected to expand from $4.8 billion in 2024 to $7.2 billion by 2032, according to For Davis, her debt was a result of losing one of her two jobs. With her income slashed in half, the bills began to pile up. “I felt overwhelmed,” she says.If you hire a debt settlement firm, you’re responsible for paying their fee once your account is settled — it’s usually between 15% and 25% of the total debt you bring into the program. Enroll $50,000 in debt, and what you owe the settlement company can range from $7,500 to $12,500. However, federal law limits when in the process those debt settlement companies can charge those fees. The Telemarketing Sales Rule, Consumer Financial Protection Act and state laws all work in tandem to ensure settlement companies aren’t charging consumers until they’ve delivered actual results. When Davis wanted to quit Clear Creek’s program — she couldn’t get straight answers about when her debt would be paid off, and she began to suspect she was being ripped off — she wanted all of her money back. She’d paid nearly $1,500 over three months. Clear Creek only returned $1,000, claiming it needed the rest to cover her account setup fees. “It made no sense because the money was supposed to be in a pot they’d later use to pay creditors,” says Davis. “But at that point, I chalked it up as a loss.” Clear Creek Legal Debt Resolution Program, whose website went dark in January 2026, had leveraged the loophole of acting as a law firm to charge upfront fees. The company did not respond to Bankrate’s multiple calls and emails when its contact information was publicly available online.“They were just a regular customer service agent, someone there to answer general questions,” she tells Bankrate. Andrew Pizor, senior attorney at the National Consumer Law Center, says he’s even seen larger debt settlement companies outsource their customer service to other countries. “The people actually doing the work on consumers’ accounts are virtually never attorneys,” he says. “The only attorneys involved are basically just lending their names to a letterhead.” Pizor says the practice is called fronting your license. “They’re doing it to exploit the loophole,” he adds. The only time Davis felt she was working with a legal entity was right after she enrolled, when Clear Creek sent a notary to her home to complete power of attorney paperwork, a routine part of the debt settlement process. Despite the word “attorney,” the documents don’t require a lawyer. Had Davis worked with a lawyer employed by Clear Creek, she could have gotten better advice. She might have been told, for example, that successful debt settlement typically involves being delinquent on your payments. Davis wasn’t behind on her accounts and didn’t realize that lessened her leverage in the settlement process. Clear Creek welcomed her with open arms anyway. When Davis reflects on her poor fit for Clear Creek’s services, she says it “pisses off.” She faced one of the consequences of debt settlement — major damage to her credit — without the promised upside of actually lowering her debt. That, and she paid almost $500 to do it. “Falling behind on payments incurs credit score damage and late fees,” adds Bankrate analyst Ted Rossman. “The typical tactic is to stop paying for a while and try to use that as leverage to settle for less than what you owe, but it trashes your credit.”The attorney model was largely pioneered by Morgan Drexen and Legal Helpers Debt Resolution in 2007. Morgan Drexen’s president and chief executive officer, Walter Ledda, wasFar from killing the attorney model, the Morgan Drexen case provided a blueprint for its evolution. A decade later, Strategic Financial Solutions would refine the scheme to an even larger scale.alleging they operated a large-scale, deceptive debt relief scheme. In the complaint, the CFPB and state regulators accused SFS of allegedly enticing borrowers with misleading claims of legal aid or personal loans, only to steer them into debt relief programs that charged thousands of consumers more than $100 million in illegal upfront fees. In many cases, the lawsuit also alleges that no debt settlement ever occurred. , an industry association, says Brown. It can also be helpful to see if a company is accredited by the Better Business Bureau.A debt management plan is also a slower process than settlement, tracked in years rather than months. When Davis first signed up in 2023, MMI predicted she’d complete the program by August 2028. “I’ve already knocked that to January 2028, and with a few more accounts paid off, I might even finish in mid-2027,” says Davis. She adds: “It feels good to work with a company that’s actually helping me instead of hurting me, and to see real progress.”75 arrested in downtown LA at ‘No Kings’ protest; federal officers injured, authorities sayLASD deputy, 30, dies in Baker to Vegas relay raceUCLA’s Eric Freeny intends to stay for sophomore seasonLaid-off KTLA weathercaster Kacey Montoya will return for a few more weeks
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