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Credit Counseling Industry In Crisis

I had to go back and look for something I had written before and in my search I found these old press releases I had sent out in early 2005.

Funny how those issues are still going on today. While we think times change, apparently in the debt relief world, they don’t.

Credit Counseling Industry In Crisis
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Credit Counseling Industry In Crisis

Creditors exert control; legislators shortsighted on reform

For Immediate Release: January 11, 2005

ROCKVILLE, Md. — Modern day credit counseling, often a last resort for consumers desperate to avoid bankruptcy, has reached a point where creditor control and legislative reform threaten the very industry itself. Once thought of as a financial safety net for consumers struggling to pay off debts, credit counseling as we know it is struggling to survive and provide a valuable service.

“In an era when consumer debt is at record levels, the very system designed to assist those in need is a broken system at best,” said Steve Rhode, who has returned as president of Myvesta to represent consumers in this crisis. “Currently consumers are not serviced by an industry who has the needs of the consumer in mind. It is an industry that has been besieged by creditors and government guidelines which force the agencies to worry more about day-to-day survival than focus on helping the consumers with in-depth and meaningful assistance.”

According to Rhode, creditors focused on demanding successful collection activity and the suggested IRS guidelines have trapped credit counseling agencies in a no-win position.

“Credit card companies, the single largest provider of funding for credit counseling agencies, have drastically cut their financial support while forcing agencies to act as collectors rather than counselors,” Rhode said. “Agencies have to do what the creditors want to stay in existence or they will get cut off from funding. Credit counseling agencies are afraid to speak out for fear of more funding cuts as retribution for speaking the truth.”

“On top of that, government agencies, in an effort to stifle deceptive practices in the credit counseling industry, are suggesting guidelines that threaten the ability of agencies to fund their programs at all.” Rhode said. “We are now faced with an industry that is on the brink of destruction and has to either obey the creditors as collectors or operate without any source of income. Either choice is deadly dangerous and bad for consumers.”

Bankruptcy Reform To Harm Consumers

A Sad Day for Financial Fairness and Compassion

For Immediate Release: March 4, 2005

Congress is on the verge of passing bankruptcy reform legislation. Sadly, it is one of the cruelest pieces of legislation for consumers and, if passed, will be extremely hurtful to the people of this country.

The bill’s primary presumption is that people who wind up filing bankruptcy are careless and/or deceptive people who are trying to take advantage of creditors. In the vast majority of cases that is simply not true.

In 1990 I filed bankruptcy. My situation was not willful, conceived nor planned. Since that time, I have counseled and coached tens of thousands of people in the same situation, and I have yet to come across one single person who willfully and intentionally incurred debt just to walk away from it.

The picture painted by pro-bankruptcy reform supporters of reckless and careless consumers is outrageously false. Often, the number of people filing for bankruptcy is hoisted in the press to justify that reform. On its face, the number of people who file bankruptcy seems like a big number, but it’s not when you look at the number of eligible adults who could file. The reality is that less than 0.7 percent of adults file bankruptcy each year.

The new bankruptcy reform legislation seeks to punish individuals for the unfortunate financial situations they find themselves in, but does not require creditors to be more caring, compassionate understanding or more responsible as to how much credit they extend to people who clearly are already overextended. Neither does the proposed bill allow consumers to repay what they can actually afford.

The real shocker here is that when people approach creditors with a willingness to repay their debts to the best of their abilities, they are often met at the credit card companies with a brick wall of policies and procedures that will not allow them to do so.

During my many years working with people in financial difficulties I have found that almost without exception creditors advise debtors to file for bankruptcy rather than allow them to pay what they can afford. They do so because the finance companies do not have a system in place to allow for non-standard or reasonable payments that do not fit their narrow criteria, and they are unwilling to create such a system. Consequently, many people who want to pay back their creditors are forced into bankruptcy court by the creditors themselves, unnecessarily inflating the numbers who file.

Surprisingly, credit counseling organizations eagerly await the passage of this legislation. You would think that these nonprofit groups would be acting in the interest of consumers, rather than creditors. Not any more. With all of the negative publicity credit counseling agencies have received recently, and the drastic funding cuts inflicted by credit card companies, they are salivating at the thought of provisions in the bill that require consumers to get pre-bankruptcy counseling and mandatory post-bankruptcy education. Agencies hope that the fees they will charge consumers for these services will solve their current funding woes.

If credit counseling organizations truly put people first, they should be leading the fight for consumers against this emotionally bankrupt legislation instead of eagerly planning behind closed doors for the income opportunity they hope this legislation will provide.

The main reason why the proposed reforms are bad is because they do not take into account the circumstances surrounding a person’s financial problems. This bill uses a sledgehammer to thread a needle.

Money problems are about choices that we make or situations that life unexpectedly deals us. In a medical context, the inability to pay bills is a symptom of the illness and not the problem itself. When someone cites job loss as the reason for bankruptcy, it is only the triggering event and not the cause of why he found himself in over his head. The real situation is often a complex formula of many varied events.

Sure, consumers share part of the blame because they actually believe the marketing hype that bombards them: “No payments for 12 months”, “No down payment.”, “Easy financing.” They also share the blame for being human. Money problems are rarely about the money.

There is never only one entity to blame when people face financial problems; everyone owns a portion of the situation. Creditors aggressively dole out credit in a, “Take this. Pick me,” fashion. And, once you sign on the line, they have a “take no prisoners” approach when unexpected and unfortunate things happen that prevent someone from repaying their debt. Creditors also have no compassion or understanding when it comes to the underlying reasons that cause people to file bankruptcy such as medical costs, job loss and divorce.

I am appalled that our elected representatives would even consider such a poorly thought out bill that has clearly been crafted by the credit industry. This bankruptcy reform legislation is a cruel method of extracting cash from consumers without taking into account each individual’s situation. It is punishment for falling on hard times. It is designed to solve a perceived problem of abuse that does not exist. It is a creditors dream come true.

Steve Rhode

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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