Over the past year there has been more talk from people about rolling out a 0% fairsahre debt management plan. Fairshare is the money creditors “contribute” to non-profit credit counseling groups. It’s a percentage of funds collected from consumers and returned to their creditors.

In the mid-1990s the fairshare percentage was 15% of all funds returned to creditors. Today it’s about 3%. Creditors basically said they wanted to pay less and so they did. They appear to be aiming for the sweet spot where they can keep credit counseling groups in business but just barely.

Credit counseling has been boxed into a corner by creditors regarding funding. In the past I’ve described the relationship as one straight out of Oliver Twist, “Please Sir, may I have some more?”

The bottom line is under the current credit counseling / creditor relationship the non-profit groups have no leverage in driving up funding other than asking for it. The IRS is already hot on the heals of credit counseling groups alleging that debt management plans are not a charitable activity and provide a private benefit for the creditors.

But with fairshare so low these days the reality is the next step is going to be a 0% fairshare debt management plan. With fairshare reduced 80% from it’s peak, the last bit of creditor crack is not an impossible jump to get away from. Smart technology companies are already working on alternative ways to deliver the DMP service at no charge to creditors and either free of at a very minimal cost to consumers.

It is no longer a matter of if, it’s now down to a matter of when.

Creditors will love that approach.

It is my experience that creditors are profit driven and when faced with a scenario of two providers of certain good strengths where one is free and the other one they pay 3% of the money collected, which one do you think they will gravitate towards? Let me give you a hint, stockholders rule.

A free debt management plan is entirely possible today using technology already in place, with a different monitization proposal. Rather than ask creditors for money to pay to continue an otherwise inefficient system, a much more automated debt management plan provider could survive on advertising revenue or even a small processing charge per month from consumer clients. Leaving creditors to get only benefit.

Imagine, if a consumer went through a more automated provider where they may only pay $5 to $15 per month for processing services versus $50 to $75 a month to a non-profit credit counseling group. That leaves up to $70 a month more that could be paid to creditors. Of course I’d rather see the consumer save that to build an emergency fund but that’s a different issue.

Established credit counseling today needs to get a jump start on what are the next services they can deliver to assist consumers to better deal with difficult financial times. I’ve got some ideas of course but it will be interesting to see what they come up with as well.

It seems entirely plausible that within the next five years the 0% fairshare will become the norm, credit counseling groups will have had to move on to more charitable services that are funded more by grants or by other mainstream charitable funding sources.

The good news is if debt management plans take up less of their time they’ll possibly have time to fight for better tools and solutions to help consumers.

But then again innovation has not be all that rampant in the credit counseling world. The bigger credit counseling groups can’t even get creditors to accept debt settlements or get all creditors to agree to special reduced terms to help consumers avoid bankruptcy. In fact Citibank just bailed from the Call to Action program.

I’m not sure I can think of any credit counseling driven initiative that creditors as a whole have embraced or innovated.

Interesting times are ahead for sure with the credit counseling landscape and it is on the verge of big changes.

@GetOutOfDebtGuy

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

Other Related Articles to Read

• Will the CFPB Outlaw Fairshare to Credit Counseling Organizations?
• Wells Fargo Bragging About Supporting Credit Counseling, But…
• Dear Credit Counseling, Times Only to Get Tougher.
• Citibank Closes Credit Counseling Call to Action Program
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• When Are NFCC Call to Action Debt Management Plans Going to Be a Reality? – Eric
• Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.

Read the full article at GetOutOfDebt.org, click here: Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.

Now that the last storm in debt relief is quieting, namely hurricane ‘debt settlement’ that was quelled by the FTC Telemarketing Sales Rules, it has given me an opportunity to poke my head up and take a wide look at the debt relief horizon. And what I’m seeing is concerning.

My roots in the debt relief world began with my personal bankruptcy which led me to want to help people. I founded a nonprofit credit counseling agency and spent many, many years inside that world. I am fully aware of the push-pull battle that exists between wanting to serve your customer, the consumer, and please the modern master, the banks that provide funding.

Since I wandered into the nonprofit credit counseling world in 1994 things have changed dramatically. Back in those days the creditor commission, or fair share as it is colloquially called, was 15% of the debt an agency paid back from the consumer to the creditor. But the big advantage of credit counseling and what attracted me to it as a tool to help people facing problem debt was the fact that when consumers were enrolled in a debt management program, administered by a nonprofit credit counseling agency, the interest rates went to 0% and the monthly payment was cut in half.

Creditors were hands off in those days and a lot of good could be accomplished but bad people took advantage of that as well and engaged in rampant profiteering, aka Ameridebt.

Today a slow but continued decline in creditor funding, fair share, of credit counseling has continued. Now, fair share is around 4% and payments in a debt management plan are about the exact same as the regular minimum payments the consumer is already dealing with. Rather than providing a payment break when times are tough, the lack of significant monthly payment reductions limits consumers to those that can already afford their minimum payment, a smaller and smaller portion of consumers in trouble. See Why credit counseling often fails by Liz Weston.

Credit counseling let all this happen. They have never been brave enough to stand up for consumers and fight back against the creditors that pay them.

Banks like Chase wield a unhealthy control over credit counseling. It seems if they don’t like the groups a credit counseling agency runs with or the way they look, they yank all funding and punish the agency for not doing what they want. Agencies are left in a Oliver Twist position, “Please Sir, I want some more?”

Over the last four years debt settlement knocked the crap out of credit counseling and poached many of their potential clients. It was easy to do. Debt settlement simply offered what consumers wanted to get from credit counseling, and couldn’t get. Debt settlement companies advertised payments cut in half and the avoidance of bankruptcy. Debt settlement didn’t steal customers from credit counseling, credit counseling did it to themselves and let it happen slowly over a number of years.

The wild west frontier of debt settlement has now been closed with the telemarketing sales rules and many of the bad actors and opportunists that were there, are or have moved on. The few big opportunists remaining will face upcoming regulatory action. Bottom line, as an old college chemistry professor always used to say, “That dog ain’t going hunt no more.”

Many opportunistic recent debt settlement companies will move on to form state non-profit companies and restart their engines selling debt relief services again. It’s what they know.

While legacy nonprofit credit counseling groups are celebrating the lack of authority and control over them by the Federal Trade Commission, since they don’t have the statutory authority to regulate nonprofit organizations, that will soon be a curse.

As the opportunists wander into the back doors of the nonprofits they will create new areas that consumers will need to be protected from. The new Consumer Financial Protection Bureau does have the authority to regulate all debt relief providers, including nonprofits. And to protect consumers the CFPB will pass regulations that control and impact all.

Regulation paints with a broad brush and good guys, as well as bad guys will be painted out of business or at least into a new future that will be entirely different than the present.

By credit counseling groups today not moving proactively to accept the FTC guidance on selling debt relief services and embracing performance transparency, they are doing themselves and consumers a terrible disservice.

Over the past couple of years it has become much harder to run a credit counseling agency. The cost per client acquisition has been increasing, the cost of marketing to find new clients has risen and it is just harder to retain clients. The reason, the underlying product, the debt management plan, does not meet the needs of hard hit consumers.

Some nonprofit credit counseling groups have avoided some of this strife. They have direct relationships with creditors and get consumers handed directly to them to service for the creditors. That is, as long as they remain in good graces with the creditors they have allowed to destroy credit counseling.

Those inside agencies marketing costs are less per consumer acquisition. Typically these are the larger credit counseling groups that carry a lot of authority and power in the credit counseling world by really suckling up to creditors and making them happy. But many independent agencies don’t have these relationships or free referrals. Like it or not, without change here, these less powerful agencies are really slowly dying.

So while debt settlement had kicked the ass of credit counseling, while it remained inflexible, times have now changed. The pool of people able to be sold debt settlement or credit counseling services is quickly shrinking.

Evidence of this shrinking pool is the apparent lack of the 2011 January bump. For decades there have been traditional patterns in debt relief services. When holiday bills roll in, in January, debt relief demand spikes. These are the consumers that overspend during the holidays and begin to panic when the final accounting arrives. The bills prompt action. Phones at debt relief providers ring hard.

This year, in all areas of debt relief, both debt settlement and credit counseling providers are wondering what happened. Where is the January bump?

The lack of the January bump is just further evidence that the entire marketplace has changed. It is no longer that one industry or another is poaching clients. The new reality is there are fewer consumers that can benefit from single source debt relief services, well, except for bankruptcy of course. And bankruptcy filing rates continue to spike, month after month.

The Current Debt Relief Reality (click on image)

Consumers tapped out on underwater homes, worried about jobs, in a slow economy don’t have extra bucks for debt repayment. They don’t need to adjust their debt payments, they need a fresh start. And that’s what they are getting with bankruptcy.

They may try credit counseling or debt settlement first, but for many the end game is just plain old bankruptcy.

One debt settlement company, “We did the consumer a favor and just took them to bankruptcy quicker and better qualified after they spent all that money on settlement fees.” It might not be a pretty statement but it is probably a fair one.

The future of debt relief needs to begin to change now for good groups to be able to provide help into the future. Those that will change will survive. Those that don’t change will die.

Nonprofit credit counseling needs to grow a pair of balls, right now, and make a stand against the creditor control over them and decide who it is they really serve. Is the charitable purpose to please the creditors or to serve the disadvantaged consumer in trouble?

This is Nothing New

Here is a press release I sent out in 2005 about creditor control. Less than a year later I closed the nonprofit.

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.”

The Logical Future

While the past approach has been of segregated solution providers on a national reach, the future needs to be inclusive providers with a local focus.

It’s just getting too hard to engage in national shotgun marketing where you try to service clients in many states and comply with the ever changing patchwork of regulations, licensure, and bonding.

Moving forward the key will be to focus on owning your local market and most importantly to offer a wide range of solutions to consumers needing debt help.

While credit counseling has been judgmental and acting as if they are superior to debt settlement and bankruptcy, the reality is, it is they that most need to change. But do they have the fortitude to make the hard choices and finally break the golden handcuffs of the creditors that control them? Frankly, I don’t think they do.

As long as the Chase Banks of this world dictate what credit counseling groups can say or do, they will never be free to stand up and truly fight for consumers.

Not true you say? I challenge you to go out and find me any substantial evidence of organized credit counseling or the NFCC, proactively coming out against unfair creditor policies from creditors that fund them. You won’t be able to. the creditors have muzzled the credit counseling groups with funding.

And while you are on the hunt, I also challenge you to find the actual performance data of credit counseling agencies. They are a charity, were is the transparency? There isn’t any. While credit counseling has be hypercritical of debt settlement they have also not embraced the same rules that debt settlement must operate under and do not provide any independently audited performance data.

Since I stood my ground in 2005 as you can see in that old press release above, credit counseling agencies have not been brave enough to stand up against the creditors and still their funding was cut at least by 50% or more since 2005. Playing along is not saving the industry. In fact I would argue that credit counseling today appears to be trapped in a “Stockholm Syndrome” situation.

In psychology, Stockholm syndrome is a term used to describe a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors that appear irrational in light of the danger or risk endured by the victims, essentially mistaking a lack of abuse from their captors as an act of kindness. – Source

Credit counseling has fought against debt settlement. In fact the National Foundation for Credit Counseling even played an instrumental role in drafting and pushing for the tough Debt Settlement Consumer Protection Act legislation put forward by Senator Schumer and McCaskil last year. Read this past article.

Credit counseling has been so busy trying to stack the deck in their favor that they’ve taken their eye off the future. Instead of protecting their market share they are simply boxing themselves into a dark corner.

Until credit counseling can break the creditor self-serving bonds that control the type of solutions they provide, the cost of finding the right niche client and turning everyone else away will kill them. But what to do?

Herein lies the problem. The creditors don’t want credit counseling groups to actively and aggressively get into debt settlement or add arrows to their quiver of solutions to help many of the consumers they otherwise turn away. What I’m hearing from my credit counseling friends is the current creditor marching orders are to keep putting consumers into debt management plans and make them pay or risk losing more.

If a credit counseling agency had the bravery to break ranks from those orders they risk the very diminishing funding which they get today. I get that. But there are options.

But if a credit counseling agency does not break ranks and become a wide range debt relief solution provider, what does the future hold?

The credit counseling agencies today, for the most part, are not leaders in the debt relief world, they are slaves and groupies to the creditors. They feel they can’t break out and expand the services they see consumers want, like debt settlement, for fear of irritating their controlling and funding creditors. The reality is they are not leaders, they are prisoners.

The two emotions that will hold them back from change at this critical time are powerful. Both fear and denial are unhelpful passengers in taking bold action, but change is what is needed. Revolution is needed.

Now picture this. A nonprofit agency develops close bonds with a debt settlement provider and local bankruptcy attorneys. Rather than advertise nationally they instead take the same advertising dollars and blanket advertise locally. Their good local reputation helps them to get loads of word of mouth referrals and they develop close relationships with the community. Rather than turning people away that don’t fit their single product solution, the DMP, they instead provide a solution for all. And the revenue opportunities expand greatly with that approach. That is, if you know how to do it.

Evidence of this more modern collaborative approach are the members of the AACC (American Association of Credit Counselors) which include a nonprofit credit counseling agency, a for profit credit counseling agency, debt settlement companies and attorney model debt settlement groups; all putting consumers first.

Some credit counseling groups will say they are pursuing that path by trying to seek the cooperation of the creditors to do so. They have been pursuing an approach called the Less Than Full Balance (LTFB) plan, which is essentially debt settlement. In the time that they have been trying to get creditors on board, debt settlement companies have been settling debt.

Citibank just announced they are terminating their Call to Action program where they offered special reduced terms for hardship cases, people that otherwise could not afford a traditional debt management plan. But effective February 1, 2010, credit counseling groups will not be able to offer that. At the same time Citibank continues to settle debts with debt settlement companies.

Dear Credit Counseling,

The moment has come to ask yourself, who do you really serve. Is to act in the best interest of the consumer who deserves your trust and who needs a single source provider of a wide range of solutions or is it the creditor to whom you answer.


@GetOutOfDebtGuy

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

Other Related Articles to Read

• Less Than Full Balance Plans and the Problems They Create for Credit Counselors
• Citibank Closes Credit Counseling Call to Action Program
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.
• Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.
• When Are NFCC Call to Action Debt Management Plans Going to Be a Reality? – Eric

Read the full article at GetOutOfDebt.org, click here: Dear Credit Counseling, Times Only to Get Tougher.

A notice just out to credit counseling groups was sent in by a great tipster. Apparently Citibank, an initial supporter of the NFCC and Consumer Credit Counseling Service program called Call to Action, is terminating their participation.

An email sent out to AICCCA members says:

Due to resource limitations and required compliance with policy, February 11, 2011 will be the final day that Citibank will accept CTA proposals for ANY of their billers, including those for CitiCards (Macys) and Citi – CTA Billers. Please see below for more information.

If I have clients already on a CTA program, will they be taken off?

No. Accounts that have already been accepted into the DMP program will remain on the program at the CTA terms until they either pay off the debt or terminate from the program.

What happens if a proposal has already been submitted?

Any CTA proposal that is pending decision on or before February 11th will be decisioned based on the information included in the proposal.

New proposals received after this date will no longer be eligible for CTA terms.

If I have a client who is transferring agencies, will their CTA program also transfer over?

Yes. Please follow correct procedures when transferring clients from one agency to another. Failure to follow Citi policies for re-enrollment of eligible accounts may have an adverse impact to the program’s successful completion.

If my client is dropped from a CTA program, will they be able to go back on?

No. Accounts can only be on a DMP once in the lifetime of the account.

If you have questions about a specific account, please use the appropriate portfolio toll free number for information.

Thank you for your continued support in helping our card holders have a healthy financial future.

The Call to Action program was heralded as a great benefit for consumers.

It was promoted as “a more affordable “Standard” DMP and a “Hardship” DMP (together, the “Call to Action” DMPs) for consumers who are seeking to avoid bankruptcy, but who do not have sufficient income to qualify for a traditional DMP. The key elements of these two new DMPs will allow consumers to maintain a reasonable monthly budget, establish a savings account for economic emergencies, make fixed monthly payments more affordable, and be out of debt within 60 months.” – Source

The exciting benefit of the plan was the reasonable ability to allow consumers to dig their way out of debt and also make room to save at the same time to protect themselves from a future financial disaster. Citibank apparently does not want to help consumers do that anymore.

It will be interesting to see if credit counseling groups can find a way to exercise any power over Citibank to bring this back. I would be very surprised to seem them speak out aggressively about this. They fear irritaing big funding sources like Citibank.

@GetOutOfDebtGuy

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

Other Related Articles to Read

• Dear Credit Counseling, Times Only to Get Tougher.
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.
• Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.
• When Are NFCC Call to Action Debt Management Plans Going to Be a Reality? – Eric

Read the full article at GetOutOfDebt.org, click here: Citibank Closes Credit Counseling Call to Action Program

Below you will find the presentation given by Susan Keating of NFCC regarding the state of credit counseling in the United States.

I was pleasantly pleased to find the NFCC talking about possibly leaving the door open to pursue offering debt settlement in the future, efforts to regulate the debt settlement industry, and an admission that the Call to Action debt management plans are not working as well as hoped for. A fact that I previously wrote about.

This year, I am going to break with tradition.

Often, annual conferences are places to spell out grand initiatives. Speakers promise to break new ground, reach for new horizons, set new standards of leadership, and take on important new challenges. As most of you know, I certainly like to think big. In the past, I’ve identified big initiatives and spelled out an NFCC vision for the future. Since my first address as President and CEO of the NFCC in 2004, we’ve worked together to set the gold standard for counseling ethics and we’ve reclaimed our profession from profiteers who abused the honor of being designated as a “nonprofit.” We’ve become an intellectual force that policymakers look to for counsel and leadership when evaluating financial services and their effect on consumers. We’ve enhanced the value of our brand by making clear to all that there really is a difference when working with an NFCC Agency. Most importantly, we have expanded our range of services in response to our clients’ changing needs, and we’ve consistently found ways to boost our capacity to meet new contingencies ranging from bankruptcy reform to the housing crisis to a recession that created a whole new set of challenges. These were important and substantive achievements, which often lent themselves to the “big initiative” approach.

But this year is different from the others. In the 12 months since my last state of the sector address, we’ve experienced a major financial crisis, a freeze up in the credit markets, a collapse in housing prices and sales, record foreclosures, a painful recession, a huge jump in unemployment, a surge in bankruptcies, and a dramatic increase in the demand for NFCC Member services. So, instead of a big new vision or goal, I believe our country and our sector will be best served by focusing on fundamentals. I think this is a time to build upon our successes; to continue to do what we do best; and to continue pushing forward on the initiatives defined this past year and bring them to full fruition. To borrow a phrase, during this next year, we need to “keep on, keeping-on.”

The challenges are bigger than ever. Just as our economy faces a long uphill climb to recovery, our sector faces the long, continuous work of helping millions of individual Americans regain their financial footing. Completing that task isn’t about a lot more new initiatives; the opportunity lies in more of the same hands-on work that NFCC Member Agencies and counselors have been performing at record levels over the past several years. When we last met, a year ago in Baltimore, our economy was already struggling mightily and the demand for our services was climbing rapidly. We didn’t imagine that things could get much worse. But just weeks after that meeting, our credit markets virtually stopped working and the U.S. government had to step forward with emergency measures of a magnitude not seen since the Great Depression more than 75 years ago. What began almost three years ago as a problem in the housing market had turned into an economic calamity. All of you have seen the evidence in your offices every day as more and more consumers look for help in finding a way out.

You’ve responded heroically. In 2008, NFCC Member Agencies provided education and counseling services to more than 3.2 million Americans – more than double the number from two years before. I don’t think any of you will be surprised to know that data from the first two quarters of this year shows that we will almost certainly serve even more people in 2009.

The tale of our economy is also told in the changing mix of the services we provide. Some of you in this room remember when NFCC Member Agencies were primarily single service, offering advice on how to deal with credit card debt. Today we live in a new economic reality, including complex financial products that many people don’t fully understand. This complexity is best illustrated by the variety of exotic mortgage loans that helped finance the housing boom. Unfortunately, when the housing boom turned to bust, this creativity produced unhappy endings for many borrowers and lenders alike. For NFCC Member Agencies, those bad endings have meant record demand for housing-related counseling. Between 2006 and 2008 – two short years – the demand for housing counseling more than tripled. Over the past year, the NFCC network has been the leading provider of counseling services under the National Foreclosure Mitigation Counseling Program (NFMC Program). During that same period, the demand for bankruptcy counseling more than doubled as the number of Americans filing for bankruptcy protection reached its highest level since the 2005 reforms.

So, it is not surprising that housing and bankruptcy counseling represent the lion’s share of the services we provide today. Of course, we continue to lead in the area of financial education – something that our recent experience shows is more important than ever. While I don’t pretend that widespread financial literacy would have prevented our economic difficulties, I am certain that fewer consumers would be in such deep trouble if more Americans had the knowledge they need to properly evaluate offers and make solid financial decisions. If more Americans were financially literate, fewer Americans would be struggling today with debts that they are unable to repay.

In each of these areas, the next year will look a lot like this year because even as the economy begins to bounce back, it will be a while before hiring expands and incomes begin to rise. For millions of Americans and their families, getting back to financial stability will remain a work in progress for some time to come. That means that NFCC Agencies and counselors must commit to another year of “keeping-on.”

As we look at the numbers, the one area that did decline for NFCC Member Agencies between 2006 and this year is the number of clients enrolled in Debt Management Plans – certainly not because the need declined, but because economic conditions deteriorated so much that even as more people came to us for help, fewer had the resources to qualify for DMPs. If you don’t have a job, you simply don’t have the money to service your debt obligations even with substantial concessions. Millions of Americans were, and still are, faced with making tough decisions they never anticipated. Will I put gas in my car or fill my prescription? Will I pay my mortgage or my credit card bills? Thus, the dip in DMPs is itself an indication of the depth of our country’s economic difficulties. This is one of the reasons why it was so important that we worked with creditors through the NFCC Advisory Council working group over this past year to improve interest rate and fee concessions.

Our counseling services are just one of the ways that we stand up for consumers. A year ago, in addition to those initiatives that help individuals and families address their financial challenges, we also committed to work aggressively to help protect them from opportunists who come out of the woodwork when people are desperate. I am pleased to report that we have made considerable progress. But there remains important work still to get done. The NFCC is committed to staying ahead of those who prey on troubled consumers, and the strongest weapon we have is empowering Americans with financial education.

In response to the dramatic changes in our economy and in public policy since last year’s annual meeting, CEOs and senior executives of NFCC Agencies came together for a midyear Leadership Summit in March and updated the NFCC agenda by identifying a trio of top strategic priorities. As a result of that work, I believe the NFCC Membership is as wellaligned as at any time since I assumed the position of President and CEO in March 2004. Here are the strategies we mapped out together:

1. Capitalize on the current environment to drive critical legislative and regulatory change at the federal level.
2. Pursue a new range of funding opportunities that support Member Agencies’ core services.
3. Build new national partnerships and reinforce existing relationships with key organizations.

I am here to report that you spoke — and we are acting with speed and serious intention.

In Washington, our reputation for excellence and ethics has opened policymakers’ doors and created opportunities for us to insert our voice on issues related to financial services and their impact on consumers. The power of the NFCC brand, which you have all worked so hard to enhance in recent years, also has helped us attract respected partners and build coalitions on important policy issues.

Empowered by our collective reputational capital, we have achieved some significant legislative success. Last spring, during congressional debate over so-called mortgage cram downs, both the House and Senate were presented with serious proposals for eliminating bankruptcy-related counseling. Working with others who understand the value of financial education, the NFCC and key allies helped beat back these ill-conceived proposals. This effort created an even stronger legislative history on the side of education and solidified relationships among those who support credit counseling and financial literacy.

We also have worked hard for continued federal funding of foreclosure mitigation counseling, and presented formal testimony on the issue at a House subcommittee hearing in April. While funding levels are not at the levels needed, we believe they might have been lower except for our efforts. We must continue to work in this area, because additional funding will be up for Congressional consideration again in 2010. Whatever the outcome, our visibility in this fight has reinforced our position as a voice in Congress on counseling issues. Many in Congress know who we are, the quality of the work we provide, and the difference we’re making in people’s lives.

I am also pleased that in the very near future, lawmakers will introduce legislation to protect consumers with important new regulations for the debt settlement industry. The NFCC has played a lead role in assembling a broad coalition of consumer advocates, financial services organizations, Democratic and Republican Attorneys General of several states, as well as other regulators in support of this important reform. With this kind of grassroots support, we believe passage of this legislation is possible before the end of this year.

If enacted, this legislation will help address the abuses that have riddled the debt settlement industry and protect consumers from deceptive advertising, misleading claims, and excessive fees charged by a number of these companies. Among other things, the proposed law would require important new disclosures about the services offered, fee schedules, possible adverse consequences, and the inability to guarantee success. The measure also would prevent debt settlement companies from collecting fees until after they have provided specific services.

It’s taken a lot of time and effort to get legislation to this point. That work included drafting, consultation with allies, and meetings with Members of Congress and their staffs to write a bill that has a chance to become law. Now, we have to finish the job. We will follow up the introduction of the legislation with aggressive outreach to lawmakers to win its passage. Stay tuned, because we will be turning to Member Agencies and other allies to reach out to their local members of Congress to tell them why this reform is so important. This is another example of “keeping-on.”

I also am encouraged that at the end of July, the Federal Trade Commission issued a proposed rule to eliminate deceptive advertising and marketing of debt settlement services. The NFCC testified at an FTC workshop on the subject and members of an NFCC working group also met with the FTC and provided additional input. These collective efforts made a difference. The proposed rule is out for public comment until October 9 and a public hearing is scheduled for the first week of November. The NFCC is preparing comments and plans to testify. Member Agencies also may wish to review the proposed rule and provide comments to the Commission by sharing clients’ stories about their experiences.

Let me be clear. There’s nothing wrong with settling debts for less than 100 cents on the dollar. It can be a reasonable option for consumers trying to avoid bankruptcy. But there’s a right way and a wrong way to offer any service. Just as we worked with Congress and regulators a number of years back to end misuse of the “nonprofit” status, our goal is to eliminate abuses in the practices of the debt settlement companies through expanded regulation and by educating consumers so they can recognize traps to avoid. Too many consumers have lost large sums of money and wound up with higher debt and lower credit scores after working with a debt settlement company.

In addition to our work in Washington, we intend to redouble our legislative outreach at the state level to address issues identified by Member Agencies, better protect consumers, and level the playing field between nonprofit counseling agencies and for-profit companies.

As we all know, a large number of states have opened the door to for-profit counseling companies in recent years. If for-profits truly serve consumers by providing them with a full-range of education and services, we welcome them to the marketplace. But we strongly believe that for-profits must play by the same rules as non-profits. Right now, nonprofit agencies face greater regulatory scrutiny and more obligations than agencies for whom profit, not service, is the first priority. That’s backwards. It’s time to redress the imbalance. The NFCC is expanding our legislative resources to provide Member Agencies with the tools, the training, and other resources necessary for effective state and local advocacy on this issue and others that Member Agencies deem important.

As you all know, funding is a perpetual work in progress, and has become an even greater challenge this year. Many who have funded agency services in the past are overwhelmed by their own set of challenges, and have cut back grants to our sector. This is especially true within the financial services industry.

To some extent the gap has been filled in recent years through various government programs such as the NFMC Program that supports housing counseling. But much of the program money is likely shorter-term and not sustainable. I noted earlier that current levels are not enough to cover the demand for counseling. In fact, the latest round of NFMC Program funding for foreclosure mitigation counseling was reduced considerably from the height of the mortgage crisis. This cut drives home the importance of our second key strategy from the Leadership Summit — the diversification of funding sources. In response, the NFCC is expanding outreach to a host of new and non-traditional partners from the public and private sectors with the hope of securing new revenue sources. We also are examining the federal appropriations process to identify possible new sources of funding for financial education and counseling services.

Our focus on partnership, an area that I have emphasized for many years, is increasing further.

In the past year, we have expanded on our longstanding partnerships with financial institutions, working together in both the Call to Action and the Debt Settlement Working Groups. These initiatives have broken important new ground by demonstrating the value of cooperative action by creditors and agencies. These efforts also have drawn us closer to a number of consumer-oriented advocacy groups and open the door for ongoing collaboration on other issues. Just as we recognize that cooperation among agencies under the NFCC umbrella enables us to have a greater impact on public policy discussions than a single agency acting alone, we also are learning that collective action by many organizations joined in a common cause may have more impact than that of a single group such as the NFCC acting alone.

The Call to Action, issued at last year’s leadership conference, has produced important success, but also a significant continuing challenge. On the positive side, we won an unprecedented commitment from the 10 largest creditors for an improved set of concessions that will enable more consumers to qualify to pay off their debts through a debt management plan. I consider this a significant step forward, both because of the potential benefit to individuals who need help and for the model it provides for joint action. We’ve also begun expanding this effort with an eye toward including the next tier of creditors.

But as many of you know, implementation of this important commitment has involved some frustration as well. Some agencies and some creditors have not been able to move as quickly as others. Consequently, volumes under the new program are running lower than we’d like.

Disappointing but not surprising. Almost any new program of any size and substance is going to encounter a few bumps at the outset – especially an effort that requires significant changes in internal systems and computer programs at large financial institutions as well as 103 counseling agencies across the country.

We are devoting a one-hour roundtable for a more in-depth discussion of the Call to Action during the Conference. But, for now, let me sum it up this way:

We have achieved an important agreement with creditors, and are well into the difficult phase of broad-based agency implementation. Our job is once again to keep on keeping-on – working the issue to reach the finish line of full implementation by the end of the year. We have to stretch for more creditor standardization and get efficiencies for what is a cumbersome operating system. And we have to do these things quickly. There are too many people in need of the CTA and hardship workout products.

Although sometimes taken for granted, the Annual Financial Literacy Poster Contest and the National Protect Your Identity Week also are a valuable part of our partnership strategy. The list of external coalition members involved in these initiatives read like a Who’s Who of respected and influential consumer groups, financial service entities, and government agencies.

This year, National Protect Your Identity Week, will be co-hosted by the Council of Better Business Bureaus, which includes some 200 corporate supporters and 120 local BBBs. This type of collaboration opens the door to longer-lasting partnership between the NFCC, the Council, and other members of the Protect Your Identity Week initiative such as the Consumer Federation of America, the Credit Union National Association, the National Council of La Raza, the FTC, and the OCC to name a few. As we get to know one another, projects like these open doors both nationally and locally to other types of continuing collaborations. Steve Cox, the incoming President and CEO of the Council of the Better Business Bureau will have more to say about that initiative and the potential for future partnerships this afternoon. Similarly, I am pleased that Debbie Bianucci, President and CEO of BAI, has joined our Advisory Council and will be with us tomorrow to discuss BAI’s work in national consumer research in which the NFCC has begun to participate.

Some partnership efforts take longer to mature than others. But if we see potential we will work to enhance them. For example, I continue to believe that our work with the Department of Defense on the Military OneSource Program can provide important benefits to both the NFCC and our men and women in uniform over the long term. There is no doubt that many members of the military and their families would benefit from financial education and counseling if they were more familiar with our services. We intend to continue to work with our partners at DoD through Military OneSource to make this program more effective.

In addition, we are realigning our internal resources to support a plan for expanded partnership outreach within the public and private sectors over the next 12 months. It is too early to get into specifics right now, but the groundwork is under way to support this important strategy as formulated at the NFCC Leadership Summit.

Our agenda also includes the work that continues to happen every day. In the final analysis, our mission is about helping consumers address their financial challenges – to help them find a path out when they are overwhelmed by debt; to help them consider the implications of major financial decisions such as buying a home or financing a college education; to help them achieve financial literacy so that they have the know-how to take charge of their money and manage it responsibly; and, increasingly in the aftermath of the economic downturn, to help them rebuild their finances and restore appropriate access to credit after a fall.

We are focused in these areas.

Over the past 12 months, we’ve served as a continuing resource for consumers and Member Agencies by producing up-to-date and relevant educational materials such as one of our newest features – Financial Fast Facts – a series of informational videos that consumers can access online to learn about such fundamentals about improving their financial situation, how to protect themselves against identity theft, and how to choose a credit counselor. These videos are on the NFCC Web site, on Facebook and YouTube, and have been made available to the Member Agencies for placement on their own Web sites. We’ve developed tip sheets on such vital issues as finding foreclosure assistance, how to survive job loss, and even the implications of financial problems for marriage and family life. These are also placed on our Web site, and sent to partners for them to distribute. Just about every product we produce is available in Spanish as well as English. And, our communications team has worked aggressively to spread this information and other important data, such as our financial literacy survey, to the widest possible audience. By every measure – the number of reporters we’ve talked to, the number of media placements, the size of the audience and hits on our Web site – our reach has expanded dramatically.

During the next year, I believe we must operate on the premise that we have experienced a different type of recession and that we also will experience a different and slower type of recovery. Although we have seen a number of good economic omens recently, consumer confidence remains low. Housing values are still well below their pre-bust peaks and the value of most Americans’ 401(k)’s, college savings plans, and other investments are also far lower than they were two years ago. That means that NFCC Agencies will continue to face enormous demand for services for the foreseeable future. It also means that some of the tools that have worked well in recent years may not be as effective as in the past, and that we have to look for new ways to help.

To that end, we are working hard to identify new products and services to meet consumers’ changing needs. While the expanded concessions offered by creditors in response to the Call to Action will enlarge the universe of consumers who qualify for DMPs, it does not meet the needs of every client. We need to design new strategies for those who do not want to file for bankruptcy, but for whom the DMP is not a workable solution.

Accordingly, the NFCC plans to field consumer research to ensure that any new products and programs match up with what will help the most consumers especially during these trying times. Through the Advisory Council, there is also an initiative underway to catalogue the research projects that have been conducted by various organizations over the years. We believe this research demonstrates the value provided by counselors every day as they help millions of Americans.

I like to think that the NFCC can help convert the current economic troubles into opportunity – opportunity to deliver financial education to a larger number of Americans; opportunity to restore a better balance between spending and savings; opportunity to highlight responsible credit so that lenders and borrowers once again connect borrowing to the ability to repay; and the opportunity to crack down on financial predatory practices.

Consider financial education.

Historically, a large amount of our national resources has been used for damage control to help consumers after they’re in trouble. Wouldn’t it be better to prevent personal financial problems through financial literacy programs that teach consumers to manage their finances more effectively? While good money and credit management cannot offset the impact of external events such as losing a job or a costly health problem, it can enable consumers to prepare for the unexpected and avoid the types of mistakes that lead to mortgage defaults, bankruptcy, and general problems with credit.

The fact is too many Americans lack the financial skills they need and too few are stepping forward to get help, even if they recognize that they need it.

For example, our 2009 Financial Literacy Survey found that 41 percent of Americans grade themselves as a C, D, or F on personal financial knowledge. Almost three of ten – 28 percent – of mortgage holders admit that their mortgages have turned out to be different than expected when they took out the loan. Numbers like these speak eloquently of the need for better financial education.

Those of you who provide counseling know this reality better than I do because you see the problems up close every day. In this room I am largely preaching to the choir. What we need to do is keep preaching this message in our communities, find creative ways to make financial literacy appealing to consumers, and persuade other leaders to join with us to make financial education something that every American takes part in.

I should add that we have valued partners in this work. Three of them – financial journalist Jean Chatzky of the Today Show, U.S. Congresswoman Eddie Bernice Johnson, and Illinois Attorney General Lisa Madigan – are with us this week to receive “Making the Difference” awards for their work in advancing financial literacy and consumer protection. We are honored to be at their side.

Together, we can make an even bigger difference, by pushing forward in this important cause. Our goals should include:

• Basic money and financial management as part of the standard school curricula in every state;
• Pre-purchase counseling for first time and at-risk homebuyers as a pre-requisite for a mortgage loan; and a similar requirement for subprime mortgage financing;
• Lender incentives such as lower interest rates for individuals who successfully complete a financial education program or otherwise demonstrate financial literacy; and
• Improved credit histories for those who have taken part in financial education.

We also know that hard times open the door to financial predators who take advantage of fear. When people can’t pay their bills and are worried about losing their home, it’s not surprising that they may be seduced by someone who promises to fix it all. As the economy goes down, consumers are increasingly bombarded with the siren song of false promises to cut their debt in half, fix their credit, and stave-off foreclosure.

Over the past year, the NFCC has created a number of educational materials to alert consumers to these bogus services and tell them where to get the right kind of help. You’ve all seen the tip sheets, the brochures, the DVDs, and the online materials. Warning consumers about financial dangers is an ongoing part of financial education that we will press ahead with over the months ahead.

Finally, I believe that the changes in our economy will require us to devote more resources to helping consumers understand what they must do to regain responsible access to credit.

Our economic difficulties have sparked two beneficial developments – consumers are saving more and lenders are becoming more conservative in their lending decisions. While these developments may slow the pace of recovery because spending and credit makes our economy go, there will be long-term benefits if we get the balance right.

Still, the short-term challenges of tighter credit are real. As lenders try to limit risk, consumers whose credit histories have been tarnished by debt payment problems, foreclosure, and bankruptcy will find it increasingly difficult to get credit. Lenders who once happily extended credit to consumers with credit scores in the 600s, now want to see credit scores of at least 720-740. By that standard only about 40 percent of Americans may qualify for the best loans. Even some of those who have managed to pay their bills and stay above water are finding it harder to get credit as lenders close accounts and reduce credit limits.

To some extent, of course, that is as it should be. If you’ve struggled with credit, your access to loans should be limited until you’ve proved that you can once again handle credit reliably. But that also presents a bit of a Catch-22: how do you prove you can handle credit until you’ve found somebody to give you a loan?

It’s not the NFCC’s job to make credit appear, but it seems to me that it is very much our job to help consumers understand how credit reports and credit scores work so they manage their finances in a way that improves their prospects of obtaining a responsible level of new credit. This is particularly relevant in today’s environment.

Some agencies may choose to identify local financial institutions with loan programs that help consumers gradually regain access to small amounts of credit. For example, in one program, consumers can borrow up to $500, which is placed in an interest bearing account or CD, so they can establish creditworthiness by making consistent and timely repayments. Or, agencies might connect graduates with local lenders who may provide low lines of credit to individuals who have recently been counseled by an NFCC Member Agency.

As we look for ways to meet changing needs and provide the services consumers want, the fact remains that we live in a credit-dominated society. Therefore, I believe in the broad area of rebuilding personal finances and credit opportunities for fulfilling our mission, for creative partnerships to help our fellow citizens get back on their feet, and for financial education to help people learn to manage credit effectively.

Over the past year, we’ve faced enormous challenges and we’ve achieved much – expanding our service to consumers to meet changing needs, raising awareness of risks that consumers should be alert to, partnering with creditors to help consumers gain control of their debts, and partnering with a range of concerned individuals and organizations for needed regulatory changes to protect consumers. Over the next 12 months, we need to consolidate these gains, continue to meet the growing demand for services, complete the implementation of new programs to make them effective, and finish the job of legislative and regulatory change especially aimed at predatory practices. We need to keep driving financial education and help our clients rebuild their finances. We are going to “keep on keeping-on.”

In other words, we do have important work in progress and important goals to achieve. By next fall I hope to report that:

• The federal debt settlement legislation has become law;
• The FTC has adopted final rules to protect consumers from deceptive advertising and abusive business practices by the debt settlement industry;
• The Call to Action has been fully implemented by each of the top 10 creditors, that agencies and creditors are successfully putting the new DMP model to work, that a growing number of consumers are taking advantage of the modified DMPs; and that creditors from the next tier are also participating;
• We have received the maximum amount of federal funding available for foreclosure mitigation counseling;
• We have tapped additional sources of revenue from federal programs and secured new private sector revenues as well;
• We have advanced the cause of financial education and gathered additional support from policy makers; and
• We’ve reinforced public understanding of the difference between nonprofit credit counseling and the for-profit sector.

That’s my perspective on the challenges and opportunities for our sector over the next year. Now, I need to hear from all of you. As we demonstrated in Baltimore during the Leadership Summit this past spring, we have a wealth of creativity and energy within our membership. Every counselor and Member Agency has insights to offer and, working together, we have positioned ourselves well for the future. I want to thank everybody for the ideas they’ve shared in the past and will continue to share.

Thank You.

Source: 2009 NFCC State of the Credit Counseling and Financial Education Sector Address

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Read the full article at GetOutOfDebt.org, click here: 2009 NFCC State of the Credit Counseling and Financial Education Sector Address

“Dear Steve,

As of 14 months ago I was grossing $100K/yr, now $42K, I have $51K in CC debt, i am not late/delinquent but it is inevitable, I am down to $1100 bal on a broken down car, $355/mo payment has 3 mo left. I have $7500 in 401K, 44 yrs old. Was able easily to cover CC pmts until rate went past 19.9%.

Call NFCC after hearing about “Call to Action”, they could set me up at $250/month less in total payments ($1250/mo in plan), but need me to pay them AND keep my CC current at the same time for about a month, which I cannot do.

My counseling seesions have not yet been based on Call to action, as of 30 June, NFCC computers still not set up to actually offer it yet with no date in sight. I fear bankruptcy because I am tax delinquent and have not filed for some years. I don’t really believe in BK, but in the last 6 months, 2 employers, and 2 landlords have filed and walked away sadly like it was party time for them.

1) Do you have any idea when the NFCC will actually offer the Call to Action Plans they are plugging in the media

2) What is the likelyhood that my tax situation will thwart a BK filing and just end up having me waste the attorney fees

3) My lawer has been pushing my to stop paying my CC’s since last November counseling me to use the $ for his BK filing,I don’t like the idea of the fallout if I do so and the BK does not go through. Your thoughts?

4) If I can nego my rates down to 20%, I can easily afford my debt load, I have tried to call my CC companies to get relief, BofA actually said yes and gave me a better plan than the NFCC did. Are their any tips to help me get better results

5) I will need a car soon, with a discharged BK, I can save $1500 a month towrds one, in your experience, how long does a BK affect the ability to get a car loan and at what % downpayment do car dealers stop considering a BK?

Eric”

The Answer:

Dear Eric,

The “Call to Action” debt management plans hyped by Consumer Credit Counseling Service (CCCS) and the National Foundation for Credit Counseling (NFCC) are not much of a reality yet. While the press releases have been sent out and they are talked about in public, the majority of creditors that are claimed to participate are in fact not participating at this time. There is no date at which they will participate.

You can read more about the Call to Action DMP here.

So let me answer your orderly questions, in order:

1) Nobody really knows. When it comes to credit counseling the creditors call the shots. It is possible that some may never implement the plans even though they claim to participate. I still remain skeptical about these plans.

2) You should be able to sail through bankruptcy with the tax situation. Bankruptcy will not eliminate the taxes.

3) The advice of your lawyer sounds typical. It is a Catch-22 situation. Most people can’t go bankrupt without stopping payments to credit cards so they can get the money to file. The fallout is actually minimal. Those accounts will be shown as delinquent on your credit reports but that will end with your bankruptcy. You may start to get some collection calls once you get three weeks behind, but so what. If creditors do call, just tell them what you are doing. What concerns me most is that you’ve been in this limbo for eight months and still talking about a DMP or bankruptcy. At some point you are going to have to commit to some path.

4) While it is possible to negotiate down some rates, the real question is if the rates will remain low during the time it takes for you to get out of debt. That is unlikely. There is nothing to prevent any creditor from changing the rate again at any time. So let’s say that you repay three years of a five year repayment plan, the rates go up and you can no longer afford the payments. How would you handle that? You can always try to negotiate with your other creditors, but what if they won’t do anything?

5) Bankruptcy will make it a bit harder to get a car but a down payment can help to grease the skids. You might be better off buying a $3,000 vehicle for cash to get around in the meantime. As more time passes your credit score will improve and if you save $1,500 for six to twelve months you will have a substantial down payment to give and by that time you should not have any problem finding a dealer to finance you.

Big Hug!

@GetOutOfDebtGuy

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• We Are Concerned About the Complaints Against CCCS. – Andrea
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.
• Disturbing and Potentially Deceptive Move by Credit Card Industry. HelpWithMyCredit.org
• Consumer Credit Counseling Service, CCCS, NFCC, and National Foundation for Credit Counseling
• Michael is Looking For a NFCC Debt Settlement Program
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Read the full article at GetOutOfDebt.org, click here: When Are NFCC Call to Action Debt Management Plans Going to Be a Reality? – Eric

For years I have been emphatic that in a credit counseling or debt management repayment plan, it isn’t the interest rate reduction alone that is important, people need to get their monthly payments reduced. That’s more important.

New “Call to Action” debt management plans (DMPs) offer low or no interest rates to people who can qualify. In addition, the plans allow for people to be able to save from $25 to $200 a month while in these plans to help them build an emergency fund to tap in case of a financial surprise. Excellent!

A downside to these plans is that these special terms do not appear to be available to all people and some enrolling in a DMP that will pay a higher monthly payment or a higher rate of interest since they either won’t qualify or be approved by the creditor for these special Call to Action (CTA) concessions.

Consumers who can meet their monthly contractual payments with available cash, net of the emergency cash cushion, will not be eligible for a DMP; however, consumers whose available cash, net of the $200 cushion, is GREATER than a 2 percent fixed payment, but LESS than the full monthly contractual amount, WILL BE DMP eligible and must add that additional amount to the DMP fixed payment. Source: Association of Independent Consumer Credit Counseling Agencies (AICCCA)

According to the NFCC the criteria for enrolling in the CTA will be decided on a case-by-case basis by the counselor, with the final acceptance coming from the creditor. In a typical counseling session, after a thorough review of all sources of income, living expenses and current debt obligations, the counselor makes recommendations for resolving the financial distress. If the CTA is right for them, it will be recommended. The decision regarding which level to recommend is driven by the consumer’s budget and does not include additional criteria such as how delinquent the client is, or the amount of total debt.

I am also told by others that the consumer will be told by their counselor that they must liquidate any assets they might have to reduce the amount they owe to qualify for the CTA DMP.

If you are already enrolled in a DMP and have had a change in your financial situation, ask your counselor if you can now qualify for the CTA.

Creditors participating in this new selectively available DMP will waive late and over limit fees and adjust the APR so that DMPs will not extend longer than 60 months.

Not all creditors that have pledged participation are accepting people into these programs yet. They claim that they can’t since their computer systems are not setup to accept these special proposals. A typical excuse.

Despite what you may hear, these special DMPs are being are being extended to agencies within the NFCC, AICCCA and other independent true nonprofit agencies, not just NFCC and AICCCA.

Let’s look at how this plan would give you some breathing room if you qualified for it. If you owed Chase $10,000 your monthly payment would be $200 in the regular Call to Action DMP and $175 in the hardship plan.

While it is fantastic to get a monthly payment reduction. I am not convinced that it is a significant enough reduction to make a big enough difference to give the consumer the greatest chance of successfully repaying their debt through the DMP.

It is still too early to report on a review of the effectiveness of these repayment plans but the NFCC states that an initial review will be available around the first part of August.

It will be interesting to see how these plans benefit consumers that want to repay their debt through a DMP. I think it is obvious that a creditor would prefer to not lower the monthly payment or interest rate any more than necessary. And ultimately the question of effectiveness will come down to one more rooted in behavioral economics, than DMP terms.

The longer that a consumer will need to repay with a tight budget, the higher the failure rate should be. Long periods of forced budgetary deprivation are hard to tolerate and thus more likely to fail. All you have to do to confirm this fact is look at the tremendous failure rates of chapter 13 bankruptcy plans that offer reduced payments and consumer protection from creditor collection actions, something the CTA does not offer. The vast majority of the chapter 13 bankruptcy plans fail and are either converted to chapter 7 bankruptcy and the debts fully discharged since the consumer could just not keep up on the payments for such an extended period of time or had a life or income change.

Call to Action DMPs are a step in the right direction but I’m concerned that acceptance still leavers the debtor with a very tight budget and that will be the failure point of an otherwise great step in the right direction for consumers.

The original NFCC / CCCS press release is below.

Responding to the “Call to Action” of the National Foundation for Credit Counseling (NFCC), the nation’s top 10 credit card issuers have agreed to provide additional relief to consumers struggling to repay their debts.

“This represents a significant action on the part of the creditors to take additional steps to help consumers, which is our collective mission,” said Susan C. Keating, president and CEO of the NFCC. “This will provide those in debt with more options to stabilize and rebuild their economic lives.”

For more than 40 years, consumers have avoided bankruptcy and benefited from repayment programs commonly referred to as “debt management plans” (DMPs) through which creditors provided some repayment concessions, including waiving late and over the limit fees and a reduction in interest rates. However, in these tough economic times, fewer consumers have sufficient income to be eligible for, or the ability to maintain, a traditional DMP, often leaving bankruptcy as the only option.

In response to a need to make better alternatives available to struggling consumers, the NFCC issued its “Call to Action” last fall, calling on more creditors to take additional steps to make DMPs more affordable for people in troubled financial circumstances. The NFCC also expressed its appreciation on behalf of struggling consumers to those card issuers already providing significant concessions aligned with the “Call to Action.” The “Call to Action” set the end of the first quarter of 2009 as the target date for adoption and implementation. Together with the “Call to Action,” the NFCC created a strategic partnership of NFCC Agencies and Association of Independent Consumer Credit Counseling Agencies (AICCCA) to work with the top 10 credit card issuers.

As of March 31, the top 10 credit card issuers have agreed to implement the changes necessary to provide both a more affordable “Standard” DMP and a “Hardship” DMP (together, the “Call to Action” DMPs) for consumers who are seeking to avoid bankruptcy, but who do not have sufficient income to qualify for a traditional DMP. The key elements of these two new DMPs will allow consumers to maintain a reasonable monthly budget, establish a savings account for economic emergencies, make fixed monthly payments more affordable, and be out of debt within 60 months.

Those creditors supporting the “Call to Action” are American Express, Bank of America, Capital One, Chase Card Services, Citi, Discover Financial Services, GE Money, HSBC Card Services, U.S. Bank and Wells Fargo Card Services. The NFCC urges all other consumer lenders to follow suit.

“Many consumers are facing serious financial problems, and they should be given every opportunity to qualify for an affordable program that meets their individual circumstances and that puts them back on the road to financial stability,” said Keating. “We applaud these creditors for recognizing the need to do more for consumers who are trying to avoid bankruptcy, and need some additional help with interest rate and fee waiver concessions so they can repay their debt.” Source: NFCC

@GetOutOfDebtGuy

Other Related Articles to Read

• Dear Credit Counseling, Times Only to Get Tougher.
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• Are Debt Management Programs For Real? – Kim
• Can I Keep One Credit Card Open for Business in a Debt Management Plan? – Dave
• 2009 NFCC State of the Credit Counseling and Financial Education Sector Address
• I Need to Take Out a Payday Loan to Cover My Credit Counseling Payment
• I Found Myself in Debt Again and Back in a DMP. Should I File Bankruptcy? – Carol
• Which is Cheaper: Credit Counseling, Debt Settlement, or Bankruptcy?
• Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.
• I Am a College Student. How Bad Is It to Pay My Bills Late? – Zaria

Read the full article at GetOutOfDebt.org, click here: Call to Action Debt Management Plans Rolling Out Slowly. May Benefit Consumers Looking to Repay.