And while the campaign has been ongoing for over a year, changes in the debt settlement world these days have little to do with a campaign against specific debt settlement companies than the impact of the positive FTC Telemarketing Sales Rules that went into force at the end of 2010.
Since those new rules fell into place the number of complaints from consumers enrolling in debt settlement programs post-TSR is very small. The complaints I hear today are mostly from people still tangled in a current attorney model debt settlement program or an old advanced fee program.
For consumers that now do not have to pay for debt settlement services until the debt is settled, the drums of discontent have gone nearly silent.
When I talk to credit counseling friends they appear to be under the impression that the existence of debt settlement is the reason credit counseling industry sales volume is low. They believe they need to compete against debt settlement and do what they can to kill the industry and that will somehow make credit counseling a better solution.
None of those beliefs are true.
If anything, credit counseling volumes are low for a number of reasons. The most glaring is that as long as creditors control the monthly payments in a credit counseling program, most people that are struggling, can’t afford them.
Credit counseling needs to break away from being bound by creditor demands and instead assist consumers to put forward payments plans they can afford, rather than what creditors want. But in order to do that, the credit counseling companies will have to negotiate a reduction in the balance owed. They’ll actually have to settle some debt.
So credit counseling groups complain their client volumes are low, and so do the debt settlement folks. Rather than this being a function of the existence of either group of companies I think it is more a function of time and a bad economy.
America has been struggling through a bad economy for a couple of years now. At the same time creditors have cut back on extending easy credit.
At the beginning of 2009, outstanding revolving credit stood at $968 Billion. As of November, 2010 it has fallen to $805 Billion. That’s substantial.
The amount of consumer credit held by individuals has been in decline and bankruptcies have been on the increase.
All of these factors go a long way to cleaning out the pipeline of consumers who pursue debt relief options.
There will always be people in need of debt help. But the wave, or tsunami, of American’s that needed help in the past couple of years will most likely subside back down to a normal tide, rather than the tidal wave it has been.
Credit counseling is not exempt from additional criticism either. The major credit counseling trade associations should have embraced the telemarketing sales rules and volunteered to comply with them. They should have also worked hard to bring some transparency to the credit counseling industry, they don’t seem to have done either.
In credit counseling today, consumers have no way to know the effectiveness of a credit counseling program, the results achieved by an individual credit counseling company or the success rate of the credit counseling approach in general. They have no way to compare their situation against any debt relief solution, outside of bankruptcy, to know the reality of the path they select. And what makes bankruptcy different, mandatory reporting, something that credit counseling groups do not offer and the industry has not pushed for.
It’s time for credit counseling companies to stop wasting consumer money money lobbying for more change in the debt settlement world and stop creating a turf war that only ultimately harms consumers.
The battle by credit counseling should be to put the consumer first and that means embracing tools like debt settlement, that when appropriate, serve the best interest of the consumer. Debt settlement should do the same thing. Rather than tossing a consumer in an extended minimum payment program they should carefully evaluate if the consumer is better served by credit counseling or bankruptcy.
The time has come for the good guys in the individual groups to work together on behalf of the consumer and to stop battling over the confused consumer who simply wants to find the right, appropriate, and most effective solution for their debt problems.
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