photo © 2008 Dan Perry | more info (via: Wylio)In the early 2000s I received a call from a regulator friend that changed my life and eventually led to the work I do here reporting on the debt relief industry.
This was back in my Myvesta days and the regulator friend said, “Steve, I’m planning to go after Ameridebt by working to pass new regulations that will impact credit counseling. You run a good shop and do good things for people but the regulations I’m proposing will impact the work you do. I’m willing to listen to any suggestions you may have about how I protect consumers by painting regulations with a broad brush and not impact you.”
To this day, nearly a decade later, I still remember the view out the window overlooking the golf course while I was sitting at my desk when I had this conversation. It was one of those moments in life that stays with you. I recognized it for what it was, a turning point in the credit counseling world that would change everything. And it did.
I quickly also recognized that there were no suggestions I could put forward at that point that would protect credit counseling and consumers at the same time. Ameridebt had simply become too big to be batted back with a regulator letter. They had resources to fight little issues so it would take national legislation to curb their abuses and prevent others from following the same path. And that’s exactly what happened. In 2003 the FTC sued Ameridebt which eventually led to jail time for its founder.
If I simply worked to protect the industry and not consumers I would have voided my mission to help people. That’s not who I am. There needed to be a win-win solution and by that time there was not.
The advent of regulations to deal with a bad actor in the credit counseling world fundamentally changed many things. One side-effect was the regulations made the creditors focus more on who they were working with in such a way that it gave them more excuses and greater power to begin to drive down fairshare contributions and funding to the credit counseling groups. It also led to an IRS investigation of credit counseling that resulted in groups losing their non-profit tax status and many of those audits that originated then are still dragging on today.
The moment I hung up the phone with my regulator friend I realized that the credit counseling industry, which included me, had really screwed up. You see in our sideline silence, our internal bitching was noted, but we had done nothing to protect the industry or consumers from abusive practices. The credit counseling world collectively had allowed Ameridebt to grow large and implode and the blast shrapnel fell on us all.
You see those of us in the credit counseling world at the time could see the bad stuff Ameridebt was doing but none of us spoke up about it. Everyone was afraid about speaking up or naming names.
Because of our unwillingness to police our own industry it left that role only to governmental regulators and those actions led to sweeping changes.
The credit counseling industry blew it again when creditors started to take over more control of the services they wanted credit counseling groups to engage in at the same time as the creditors were tightening the funding of the very same groups.
At the time I spoke out about the creditor actions the rest of the credit counseling world remained silent. Frankly they were scared that speaking out against the very groups that funded them would have hurt their funding.
Just before I started getting more vocal about the creditor control over credit counseling, Chase bank had even become so bold as to send out a letter to credit counseling groups about their new “Pay for Performance” plan. It was clear that funding was now tied to collection performance rather than what was best for the consumer. That was wrong for the consumer and wrong for the integrity of credit counseling.
While the letter is difficult to read it does lay out that credit counseling agency funding was seemingly now most dependent on how much money they collected from consumers and agencies were ranked and rewarded by their level of collection performance and consumers completing the DMP. The reward to the credit counseling agency was for consumers that “successfully complete the program.” – Source
By not standing up as a group of voices against the creditors, the credit counseling industry allowed and participated in driving down their impact to a point of lowest funding and a fundamental problem, the breakage of the solutions they offer. The lack of action of the credit counseling industry as a whole has made the debt management plan less effective for more people. The blame for that rests on credit counseling for remaining silent when they should have been fighting to protect consumer options.
Now if you compare my experience above to what has just happened a decade later to the debt settlement industry, you will see the results are nearly identical. The debt settlement industry has just been impacted by sweeping state and federal regulations which will significantly impact them.
Before I began working on this site to report on the debt relief industry, the debt settlement folks had been approached by regulators years before and asked to clean up their peers and work with regulators to pass consumer protection legislation, specifically to back the Uniform Debt Management Services Act. The big players said “no”.
Major forces in the debt settlement world did not want to participate in cleaning up abuses in the debt settlement world to leave room for good guys doing good things. The reason; the big players were simply making loads of money and did not want to alter that path. All you have to do is look at the reporting I did at the tail end of the debt settlement regulation process and read all the dispatches by trade groups and major companies trying to persuade the FTC to turn away from regulation. At that point it was too late.
And trying to slow down legislation once it begins to pick up speed and focus is like trying to stop a cruise ship steaming at full speed. It takes time. Right now California is talking about implementing legislation to cap fees at 15% of savings in a debt settlement program. That would never had happened if the debt settlement industry had participated in cleaning out the abusers, four years ago and the Debt Settlement Consumer Protection Act was never written.
Here is the bottom line. If those inside the industry don’t help this site to report on bad actors then more parts of the debt relief world will be regulated out of business. And while that hurts business it most importantly hurts consumers. The more debt relief options that are taken away from consumers, the fewer options they have in difficult times. Ultimately my goal is not to protect the debt relief businesses but to protect options for consumers.
Protesters of this site are typically entities that are carrying out a course of conduct that is altered or impacted by the reporting on this site. While you might find commenters who are upset or negative posts elsewhere on the web they are almost nearly attacks against me created or stimulated by those impacted by the reporting of this site.
But course is clear, if the debt relief industry does not participate in cleaning up the bad actors, more regulations will come, especially with the advent of the Consumer Financial Protection Bureau.
If you want to make a difference and you play a role in protecting the debt relief industry from abusers and those that harm consumers then I ask you to do three active things.
If we don’t police things, who will? Do you really want the regulators to do it?
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