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.
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