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Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.

By on March 23, 2011
Hey Credit Counseling It’s Coming. The No Fairshare Debt Management Plan.

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.

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

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.

READ  Citibank Closes Credit Counseling Call to Action Program

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


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About 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.

22 Comments

  1. Steve Rhode

    March 29, 2011 at 5:12 pm

    Not all creditors are the same. Some still do pay via a percentage.

  2. Shirley

    March 28, 2011 at 1:54 pm

    Aren’t credit counselors being paid on a “pay for performance” structure instead of a flat percentage of the customer’s payment?

  3. Steve Rhode

    March 24, 2011 at 12:24 pm

    The mandatory fairshare legislation was actually shot down before it really began by credit counseling folks that were afraid it would ruffle the feathers of the creditors and hurt their funding. They could not publicly support it.

    A credit counseling agency can benefit from an automated zero fairshare solution that consumers could enroll in online through their site. In that case most, if not all, of the staff related to DMPs would be unnecessary and only educational staff would be needed. After all, the non-profit credit counseling groups are registered educational charities so that only helps their non-profit status.

  4. Bobby Zangrilli

    March 24, 2011 at 12:07 pm

    The average credit counseling fee is less than $20 per month. How much less expensive do you want it to get? (See “Whither Credit Counseling” by the Federal Reserve if you’re looking for my source).

    And let’s face it – there are limits on how much you can lower your CPA. Radio ads cost the same amount whether you’re advertising luxury cars or debt relief. Sure you can go grassroots but the number of people who know about (and benefit from) your services will be unnecessarily limited. So what the credit counseling agencies drive their CPA down from $500 to $200? That’s equal to $5 per month savings for the consumer on a 60 month DMP.

    “Yippee! Our services are now $15 per month from $20 per month but only 100 people benefit from them whereas last year 1,000 were.”

    The problem is the bank lobby is much stronger than the debt relief lobby (particularly a segmented one where bankruptcy attorneys, credit counseling agencies and debt settlement firms all attack each other). Legislation calling for mandatory Fair Share gets shot down while 15% of savings fee caps and the 2005 bankruptcy law pass easily.

  5. Steve Rhode

    March 24, 2011 at 9:37 am

    BTW I am told by some agencies that CC CPA is currently around $500 when you factor in early drop off clients. That’s pretty steep.

  6. bryan

    March 24, 2011 at 12:41 am

    credit counseling companies need to find an alternative method to lower their CPA. since they won’t be getting their “fairshare” from creditors, this might have some credit counseling companies jump the boat. i don’t see a way they can continue operations without creditor funding and overcharging the consumers

  7. bryan

    March 24, 2011 at 4:41 am

    credit counseling companies need to find an alternative method to lower their CPA. since they won’t be getting their “fairshare” from creditors, this might have some credit counseling companies jump the boat. i don’t see a way they can continue operations without creditor funding and overcharging the consumers

    • Steve Rhode

      March 24, 2011 at 1:37 pm

      BTW I am told by some agencies that CC CPA is currently around $500 when you factor in early drop off clients. That’s pretty steep.

    • Bobby Zangrilli

      March 24, 2011 at 4:07 pm

      The average credit counseling fee is less than $20 per month. How much less expensive do you want it to get? (See “Whither Credit Counseling” by the Federal Reserve if you’re looking for my source).

      And let’s face it – there are limits on how much you can lower your CPA. Radio ads cost the same amount whether you’re advertising luxury cars or debt relief. Sure you can go grassroots but the number of people who know about (and benefit from) your services will be unnecessarily limited. So what the credit counseling agencies drive their CPA down from $500 to $200? That’s equal to $5 per month savings for the consumer on a 60 month DMP.

      “Yippee! Our services are now $15 per month from $20 per month but only 100 people benefit from them whereas last year 1,000 were.”

      The problem is the bank lobby is much stronger than the debt relief lobby (particularly a segmented one where bankruptcy attorneys, credit counseling agencies and debt settlement firms all attack each other). Legislation calling for mandatory Fair Share gets shot down while 15% of savings fee caps and the 2005 bankruptcy law pass easily.

      • Steve Rhode

        March 24, 2011 at 4:24 pm

        The mandatory fairshare legislation was actually shot down before it really began by credit counseling folks that were afraid it would ruffle the feathers of the creditors and hurt their funding. They could not publicly support it.

        A credit counseling agency can benefit from an automated zero fairshare solution that consumers could enroll in online through their site. In that case most, if not all, of the staff related to DMPs would be unnecessary and only educational staff would be needed. After all, the non-profit credit counseling groups are registered educational charities so that only helps their non-profit status.

        • Shirley

          March 28, 2011 at 5:54 pm

          Aren’t credit counselors being paid on a “pay for performance” structure instead of a flat percentage of the customer’s payment?

          • Steve Rhode

            March 29, 2011 at 9:12 pm

            Not all creditors are the same. Some still do pay via a percentage.

  8. Matt

    March 23, 2011 at 8:35 pm

    That much needed unity is on it’s way. Evolution2011.

  9. Matt

    March 24, 2011 at 12:35 am

    That much needed unity is on it’s way. Evolution2011.

  10. Bobby Zangrilli

    March 23, 2011 at 7:02 pm

    A good point but oversimplified. The banks would rather have 80 pay 300% of their debt and 20 pay pay 0%. The limits in Fair Share is about cutting an expense but more important to the banks it’s about keeping agencies on a bare minimum budget so they don’t have enough funding to actively promote their services.

    It’s all about controlling (read: minimizing) which consumers get concessions. See the Bankruptcy Abuse and Consumer Protection Act. That’s just how the banks roll.

  11. Stan

    March 23, 2011 at 5:01 pm

    Would think the banks would want to keep ccc around. 97% of x is better than 100% of zero.

  12. Stan

    March 23, 2011 at 9:01 pm

    Would think the banks would want to keep ccc around. 97% of x is better than 100% of zero.

    • Bobby Zangrilli

      March 23, 2011 at 11:02 pm

      A good point but oversimplified. The banks would rather have 80 pay 300% of their debt and 20 pay pay 0%. The limits in Fair Share is about cutting an expense but more important to the banks it’s about keeping agencies on a bare minimum budget so they don’t have enough funding to actively promote their services.

      It’s all about controlling (read: minimizing) which consumers get concessions. See the Bankruptcy Abuse and Consumer Protection Act. That’s just how the banks roll.

  13. Mark Guimond

    March 23, 2011 at 2:33 pm

    There was federal legislation proposed to provide mandatory fair-share. Too bad that idea died…along with fair-share.

  14. Mark Guimond

    March 23, 2011 at 6:33 pm

    There was federal legislation proposed to provide mandatory fair-share. Too bad that idea died…along with fair-share.

  15. Andy Faria

    March 23, 2011 at 10:37 am

    I’m still under the opinion that the debt settlement and credit counseling industries need to merge in order to survive. The future of debt relief is in hybrid-programs, a cross between settlement and debt management plans.

  16. Andy Faria

    March 23, 2011 at 2:37 pm

    I’m still under the opinion that the debt settlement and credit counseling industries need to merge in order to survive. The future of debt relief is in hybrid-programs, a cross between settlement and debt management plans.

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