Business Models Debt Relief Industry

Some Credit Counseling Groups Not Optimistic About Future. Looking to Merge.

So much of the past year or so has been directed towards the debt settlement world. The credit counseling world has just be slowly ticking away and watching their funding shrink from creditors.

Funding may be shrinking even more now that the U.S. government is looking for places to cut back. Significant cuts in funding for HUD housing counseling are anticipated over the next few years.

Without much hope on the horizon for new sources of funding, that is unless credit counseling starts getting into debt settlement, things are not exactly looking rosy.

A recent copy of the Association of Credit Counseling (AICCCA) newsletter contained some information to reinforce that point.

It said:

In recent years, the number of tax-exempt credit counseling agencies (“CCAs”) consolidating and dissolving their operations has grown significantly. As more CCAs experience a decrease in revenue due to a drop in debt management plan (“DMP”) enrollment and increased legal and regulatory challenges, CCAs continue to weigh their options for survival and for best serving their communities; among these options are mergers and other combinations with fellow CCAs.

A number of CCAs are having strong years due to housing counseling and other activities, along with related revenue, but there are many other agencies that feel their ability to succeed is less in light of the economy and new regulations. As a consequence, transactions between CCAs have become a frequent topic of conversation.

There are two frequent scenarios that may drive transactions: first, is a CCA that no longer can make it on its own due to the financial and legal costs of its business, and wants to ensure that its clients and communities can continue to be supported without interruption. Second is the CCA that is looking to expand its scope or depth of services, strategically trim portions of its areas of service by transferring them to others that can engage in the activity, or gain operational efficiencies. – Source

It would be difficult to imagine a credit counseling agency today wanting to shed their debt management program but credit counseling agencies are like any other business, a big book of credit counseling clients could be transferred to generate some much needed cash to get over a hump. But what then, maybe a topic for another article.

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Debt settlement operations have felt that credit counseling groups had been getting a free pass under the recent laws. And while non-profit groups are not covered under the authority of the Federal Trade Commission don’t let that fool you into thinking that operating as a non-profit is somehow a magical and less restrictive approach to providing debt relief.

Having run a non-profit credit counseling group and watched the many new rules and regulations that have been placed on credit counseling over the past ten years, I would not want to run a credit counseling group today.

Between state licensing, funding reductions, creditor control, and answering to the IRS, non-profits are significantly more bound and boxed in than debt settlement companies can even imagine.

On top of that, many of the big credit counseling agencies are still struggling through their IRS audits of their activities from years passed. They dare not do anything that might be negatively perceived by the IRS as not running a clean organization. If they did, and lost their IRS 501(c)3 status, that could wipe them out of fairshare funding.

Credit counseling agencies have a lot of eyes looking over their shoulder, including mine. But nobody should forget that credit counseling group were the first debt relief providers to be highly regulated, have had to answer to a number of state and federal entities for a number of years, and then on top of all of that they also have to maintain public records and stay of the IRS radar.

While credit counseling has not been perfect, respect must be given to those credit counseling agencies that have put up with significantly more regulation and restrictions than that face by debt settlement providers.

Operating a debt settlement company today is a dream, even with projected 15% funding levels based on debt settled, when you compare it to starting a credit counseling organization today. This truly is a grass is greener on the other side situation. But not only is the grass not greener in other areas of debt relief, but it is dead and in a drought.

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For those of us that remember the “good old days” I can only imagine what the debt relief landscape will look like in four years from now when these become the “good old days.” It’s hard to imagine today will look blessed when looking back from the future, but trust me, it will. Looking backwards in the world of debt relief always does. It never seems to get better.


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About the author

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.

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