Yesterday a commenter on my article Dear Credit Counselors, You Are Your Own Worst Enemy made a very interesting comment that raises a number of questions.
The comments had been flowing between what appeared to be people from credit counseling and debt settlement when the issue was raised that credit counseling groups should have a fiduciary duty to the people they advise to mention debt settlement.
The commenter is absolutely correct.
Credit counseling has long vilified and discounted debt settlement as the “other guys” or the “bad guys” and absolutely for a while many marketers of advanced fee debt settlement were horrible. But it was the marketers and lies that were horrible and that I fought against, not the fundamental facts of debt settlement.
Even back in my credit counseling days my nonprofit credit counseling group managed to settle debt for consumers that needed it and had the capacity to utilize that solution. The hard part is getting credit counselors to alter their perception that all debt reduction solutions are about monthly payment plans. Debt settlement does not need to be and is in fact best offered with assets in hand.
The credit counseling supporter in those comments I mentioned actually said that the problem with debt settlement is that it is fundamentally flawed when the reality is the debt management plan is fundamentally flawed.
In the 1990s a debt management plan would actually cut the monthly payment in half and reduce most interest rates to 0%. Today that’s not the case and the debt management plan does not provide enough meaningful assistance to a broad number of consumers that are looking for sufficient breathing room to make ends meet.
There is nothing fundamentally wrong with settling a debt for less than is owed when both the creditor and debtor agree to that deal and the consumer is aware of possible consequences. In that case debt settlement is a tool, like any other, like a debt management plan.
So what is the difference between a proposed debt management plan that a creditor accepts and a proposed settlement offer the creditor accepts? Are they not both mutually acceptable offers used to remedy a bad debt situation?
Granted, not everyone is suitable for a debt settlement solution. But reciprocally not everyone is universally excluded as well. Consider the people who are told by credit counseling that the debt management plan won’t work because they can’t afford the payment. Could they settle some of the debt and make room for a debt management plan in their lives?
So what about that hybrid approach? How about settling a couple of the debts and then putting the rest on a debt management plan? Why not create an affordable plan with the tools at hand?
The skill of a great surgeon isn’t what is in her hands at the surgical table. It’s what’s between her ears that makes her great.
The skill of an exceptional nonprofit credit counseling group should not be they offer one payment intervention solution it should be they can intellectually create a way to use all tools at hand to create a comprehensive solution for the consumer without discounting one out of nothing but bias.
The Tricky Bits
Credit counselors can be taught how to do this but they first have to overcome and deal with the elephant in the room.
It won’t be till nonprofit credit counselors can break free from the golden handcuffs placed on them by creditors long ago that they will be able to act independently and in the best fiduciary capacity for the consumer that is coming to them for charitable advice and help.
Creditors have driven down fairshare funding so low they have boxed credit counselors into a corner and many may not be able to even survive. So outside of having a fiduciary duty to present the consumer with all their options to deal with their debt, how can they turn their back on a solution that can provide them with some additional ethical revenue in these growing dire times? Is that a smart thing to do in a fiduciary capacity for their own organization.
It’s been almost like a soap opera to watch nonprofit credit counseling try to develop their Less Than Full Balance (LTFB) solution in cooperation with their creditor contacts. They’ve struggled for years to get that rolling. And yet every single day they have floundered yo get that operational, good debt settlement companies have been reaching agreement with creditors and collectors and actually settling debt. And why has this happened? Could it be that credit counseling has been trying to please the creditors rather than best serving the consumers?
So what about the liability of not settling? I can see a time in the not too distant future when lawyers will go after nonprofit credit counseling groups for not having mentioned debt settlement and considered it as a solution for the consumer they assisted. By not learning and implementing that useful tool in certain situations it will expose the credit counselors to large liability for NOT acting in a fiduciary capacity to serve the charitable class of people they are supposed to serve.
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