The largest and oldest association of nonprofit credit counselors is an association that was originally founded as the National Foundation for Consumer Credit, and later changed their name to the National Foundation for Credit Counseling. Groups that exist as members under the National Foundation for Credit Counseling (NFCC) are knows as Consumer Credit Counseling Services (CCCS) office.
The original slogan, as you can see above, was “The credit of the people intelligently used,” and they were “Dedicated to a Finer Credit Service.”
Consumer Credit Counseling originally started as Economy Budget Service. It was then the brainchild of the late Leon J. Ingram, president of the Capital Finance Corp., a public-spirited 18 state, small loan company which financed and operate it entirely alone at a $15,000 annual cost for 12 years. On August 1, 1967 it was taken over as a community sponsored project. (Social service outlook, Volumes 3-4, New York (State). Dept. of Social Services, New York (State). Dept. of Social Welfare) – Source
Even though the organization was founded in 1951 as Consumer Credit Counseling Service at a meeting that was held at the Barbizon-PIaza Hotel in New York on June 7 and 8, the first national conference for the larger association was held in 1966 in Kansas City, where 53 counseling services from the United States and Canada came together to set things more formally in motion.
In the beginning of the NFCC credit counseling group, the focus was stated to be “to educate the debtor.” In those early days some agencies were even funded under the Federal Education Act of 1966.
But credit counseling groups were also founded and funded by groups of merchants and credit reporting bureaus. For example, the Credit Counseling Service in St. Paul, Minnesota was a division of the Credit Bureau of St. Paul.
As early as 1968, at the national meeting of the National Foundation for Credit Counseling in Indiana, a concern was raised that some creditors “go so far as to look upon your organization as credit collection agencies.” “We must do a job of getting across to these people today that CCCS is not just a method of collecting debts,” said Robert Hammer of CCCS of Central indiana at the national conference. Even today many still struggle with that opinion.
The credit counseling repayment plans were known as debt management plans. Under this program the member agency would collect the money due from the consumer plus oftentimes a nominal processing fee and in turn would cut up the one payment into smaller checks payable to the individual creditors.
National Foundation for Credit Counseling has long presented itself as a way to help people overcome the need for bankruptcy. Even back in 1968 the Wall Street Journal was proclaiming there was a bankruptcy boom and the social stigma of bankruptcy was quickly fading. At the conference the speaker was concerned about letting those trends continue. Funny how those sakes concerns and statism are made today as if they are new.
From the very early days of credit counseling, financial support has been an issue. Even though the groups are non-profit corporations they still need to operate as a business. People are confused and the ink a non-profit group should operate and not show a profit when in fact the only reason they are called non-profit is simply because of their tax status.
This creditor funding model, where creditors pay back a portion of money credit counselors collect from consumers and return to creditors, is know as the fairshare or fair share model. This has always been a problematic funding mechanism and subjects itself to apparent skepticism as the primary funder of the service is the creditor and not the consumer.
Creditor contributions based on the amount of funds received from the service give the program the appearance of being a collection agency for creditors, and I think what they really meant to say was “It gives the appearance to the program of being a glorified collection agency.” – Fred Stotts, NFCC 1968 national conference.
In the late 1940s and throughout the 1950s, debt poolers or debt adjusters created an alarm that warned consumers they were being taken advantage of. In 1955 the National Better Business Bureau warned, “These operations are well on their way to becoming a national scandal. Within the past year or two their number has multiplied and the geographic scope of their operations has increased at a prodigious rate.” – Source
Prior to the official formation of the National Foundation for Credit Counseling there were a number of companies that promised to help people to “restore your credit without a loan.” In the early 1950s these groups were known as debt adjusters, proraters, debt lumpers, or debt poolers.
A Look at One Founding Agency – Family Debt Counselors
Since the Family Debt Counselors was started in 1958, it has helped nearly 1000 Phoenix families to extricate themselves from debt entanglement. Richard K. Steinman, a founder and director, believes the organization has saved possibly 500 of these families from bankruptcy. In addition, in the past three years FDC has distributed $1,643,000 of clients’ money to their creditors. Normally, most of this money would have gone down the bankruptcy drain.
It was Steinman, who heads a local chain of small-loan companies, with other members of a committee from the Arizona Consumer Loan and Finance Association (which put up $500) who started FDC. At first, they encountered considerable resistance. “Everyone agreed we had a serious problem with our rising personal bankruptcy figures,” Steinman says, “but few could agree on a solution and even fewer were willing to pay for it.” However, they won the support of the Legal Aid Society, the Family Service Association (a social-welfare group), banks, and the AFL-CIO Central Labor Council, which contributed $1500, and FDC was launched.
“At first I thought we should have a free service,” Steinman says, “but people experienced in social-service work urged that we charge a small fee. By doing so, they pointed out, we would enable people to retain their self-respect.”
“There’s a tremendous need for this agency,” says Bernard Wielewinski, executive director of the Phoenix Family Service. “In fact, any good-sized American city needs an FDC. We know that emotional reasons often drive a family into great debt. A family agency like ours can help solve the emotional problems, but the debt itself can be resolved only by an intelligent, community-minded outfit such as the FDC.”
Even older than the Phoenix FDC is the Economy Budget Service of Columbus, Ohio. Begun in 1955, this service is financed at a $15,000 annual cost on a no-profit, no-charge basis by the Capital Finance Corp., an operator of small-loan companies. More than 400 families have been successfully helped from debt with personal bankruptcies avoided.
Drawing on the experience of the Phoenix and Columbus setups, similar services have been established in Salt Lake City, in both Kansas cities, and in South Bend, Ind. Before the end of 1964 the list will include Indianapolis, San Diego, Denver, Cleveland, Charleston, W. Va., Atlanta and Flint, Mich. By the end of 1965 some 80 other communities will probably have similar programs, thanks to the free services offered by the Consumer Credit Counseling Service Committee of the National Foundation for Consumer Credit in Washington, D.C. – Source
Today credit counseling groups are still facing funding struggles as the creditor community that boldly supported them up until around the early 2000s began to significantly cut back on funding while asking the National Foundation for Credit Counseling members to perform relatively the same function. Funding by creditors has been controlled exponentially while control by creditors has increased as a corresponding rate. As evidence of this is the Chase 2003 “Pay for Performance” plan rolled out to all credit counseling groups, including NFCC members. – Source
The National Foundation for Credit Counseling today consists of the largest trade association of consumer credit counseling service members.
The NFCC is the nation’s largest and longest-serving national nonprofit credit counseling network, with nearly 100 Member Agencies and more than 800 offices in communities throughout the United States and Puerto Rico. In 2010, NFCC Members assisted 3.2 million consumers, helping many to drive down their debt and take control of their finances. – Source
Today, creditor control over credit counselors has reached an apparent point where the NFCC is no longer apparently able to operate as an independent group that represents consumers first but must gain the approval of creditors that fund the operation before they branch in to new areas and solutions to assist debtors like debt settlement.
There was a time I was very familiar with in the 1990s when creditors would fund credit counseling agencies in a very hands off way. But as time marched on the creditors began to exert more and more collection quotas, targets and control over the operations of the credit counseling groups that exist as members of the National Foundation for Credit Counseling.
NFCC members have struggled for years now to bring forward a NFCC endorsed solution know as the “Less Than Full Balance” LTFB approach (a debt settlement solution) where consumers would be able to enter repayment plans based on what they could afford to repay, rather than the full amount currently required by participating creditors. Despite their close creditor relationships they have been unable to move this plan forward to allow all members to offer it to consumers in need.
NFCC has tried to valiently persuade the Office of the Comptroller of the Current to adjust some banking regulations to allow greater acceptance by banks. But even though other groups sought this change from the OCC to better assist consumers, the OCC to date has refused to make the LTFB approach as friendly for lenders as the lenders want.
The future of credit counseling is uncertain today. While there will appear to be member agencies as far into the future as can be seen, the numbers of agencies is in question. Predications today say that as many as 2/3 of all credit counseling agencies may be gone in as little as five years through merger or failure due to less consumer demand and lower funding opportunities.
Credit counseling groups have worked themselves into a corner, primarily dependent on creditor funding and shrinking government funding to support their operations. For years NFCC has pushed back at allowing members to branch out and offer more fee-for-service solutions to consumers and that has significantly limited funding opportunities to keep the doors open of these educational non-profit groups.
In my opinion, for NFCC members to continue to be strong they must diversify the hands-on solutions they offer to consumers and become more comprehensive financial health centers and not just the master purveyor of debt management plans.