The Future of Credit Counseling. Shades Might Not be Required.

At the recent Debt Relief Master Class I held in Raleigh, North Carolina we had the pleasure of hearing from Howard Dvorkin from Consolidated Credit Counseling Services on his view of the future of credit counseling.

Howard has been in the credit counseling industry since about the early 1990s and has a very broad perspective that all debt relief providers should listen to.

The presentation contains a lot of good information on the history of the credit counseling industry and how things are forecast to consolidate significantly. He talks openly and honestly about what he sees for the future of credit counseling.

Dvorkin sees a time in the near future where credit counseling groups will begin to offer debt settlement services as a needed resource. “I think they are going to have to.”

He says that credit counseling groups today, based on current consumer volumes, “are dying on the vine.” He predicts that the credit counseling industry will shrink significantly and a number of office will close or merge.

He states that credit counseling volumes are off 40 percent this year and that was on top of a 40 percent drop in demand last year.

Dvorkin cites the lack of creditor lending and the CARD act as significant factors that have negatively impacted the credit counseling industry.

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Dvorkin shares his experience with compliance and following the rules with states. He talks about the cost of compliance and how there is no shortcut for making sure you are licensed and compliant.

He talks about how the funding for housing counseling has been reduced significantly and the demand for bankruptcy counseling has dropped as well.

He says that current credit counseling agencies continue to get less funding each year from fee limits that were set by legislated fee limits in the past. For example, a $50 maximum fee ten years ago that is still limited to $50 is worth less than it was back then.

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Howard talks about how the debt relief industry in general lacks a single voice to speak to regulators that put consumers first.

Personally, I think a good example of this is the current efforts of some credit counseling groups that are trying to bring back the Schumer-McCaskil Debt Settlement Consumer Protection Act to reduce perceived competition from debt relief providers other than credit counseling. This seems to have no bearing in providing consumers with best options, only to stomp out a business threat to credit counselors.

“Overall, credit counseling agencies in general are in trouble,” Dvorkin says and he predicts that 2/3 of credit counseling agencies will be out of business in five years.

The warning given to debt settlement groups that are now having to get state licenses and federal laws is they have no idea of how much it actually costs to comply with multi-state regulation.

He commends the class as a good effort to bring together credit counseling and debt settlement providers to better understand each other.

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I love his statement that credit counseling in general sees itself as better than debt settlement.

“Credit counseling agencies have been challenged by foresight,” Dvorkin says. We discuss how debt settlement providers are placing credit counseling solutions into their options for consumers and credit counselors do not seem to see the need for expanding into debt settlement.

Howard talks about how fifteen years ago, creditors would not pay fairshare to agencies that did phone or internet counseling, but dropped those restrictions as the industry evolved. Howard sees that while credit counseling is currently being threatened by some creditors to not get into debt settlement. He predicts the industry will evolve and credit counseling will be more prevelant in debt settlement because it is a valid tool that credit counseling agencies can use to best assist consumers.

“Do I view credit counseling agencies getting into the settlement business, yes, it’s going to happen. The credit counseling agencies that are smart and have the foresight, have to get into it,” Dvorkin says.

The reality is if credit counseling can stop fighting against debt settlement providers they could expand their income opportunities moving forward and possibly save some agencies from going out of business. The question now is if credit counseling has fought so aggressively against debt settlement that they have damaged that options perception even though it makes best sense for some consumers.

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Howard makes the case at the end of the presentation why the need exists for credit counseling to be able to have debt settlement solutions as part of their tool kit in order to provide consumers with all valid solutions. But as he admits, creditors exerting pressure over the solutions credit counseling provides is not in the best interest of consumers.

Howard ends with this sage advice, “Credit counseling agencies must do the right thing for their clients. They have to do the right thing for consumers. And if they don’t, shame on them.”

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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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