Recently there was a meeting of the National Foundation for Credit Counseling (“NFCC”) where the State of the Union was laid out for credit counseling groups attending. It was actually called the 2011 State of the Credit Counseling and Financial Education Sector Address
The published remarks from that speech by Susan Keating, President and CEO of NFCC, paint a somewhat grim picture. More disturbingly it just reinforces either how out of touch the credit counseling groups are with debt relief reality or they have creditor blinders on as to not ruffle funding creditors. Interestingly, also called financial industry partners in the speech.
The last 18 months have taken their toll on the nonprofit counseling sector and NFCC Members. Trends are difficult to understand and all of us are desperately trying to better understand what they really mean; what they will look like in a year; and the best decisions to make for the organizations we represent and there are layers of complexity we’ve never seen before. It is tough to read the tea leaves.
Actually it’s not hard to read the tea leaves. I’ve been laying out what’s happening now in my trends column and it’s all come true.
I can’t imagine how perplexing a declining customer base is in the face of a troubled economy on the heals of record debt settlement and bankruptcy. It’s obvious, cause and effect stuff.
It just makes no sense that housing foreclosure rates are at an all-time high and Congress has eliminated $88 million in housing counseling dollars from HUD, and that reinstatement of housing counseling dollars for the FY 2012 is in serious doubt.
Seriously, it makes no sense? It makes perfect sense. These are the times of budget cuts and unproven housing counseling is a good candidate to be in the cutting block. Read Government Report Can Lead to Cuts in Housing Counseling Funding. In the face of a conservative budget tightening Congress, funding cuts make perfect sense and have a high likelihood of actually happening.
It makes no sense that people who want to be responsible and pay back their debt have few options available to them other than to file bankruptcy because alternative solutions like the debt management plan don’t offer adequate concessions or funding to member agencies to administer.
And this comes from the NFCC that for years has resisted any direct fighting back against creditors and instead has continued the debt management plan only approach down the rabbit hole to the point we find ourselves at today. That’s the part that never made sense.
Doesn’t make any sense? Are you nuckin futs? How about all the consumers that fell into for-profit debt settlement as a way to address their situations, only to have NFCC turn its back on those consumers and say they would not engage in debt settlement even though for some consumers it was a perfectly appropriate solution. It was a perfectly good option, just laying there, totally ignored by NFCC for fear creditors would get ruffled by it. Yet every day the exact same creditors were settling debt. Hey NFCC, who was the one getting played there?
And, it makes no sense that although everyone across America is concerned about finances, there is little real substance and investment being made to truly improve financial literacy levels.
So who pays for financial literacy in a time of funding shortfalls? With states and school districts fighting to keep teachers, tell me exactly who is going to pony up big bucks to try to fight to get financial literacy into schools?
And the impact of this is that NFCC Members are seeing fewer clients than a year ago, consumer calls to the NFCC’s toll-free line are down, and agencies are having to respond by reducing staff, tapping into reserves, and merging.
For now, unfortunately, we have to accept that this is “the new normal.” This is it folks, a new reality. No whining, let’s just deal with it.
That wasn’t whining? I’d hate to see whining.
And if you though you saw fewer clients this year, wait till next. Until the economy improves and consumers can feel confident enough to load up again, the pipeline of indebted consumers needing help that can afford a DMP will get smaller and smaller.
First, we all have to get our house in order. We need to reexamine our service offerings and make the changes necessary to be relevant and sustainable. Which services are critical to stabilizing families and communities versus which are outdated or nice to have? How can we provide more solutions to clients, and bring added value to partners and other stakeholders?
You need to push creditors to implement solutions that already exist. People need debt repayment options that allow them to get a substantial payment break and repay their debts based on what they can afford, not what the creditors want.
But pushing this agenda is going to make the DMP departments at the creditors ticked off and they may even cancel some of your fairshare funding because of that. But you need to ask yourself, which master do I serve? The creditor or the consumer?
Tom Watson, Jr., the head of IBM who spearheaded its phenomenal growth in the 1960s said, “Every time we’ve moved ahead in IBM, it was because someone was willing to take a chance, to put his head on the block, and try something new.”
The new tool for credit counseling has been sitting right there. Get into debt settlement and do it in such a way that benefits consumers. NFCC has been playing around with trying to formulate some creditor pleasing “less than full balance” program for years now to allow people to repay their debt in accordance with a creditor blessed program. How’s that working for you? Yet at the same time credit counseling offices have been turning away tens or hundreds of thousands of people that would have been good fits for a settlement approach. And you are struggling looking for people to help?
So much for taking a chance, or being brave, or having the balls to do what’s right for consumers.
We must expand and simplify the solutions for clients who want to responsibly repay their debts. Nonprofit counseling agencies need more tools and ones that are simple to administer. For anyone here who has ever sat in on a counseling session where a DMP is a possibility, I am sure you will agree with me that it is amazing that we are ever able to get an acceptable repayment proposal completed for a client.
We must change the nature of the relationship between the credit counseling sector and the financial services industry. Every financial services company in this room agrees our work is important and they want us to survive. But we have some serious flaws in two main areas. As I just said, the consumer debt solutions that are currently available are not working for many consumers, and the level at which the agencies are funded for the services delivered is not covering the costs.
Have I mentioned debt settlement yet?
And you know why those DMP sessions are tortuous, it’s because they involve a whole bunch of crap they don’t need to. How much time does it really take to qualify someone for a DMP and if they don’t fit, kick them to the curb? Next!
But seriously, the modern DMP session is a waste of effort wrapped in window dressing of hopes and boxed in a package of assistance. You want simple? “How about Mr. Smith, you have $40,000 of debt. In a DMP your payment would be $250. Can you afford that?” That’s the heart of the matter anyway. Consumers don’t want to be punished with a long drawn out budget judgment session. Well some do. But for them, go all out, for the rest, give them the bottom line and move on.
Those folks will try the DMP and some will fail. Some won’t. How much simpler do you want?
It appears that Keating is admitting that credit counseling doesn’t have the programs they need to survive or truly help people in this economy and creditors don’t want to fund them at the necessary levels. Kind of makes all those years NFCC was running around limiting debt relief fees in states seem silly now.
On the debt settlement front, last year the NFCC spearheaded a public information campaign to educate consumers about the difference between the for-profit debt settlement companies and nonprofit credit counseling. This is in addition to supporting the Federal Trade Commission’s Telemarketing Sales Rule that has curbed many of the abusive practices. And, though Congress is distracted by other priorities at the moment, we still feel strongly that Federal legislation addressing further consumer protection around debt settlement is important.
I’ll give you there are some obvious differences but let’s not get holier than thou on us here. Let’s get this right, you launched a national campaign to smear the very solution you need to help consumers in this economy. It was stupid then and it’s stupid now. Quit fighting against the solution you need to help people right now.
You fought for new rules but told the FTC and the CFPB they shouldn’t apply to you. That’s just hypocritical. And you say consumers need more protection but also say, “not us.”
NFCC, here is a cold dose of reality, you are letting your opportunity slip away. As time marches by, you may not like it but the pill you push is less and less relevant to the consumers that need help.
Fewer consumers today can qualify for your debt management plan, your funding is at historic lows, you cry for new solutions but you are unwilling to do the one very thing that will save you; stand up against the creditors.
As long as you try to serve the creditor as your master, you will die at their hand.
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