Recently I had a chance to listen to a conference call of non-profit credit counseling agencies. It was a highly enlightening hour of my life and confirmed what I was hoping was not true. I’m sad to tell you today, after listening to the call, the majority of the non-profit credit counseling agencies don’t have a clue what their own industry is all about or how to offer debt relief services. It might be a sad and blanket inditement but it’s an honest observation.
The highlight of the call for me was after much complaining about creditors not valuing the services the credit counselors provide, one participant said, “It’s almost like they treat us as if we are a charity.” I got news for you, you are a charity!
There were at least 38 participants on the call and of the participants only one that spoke up actually had a clue about their own industry.
Others were saddened that creditors did not put much value on the services they provide, another was saying how fair share funding from creditors was down to 3 percent of money returned to creditors, another said they were not even sure if a number of credit counseling companies would even be around in a couple of years.
It’s the essence of credit counseling that seems to be lost. The reality is that the core benefit to creditors is to talk consumers out of bankruptcy and into a repayment program that returns money to creditors. All the other stuff fluffed around that is just that, fluff.
Creditors may talk about the educational and counseling benefits of non-profit credit counselors but let’s get real. As one person on the call said, “It’s like the creditors only care about making a profit and answering to shareholders.” Yes, and you know why, because that’s exactly what it’s all about. If that mission can be packed in a charitable wrapper and creditors get a tax deduction for paying for collections, then all the better for the creditors.
One participant said they were told that Chase Bank has twice as many people enrolled in internal hardship programs with their cardholders than they do with credit counseling agencies. And credit counseling agencies that were speaking up could not understand why that would be. Seriously, let’s be clear here, Chase Bank has every right to offer their cardholder reduced payment programs and not have to go through a credit counseling group. It’s their own customer. And besides, then they don’t have to pay the credit counseling agency to collect.
Credit counseling agencies may not want to publicly admit they are acting as a different type of collection agent for the creditors, but that’s always been their core economic benefit for creditors providing them with support based on the money they return to the creditors. And while this may be shocking, it’s a lesson I learned from founding and running a non-profit credit counseling agency, creditors want you to be their collectors. And that’s why I got out.
Modern credit counselors are in terrible and embarrassing denial. Tragically embarrassing.
They were lamenting on the call about new products and services they could develop to help generate revenue. Maybe financial education one said. But the most votes were for credit repair services. Would those be the very same credit repair activities that have some agencies already in hot water? You’ll consider credit repair but not helping consumers settle their debts? What kind of bigoted point of view is that?
But here is the kicker, non-profit credit counseling agencies are educational charities that assist people with debt problems. Yet the very thing they spend time making sure does not see the light of day is educational information to help consumers settle debts when they can’t afford the credit counseling debt management plan program. And why is that, because creditors have laid down the law and told some agencies if they get into debt settlement they will lose their funding from creditors. Oh yes, and they’ve vilified debt settlement for so long to protect their own marketshare that they’ve convinced themselves that it’s bad.
I Have a Dream of a Better Debt Relief Industry
Sadly an evolved and relevant debt relief industry is nowhere to be found.
What we have today is a fractionalized system that pits for-profit against non-profit. That pits debt settlement providers against credit counselors. That pits attorneys against debt relief providers.
You will notice that at no time is the consumer in financial trouble placed in any pivotal position except to be a participant in a transaction from which debt relief providers of all flavors make money off of.
My dream of a relevant and modern debt relief industry is one where:
- consumers pay a fair fee for the help they receive;
- debt relief providers do not accept money from creditors when the providers are supposed to be representing the consumers;
- the tax status of the provider is irrelevant since all debt relief providers will deliver compassionate, caring, and relevant services, fairly;
- debt relief providers will call upon each other when certain specialities are needed and to work cooperatively for the benefit of the consumer in trouble;
- trade meetings are about developing new services to help consumers and no longer focused on protecting market share;
- debt relief providers stand behind their work, provide refunds for work not delivered, and work WITH regulators to help stamp out bad practices;
- all debt relief providers can speak up against bank practices from the financial services industry to protect consumers; and,
- we all agree to really put consumers first.
In my view of a debt relief industry, all providers begin to work collaboratively and together. All providers are looking out for the best interest of the consumers, and all providers are working hard to focus light on bad practices to get those bad actors out of the industry.
Unless all debt relief providers suck it up and start working together, here is my prediction of what’s going to happen:
- Credit counseling groups will continue to complain about debt settlement providers and work to get more fee cap laws passed to limit settlement fees while the credit counselors sit here and scratch their heads about what new services they can develop that consumers want.
- Creditors will continue to reduce funding to credit counseling groups, or eliminate it completely, and many will either merge or go out of business.
- Creditors will offer more hardship programs to their customers directly or will take advantage of the automated programs that allow consumers to enroll in debt management plans without the need of a local credit counseling agency.
- The hesitancy of debt relief providers to shed light on the bad guys will leave continued opportunities for the bad actors to flourish and take advantage of consumers. That leaves the door open for more legislation in response to those bad acts which further limits the debt relief industry at large.
- Non-profit providers will continue to rage against for-profit providers which simply drains their time and resources will providing an entire misdirection on the real issues at hand.
The question is, can the debt relief industry pull it together and get their fundamentals straight to create a relevant and needed path into the future.
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