A lawsuit I’ve been following since it became publicly available back in the middle of October has become a major milestone in what could spell the death of credit counseling as we know it
I first learned of this case about six months ago when it was developing but I’d not written anything about it at that time. In fact I was holding off writing anything about it till it developed further but following comments from at least one credit counseling insider last week to my post “Credit Counselors Clueless. I Have a Dream of a Better Debt Relief Industry“, I feel compelled to bring this case to light.
In my post last week I talked about how non-profit credit counselors appear to be out of touch and behind the curve of the debt relief industry of today.
One apparent credit counseling industry insider lashed out at me and said:
Commenter: “A lot of good work goes on in credit counseling despite the problem with creditors. Yes, the industry does need to change. People are angry and it is driving them away from both credit counseling and debt settlement. The creditor is truly the one blocking the system and the regulators have failed to address the viable products made4 availale regardless of who provides them.”
Me: Really, the creditor is the problem?
I’ve said for many years now, the problem with credit counseling is two-fold.
- The DMP product is broken and does not serve consumers in trouble. And you want to know why, because the credit counseling industry allowed it to break.
- You can’t serve the consumer and get paid by the creditor. It is a fundamentally corrupted system that does not place the best interests of the consumer first by the charities. It’s like saying the diet industry needs to be paid by the snack food manufacturers.
These problems are why in 2006 I personally shut down the credit counseling organization I founded here in the U.S. It was a decision I made that consumers could not be put first in a system where creditors called the shots for credit counseling programs.
Some credit counseling agencies decided to attempt to service consumers within the system created by creditors and they’ve existed since that time. And try as they might the amount of funding creditors provide for their credit counseling activities continues to drop and drop. Obviously creditors see less and less value in the services credit counseling agencies provide as agents of creditors. Why do I say agents of the creditors? Even credit counseling calls themselves credit counseling agencies so they are agents of either the creditor or the consumer by their own label. As you read further the agency relationship will be made clearer and it will shock outsiders.
Any credit counseling group today that thinks their value is increasing to creditors or believes their funding is going to improve is delusional at best.
Creditors are and have learned to live without non-profit credit counseling groups recovering money for them and funneling them back cash through charitable collections. As one person said last week, banks like Chase already have twice as many consumers enrolled in their own internal hardship plans than through credit counseling debt management plans.
In fact, this lawsuit I’m going to share with you may drive creditors further away from credit counseling groups so as not to be labeled enablers or co-conspirators in the activities to be discussed.
As a result of this lawsuit, if CapitalOne and other creditors are not seriously rethinking their participation with credit counseling at this point, I’d be very surprised.
With more automated credit counseling solutions on the way, which will become the norm and not the exception, in a couple of years I would expect to see at least a 100:1 ratio of DMPs through internal and automated programs versus local credit counseling outfits.
In fact today I need to spend a couple of hours looking at the demo on just one such fully automated system that enrolls consumers in a DMP without any human interaction or local agency. That future is just around the corner.
Local credit counselors will become extinct like the small local credit bureaus or your neighborhood typesetter. There is just no need for them anymore.
The Landmark Indictment Against Credit Counseling
The case I alluded to at the beginning of this post is Lori King v. Capital One Bank and InCharge Debt Solutions 3:11-CV-00068.
This is a class action suit filed in Charlottesville, Virginia in Federal Court that lays out the hidden underbelly of non-profit credit counseling in such a damning way that I think it spells big trouble for all non-profit credit counselors moving forward.
Credit counseling was not always as corrupted by creditors as it is today. It wasn’t until the early 2000s that creditors became much more demanding in what they expected to “get” from credit counselors.
No better example of this exists than the 2003 Chase Bank “Pay for Performance” letter in which Chase laid out that funding was going to be tied to collection performance. You can see a copy of this letter in this post.
Frontline and middle level credit counseling employees may very well believe they are doing good work on a social service mission to assist consumers but credit counseling executives know that the entire industry has changed and they are not the ones in control. The creditors are.
What follows in a complex narrative laid out in this landmark case that damns credit counseling and ties together the collusive relationship between current credit counselors and creditors in a disgusting little package that exposes the unfortunate hidden secrets of perceived help that consumers are led to believe they receive today.
From the Lawsuit
“Aiming itself directly at the sub-prime market of Americans drowning in credit card debt, defendant InCharge advertised and promoted itself as a nonprofit tax-exempt credit counseling organization whose main organizational purpose was to act on behalf of consumers and in their interests. As will be shown, however, InCharge was in fact not operating on behalf of the consumers to whom it was advertising, but was operating as a partner, joint venturer and/or agent of the very creditors that the consumers were struggling to get out from umder, including Defendant CapitalOne.”
“The principal service InCharge claimed to offer consumers was the formation and maintenance of a debt management plan (“DMP”) for which it charged a fee for its service. InCharge uniformly claimed in its promotional materials on the Internet and other media that it would “negotiate” on the consumer’s behalf with the consumer’s credit card lenders, including entities such as CapitalOne, to whom consumers owed money. The ostensible benefits to consumers advertised by InCharge included the elimination of late and over-the-limit fees, and the re-aging of credit accounts. These services were offered with the express purpose of improving consumers’ credit records, credit histories and/or credit ratings by retroactively eliminating black marks on the consumers’ credit report. Further, InCharge represented that its services and advice could improve a consumers’ credit rating, credit record, and credit history. InCharges’s provision of such services brings it within the coverage of the Credit Repair Organizations Act (“CROA”).”
“To comply with CapitalOne-dictated policies, (and to attempt to evade regulation by the CROA, FDCPA and other state laws), InCharge organized itself as a purported non-profit tax-exempt organization. InCharge then used its ostensible non-profit, tax-exempt status in its massive advertising and promotional campaigns, telling consumers that it needed consumers’ voluntary contributions (fees) which InCharge expressly (and falsely) claimed would merely cover the cost of setting up and operating the consumers’ DMPs.”
“CapitalOne knew at all pertinent times about these uniformly false representations and others being made to consumers by InCharge; more specifically, CapitalOne knew all along that there were no “negotiations” between it and InCharge and that in fact the “benefits” that InCharge was offering to consumers were pre-set by lenders such as CapitalOne and dictated to InCharge in the form of periodic benefits sheets which could be unilaterally changed – and which were unilaterally changed – by CapitalOne periodically and then imposed upon InCharge. CapitalOne also knew from its reviews and audits of InCharge’s policies that InCharge, and indeed substantially all of the larger lnternet-based credit counseling entities were not operating in a manner consistent with being non-profit organizations. Upon information and belief, its personnel also received calls from its card holders complaining of InCharge and its business practices.”
“In point of fact, InCharge did not have any control over any of the “benefits” it was advertising to consumers. Rather, (1) the reduction of interest rates (2) the reading of accounts, and (3) the waiver of fees, were all exclusively under the control of CapitalOne and other creditors. In addition to entirely controlling the only “product” that InCharge had to sell to consumers, it is alleged on information and belief that CapitalOne further exercised control over InCharge by reserving the right to periodically audit or otherwise review the policies and operations of InCharge. Additionally,CapitalOne exercised control over the policies of InCharge through conditioning its tens of millions of dollars in direct financial support on InCharge’s compliance with CapitalOne’s directives.” ”
Collection Activities of Non-Profit Credit Counseling Laid Bare
“The benefits to CapitalOne from having InCharge act as its agent and intermediary (as opposed to offering and controlling its own DMP program) were several and included (1) improved collection rates from having a friendly “non-profit” (as opposed to a hostile collection agency or bank) induce consumers into continuing to make payments even where it was not in their best interest to do so; (2) lessening CapitalOne’s collection costs by inducing consumers to pay fees to support the supposedly non-profit InCharge (that the consumer wrongfully believed was working on its behalf when it was in fact CapitalOne’s agent); (4) its (wrongful) claims of Community Reinvestment Act credits for its “donations” to InCharge and other credit counseling agencies that are in fact not donations at all, but which, on information and belief, are booked by CapitalOne as ordinary fee for-service business expenses and treated that way by CapitalOne on its tax returns; (5) cloaking CapitalOne from exposure to existing regulations such [as] the FDCPA and CROA by providing CapitalOne a “straw-man” lawyer of protection between it and the consumer it is collecting from (6) having credit counseling agencies handle DMPs for all creditor banks that allowed CapitalOne to avoid bankruptcy discharges or having to compete (in terms of benefits offered to consumers) with its competitor banks for the consumers’ limited pool of funds available for debt repayment by assuring a pro-rata payout by InCharge to all of the consumer’s [creditors] ; and (7) deniability.”
“In fact, InCharge is and was nothing more than a debt collector that partnered with CapitalOne to collect its accounts under the guise of a good Samaritan rescuing consumers drowning in debt. InCharge operated in a manner inconsistent with its non-profit and tax exempt statuses, distributing monthly payments it collected to, and for the private benefit of CapitalOne, while keeping a share for itself – which was effectively a quid pro quo payment by CapitalOne for the debt collection services of InCharge. The nature of this quid pro quo payment was disguised to consumers who were only informed that creditor banks might also make charitable “contributions” to InCharge. Plaintiff further alleges that [CapitalOne] booked its payments to InCharge as ordinary business expenses and not as charitable contributions. In short, if a consumer paid $100 to InCharge to be paid on a CapitalOne account, InCharge would pay CapitalOne an agreed upon percentage and be allowed by CapitalOne to keep the remaining percentage, as a fee from CapitalOne. This back-end payment to the credit counseling agency (“CCA”) by creditors is called “fair share” in industry parlance and its true nature is hidden from consumers. It is alleged on information and belief that CapitalOne paid InCharge tens of millions of dollars in “fair share.” ”
Credit Counselors Don’t Really Negotiate
“Because InCharge was, in reality, a partner with CapitalOne, and only took an interest in selling DMPs to make money for itself and CapitalOne, it did not actually “negotiate” at all with CapitalOne, but instead delivered and administered CapitalOne’s prepackaged debt relief terms. In short, the life-ropes InCharge was throwing to consumers drowning in debt were actually anchors weighted with high costs, and their utility was diminished by lengthy delays and poor service that often plunged consumers into deeper financial distress through creditor-imposed late charges and additional interest.”
“Further, at all relevant times it was administering DMPs, InCharge misrepresented to Ms.King and to all of its other clients, that it “negotiated” with CapitalOne, and that in so doing, had only her interests and that of the members of the classes in mind. CapitalOne and InCharge both knew that such representations were false and endemic throughout the credit counseling industry. Despite this fact, CapitalOne made no attempt to have the CCAs with which it dealt change this practice since the practice benefited CapitalOne.”
“This specific representation (that InCharge “negotiated” with creditors) was false because the CCAs merely applied predetermined discounts established by CapitalOne to consumers’ accounts with CapitalOne. There was no “negotiation.” The members of the classes had no way to know that they were being lied to in this respect.”
“In addition, such representations about how InCharge was going to “negotiate” on the consumer’s behalf against CapitalOne indicated falsely that an arms-length relationship existed between InCharge and CapitalOne.”
Credit Counselors Not Representing Consumers Best Interest in a Fiduciary Capacity
“Ultimately, consumers were deceived and cheated by InCharge, and CapitalOne was a direct or at least an indirect cause of, and one of the biggest beneficiaries of the frau. It received hundreds of millions of dollars from consumers who were unaware of InCharge’s partnerships, joint ventures and/or conflicts of interest with, and dual agencies for, CapitalOne. Consumers were oblivious to the fact that these ostensibly non-protit, tax exempt credit counseling agencies that were purportedly there to help them out of their financial difficulties did not operate as true non-profit tax-exempt entities, but were money making machines targeting the most vulnerable of American consumers for further abuse.”
“There was further a fiduciary relationship that existed between InCharge and the members of the classes so that the members of the class placed their trust in InCharge since it (1) represented that it would provide financial counseling; (2) held Class M embers’ money in trust for payment to creditors; (3) had access to private financial information (4) and represented (albeit falsely) that it would negotiate on behalf of the members of the classes. The existence of this fiduciary relationship also supports equitable tolling and equitable estoppel in the statute of limitations context.”
The Reality of the Debt Management Plan Offered by Non-Profit Credit Counselors
“The chief tool placed at the disposal of the CCAs by banks and credit card companies, including CapitalOne, for avoiding consumer bankruptcy is a vehicle called a “debt management plan” (“DMP”). The basics of DMPs have not really changed since the 1960s.”
“Generally speaking, after a debt-troubled consumer makes contact with a CCA (often, after being directly transferred, or otherwise referred to the CCA by a creditor such as CapitalOne) and is directed toward proceeding with a DMP, the CCA contacts the consumers’ creditors, such as CapitalOne, and submits a DMP proposal based upon criteria previously provided by the creditors.”
“The DMP proposal offers creditors a stream of monthly payments from the consumer based on pre-existing guidelines imposed on the CCA by CapitalOne and other creditors. The creditors’ guidelines establish the conditions under which they will extend standard DMP benefits to consumers. InCharge’s salespersons (“counselors”) strive to qualify consumers,including Plaintiff, under these pre-set criteria.”
“Standard DMP benefits include, among other things, that a consumer’s credit account will be “re-aged.” Defendant InCharge explains this to consumers as follows: “InCharge works with your creditors to reduce interest rates, re-age accounts, and eliminate late-and over-limit fees.” ” – Source
“Upon acceptance of the proposal by all or some of a consumer’s creditors, the consumer then typically makes a single monthly payment directly to their CCA. The CCA then deposits the consumer’s monthly payment into a trust account from which it forwards monthly payments to each of the consumer’s creditors in an amount determined by the terms of the consumer’s DMP (as dictated by the creditors).”
“When this system initially was setup by banks and credit card companies in the 1960s, the consumer was either charged nothing or a nominal fee by CCAS for DMP services.”
“Creditors like CapitalOne were willing to share debt collection proceeds of CCAs like InCharge-referred to as in the industry as “fair share” – because it is much less than the 25% -33% that is the standard payment to their ordinary collection agencies. More to the point, paying a percentage of the consumer’s debt to CCAs was to a creditors’ advantage any time that a consumer was able to avoid (or even delayed) filing bankruptcy, which of course would, until recently, have resulted in the entire discharge of the consumer’s debt to the creditor.”
“Although CapitalOne masquerades its “fairshare” payments to CCAs as “contributions” or “donations,” on information and belief, Plaintiff alleges that Defendant CapitalOne treats “fair share” as an ordinary business expense on its tax returns.”
Credit Counseling Runs Afoul of Credit Repair Laws
“InCharge promised Ms.King and all of its other clients who had DMP accounts with InCharge, that participation in InCharge’s debt management plan would “improve her credit” because many of her creditors would “re-age” her accounts,i.e., that the creditors would retrospectively reach back and eliminate references to late payments or past due accounts. In this way, InCharge touted the ability of its DMPs to improve credit. Attached as Exhibit “B” is an archived copy of InCharge’s website as of December 4,2008 where InCharge stated that “(a) credit counseling service can improve many aspects of your life. It can help you get out of debt faster and “improve your credit.”(Emphasis added). Attached as Exhibitt “C” is a copy of InCharge’s website as of October 12, 2011 where InCharge states that “once you start a DMP and begin making consistent, timely payments, your credit score also improves.” (Emphasis added). In short, InCharge advertised that a material benefit of its service was an improvement in the consumer’s credit history, credit record and credit rating. Indeed, the re-aging of accounts was more than an incidental service to improve consumer credit records and credit history, it was one of the primary benefits being offered to consumers in order to sign them up to a DMP.”
Referrals From Creditors Are Not What Consumers May Believe
“In many instances, consumers who were having trouble paying their credit card debt would call CapitalOne seeking to negotiate their debt on their own behalf.
Although CapitalOne was fully able to provide its card holders with the same interest rate reductions, reversal of late charge sand fees, and re-aging of its accounts that InCharge provided indirectly through its DMPs, CapitalOne did not want to provide these benefits directly to consumers, or even to negotiate with them, but preferred to have an intermediary deal with its consumers for all the reasons previously stated.
It is alleged on information and belief that CapitalOne, thus would routinely refer many of its credit card customers directly to InCharge so that they could enroll in InCharge’s debt management plan.
Direct referrals of consumers who need or want a DMP (otherwise known as “qualified” or “hot” leads) are an extremely valuable commodity in the credit counseling industry. In return for a referral, a bank would typically pay a lower “fair share” rate to a CCA. This sort of arrangement was common in the “credit counseling” industry and if it existed between CapitalOne and InCharge would be a further indicia of the control CapitalOne exercised over InCharge and the closeness of their partnership.
On information and belief, it is further alleged that neither CapitalOne nor InCharge reported this barter system of payment to the IRS.”
CapitalOne also paid a percentage of the money InCharge collected back to InCharge as “fair share” and such percentages were based on how closely InCharge adhered to CapitalOne’s program guidelines. In short, there was a strong incentive to comply. – Source
Now It’s Your Turn to Read The Suit
I invite you to read the entire lawsuit, which you can do here, and come to your own conclusions about the claims made and information exposed. Please post your opinion in the comments below about if you believe this is a game changing suit that can fundamentally alter credit counseling in the future.
At the Heart of the Matter
At the very heart of the allegations seems to be a number of issues we’ve talked about on GetOutOfDebt.org before. The most important is one of the fiduciary duty of the debt relief provider. You can see past stories on this issue, here.
In addition we have the potentially deceptive relationship between the credit counseling agency and the consumer in which the consumer is led to believe the credit counselor is acting in their best interest or even negotiating, not knowing in reality it is the creditors that pull the strings.
When a credit counseling agency tells a consumer the consumer does not fit in the debt management plan with the credit counseling agency it is because the creditors have called the minimum payments using predetermined guidelines, not that the credit counseling agency has actually tried to put together a true pro-rata repayment plan, as is done in other countries, based on what the consumer can afford to pay. The creditors call the shots and the non-profit charities accept it and then tell the consumer they can’t help. The truth is they could help but they choose not to. Not very charitable.
And why don’t non-profit credit counseling agencies or even national trade groups stand up and be vocal about this hidden relationship, because they are afraid of losing their funding from creditors.
I challenge readers to go back and look in Google for any public outcries by credit counseling agencies against poor creditor practices before laws or regulations were passed against those practices. You won’t find them or you won’t find many at all. Credit counseling is historically silent against creditor practices so you must ask, who do they truly represent?
In fact here is a look at the press releases put out by the National Foundation for Credit Counseling, the largest and most respected trade association of credit counseling groups.
The only real outrage I could find was disappointment in losing government funding for HUD Housing Counseling. – Source
Not to pick on NFCC, let’s also look at the press releases of Money Management International, one of, if not the largest non-profit credit counseling agencies out there. A look at current press releases through January 2, 2008 did not show any releases that talked negatively about any creditor. – Source, Source
Note: I think MMI is managed by very smart people and think they do provide a very efficient DMP to consumers inline with what the creditors want.
Consumers believe that when “sold” a debt management plan it is in their best interest, when in fact either a debt settlement approach or bankruptcy may be more advantageous considering their particular situation.
Yet credit counselors are either effectively silenced by creditors from mentioning debt settlement or attempt to persuade consumers to avoid bankruptcy in order to enroll in a debt management plan which financially benefits the credit counseling agency and creditor at the potential detriment of the consumer.
And then there are the credit repair claims made. Under current case law, saying anything about credit, late fees, re-aging, etc., would be a serious mistake.
Back in August of 2010 I talked about what I considered to be a landmark case involving credit counseling and credit repair issues. See Credit Counseling Severely Wounded Under New New Court Ruling. Class Action Suits Expected.
These credit repair exposures are not new, yet credit counseling groups continue to expose themselves to these claims and one of the saving programs some credit counseling agencies want to roll out to generate money is credit repair.
Let’s look at some current examples of what credit counseling groups are saying.
CCCS of San Francisco
The National Foundation of Consumer Credit (NFCC) member agency CCCS of San Francisco apparently sees no issue with attempts to steer consumers away from bankruptcy and improve credit.
Almost staggeringly curious in my opinion is CCCS of San Francisco continuing to say things today like:
- Bankruptcy is the worst thing to have on your credit report and can affect your ability to buy or rent a home, buy a car, get a job, or obtain life insurance.
- If you have been missing payments or making payments late, you may benefit from our Debt Management Plan. Reduced payments will fit into your budget easier, allowing you to meet credit obligations while covering your housing and other living expenses; lower interest rates and waived late and overlimit fees mean more of your payment goes toward principal; and “reaging” of your account means your credit report starts looking better right away.
- If your credit report already reflects any late or missed payments, then the DMP will likely improve your record by facilitating consistent, on-time monthly payments. Also, through the Plan, many creditors “re-age” your account, meaning that even if you were late in the past they will report you as “current” as long as you make all your monthly payments on time through the Plan. And once you “graduate” from the Plan after having paid off all your debt, we will help you reestablish credit.” – Source
ACCC – ConsumerCredit.com
Not to use just one agency as an example, here is American Consumer Credit Counseling saying,
Bankruptcy should nearly always be considered as a last resort. The adverse effects of a bankruptcy on your credit score are long lasting. And the emotional effect of having declared bankruptcy can be devastating. Bankruptcy currently stays on your record for up to 10 years. Generally, a bankruptcy on your credit report will preclude you from consideration for some loans, and when you do qualify for a loan, the interest rate is usually much higher.
Creditors have been known to lower your monthly interest rates, accept a lower monthly payment, or re-age your accounts so they are current, instead of in arrears. The goal of a debt management plan is to get you out of debt in the shortest period of time, without going through bankruptcy or debt settlement, both of which are detrimental to your credit score.
CCCS Okland California
Here is an example of the Suze Orman site being potentially misled by Tina Powis-Dow the Director of Education and Marketing for the CCCS office in Oakland, California.
A debt management program is when we negotiate with the creditors to reduce the interest rate or to eliminate them altogether. A lot of creditors, because they’re going through Consumer Creditor Counseling Service, will go ahead and completely eliminate the interest rates. This is really great. We try and get them caught up so that they’re no longer paying in arrears. In other words if I as Joe Consumer were to call the creditors and say, “let me work out a payment arrangement” – sometimes what they’ll do is say, “okay fine, we can do that and we’ll lower your payment but your account is going to continue to age.” So you’re constantly going to be behind. Most of the time when going through Consumer Credit Counseling Services you don’t have a problem because we negotiate that by saying we don’t want any of this in arrears stuff, we don’t want the person to be continually showing as behind. I want them brought up to date as of today. When we sign the contract I want the interest rates either eliminated or reduced and this is what we do. Sometimes we have to get nasty with creditors. – Source
CCCS of Service of Springfield, Missouri
CCCS of Springfield, Missouri continues to say they negotiate with creditors. “I agree to deposit with Agency my monthly debt payments in the amount of _____________ under the repayment plan negotiated by Agency.” – Source. Interestingly the same DMP agreement does not make any mention of the dual agency the credit counseling agency has with the creditors as discussed in the lawsuit.
CCCS of Orange County
Consumer Credit Counseling Service of Orange County, California says, “We will negotiate late fee and interest rate reductions with your creditors to help you pay off your debt as soon as possible.” – Source
Misleading Statements to Consumers Continues
So you can see from the examples above that some of the statements or practices that are question in this lawsuit do prevail in the credit counseling industry even today. The idea of “negotiations” or claiming a credit benefit are topics that have been previously discussed, yet continue.
For the record, I did not target any particular agency in my examples, I just did what any regulator or lawyer will do, used Google.
It’s Time for a Fundamental Change in the Way Credit Counseling Operates
Non-profit credit counseling as an industry has been less than transparent with consumers when it comes to how it all works. And the facts intentionally or unintentionally omitted by charitable credit counseling groups and their trade associations is shameful. The lack of these facts, in my opinion, prevents consumers from making a fully informed and educated decision about what is best for them when picking a debt relief provider.
Consumers need to know all the facts so they can make a wise choice about what debt relief solution represents their best interests and helps them to achieve their goals.
Even the perceived leading credit counseling body, the National Foundation for Credit Counseling is not transparent about the way credit counseling works. And like other credit counseling agencies they fail to mention the positive benefits of bankruptcy or that a Chapter 7 bankruptcy will discharge the debt in months, rather than years as with a credit counseling program. – Source
Why be against bankruptcy if it is the best solution for the consumer? Could it be that non-profit credit counselors want to talk consumers out of bankruptcy as the suit says?
The NFCC says:
What are the benefits of working with Certified Consumer Credit Counselors?
Certified Consumer Credit Counselors are experts who tailor confidential programs to meet your specific needs. They will help you understand your situation so you can get on the road to financial freedom. [Gives the impression that a program will be tailored but fails to mention the creditors generally tells the credit counseling agencies the terms they will offer. As the suit pointed out, little to no negotiation really exists.]How are agencies funded?
Agencies are funded through a variety of sources including voluntary contributions from creditors who participate in our Debt Management Plans (DMP), local grants from private sources and foundations, and client fees and contributions. [Fails to mention the quid pro quo arrangement some creditors have of providing funding based on the money returned to them by the credit counseling group or the relationship between money returned and funding.]Can you fix my credit report or clean it up?
No. If negative comments on your credit report are correct, they can remain in your file for up to seven years-except for bankruptcy, which can remain for up to 10 years. [Fails to mention that a Chapter 13 bankruptcy is only reported for seven years.]How will a DMP affect my credit?
Your participation in a DMP may change information that is already on your credit report. If your credit report reflects that you have paid creditors as agreed in the past, a DMP could have a negative impact on a creditworthiness decision by a potential creditor, landlord, or employer because it is an indicator that you are or have experienced financial difficulties.In addition, creditors may report that you are on a DMP and are not paying as originally agreed although they have accepted the reduced payment. Creditors have different credit reporting policies and a certified counselor can answer your questions about the possible effect on your credit rating.
But remember, the goal of the DMP is to develop a plan to ultimately improve your financial and credit standing. [Appears to say the DMP goal is to improve credit.] – Source
Does Anybody Know How to Run an Open and Honest Modern Credit Counseling Agency?
The time has come for non-profit charitable tax-exempt credit counseling groups to come clean with consumers and be open and honest about the way credit counseling really works.
More importantly, the time has long passed for non-profit credit counseling groups to break free of the bondage creditors place on them and truly represent the charitable class of American’s they should be helping.
How long has this situation been deteriorating for credit counseling you might wonder. Well here’s a press release I sent out in 2005 when I was running the non-profit credit counseling group.
Credit Counseling Industry In Crisis
Creditors exert control; legislators shortsighted on reformFor Immediate Release: January 11, 2005
ROCKVILLE, Md. — Modern day credit counseling, often a last resort for consumers desperate to avoid bankruptcy, has reached a point where creditor control and legislative reform threaten the very industry itself. Once thought of as a financial safety net for consumers struggling to pay off debts, credit counseling as we know it is struggling to survive and provide a valuable service.
“In an era when consumer debt is at record levels, the very system designed to assist those in need is a broken system at best,” said Steve Rhode, who has returned as president of Myvesta to represent consumers in this crisis. “Currently consumers are not serviced by an industry who has the needs of the consumer in mind. It is an industry that has been besieged by creditors and government guidelines which force the agencies to worry more about day-to-day survival than focus on helping the consumers with in-depth and meaningful assistance.”
According to Rhode, creditors focused on demanding successful collection activity and the suggested IRS guidelines have trapped credit counseling agencies in a no-win position.
“Credit card companies, the single largest provider of funding for credit counseling agencies, have drastically cut their financial support while forcing agencies to act as collectors rather than counselors,” Rhode said. “Agencies have to do what the creditors want to stay in existence or they will get cut off from funding. Credit counseling agencies are afraid to speak out for fear of more funding cuts as retribution for speaking the truth.”
“On top of that, government agencies, in an effort to stifle deceptive practices in the credit counseling industry, are suggesting guidelines that threaten the ability of agencies to fund their programs at all.” Rhode said. “We are now faced with an industry that is on the brink of destruction and has to either obey the creditors as collectors or operate without any source of income. Either choice is deadly dangerous and bad for consumers.”
Imagine if those words had been listened to in 2005, the credit counseling world today would be much different and InCharge Debt Solutions would never have been in this spot to begin with.
Put the blinders on tighter, say I’m wrong, or stick your head further into the sand; it doesn’t matter. The end result is going to be the same for credit counseling. If it continues on the creditor controlled path they are on it’s going to be destructive and ugly for both the credit counseling agencies and the consumers that believe they will help.
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Once again, a great job. I applaud the firm who brought the suit and this site for its report and additional insights. It will be interesting to see how the industry evolves.
Once again, a great job. I applaud the firm who brought the suit and this site for its report and additional insights. It will be interesting to see how the industry evolves.
Steve,
Will this do anything to companies like debtwave and cbdc? the so-called non-profits that use attorney models, then split fees?
I know a bunch of their clients got tangled up in the Johnson law group saga. It seems those companies are always mixed up with these settlement companies like johnson and hess kennedy. Is anyone looking into those situations?
I think the examples you raise are already covered by existing regulations on fee splitting or paying compensation for referrals by IRS non-profits. But what I have not seen is any proof or evidence of the relationships you describe. If it exists, someone needs to bring it forward to me or others.
Firstly, allow me to commend this sites contributors and managers. I truly find the articles to be refreshing with a blunt delivery covering critical topics that are important to the many.
This particular post is superb. I read the entire suit and I find it to have been well crafted. The allegations in the action likely have far reaching implications for CCCS firms nationally.
If I were upper management at one of these firms I would be concerned.
Here is an observation. I have read here and elsewhere about the big banks offering reduced payments direct to their own customers. The payment reductions are better than what the banks allow CCCS firms to offer consumers. Are the CCCS’s clearly and conspicuously disclosing to consumers that the persons banks may offer a lower payment than they are able to offer? If they are not making this clear disclosure I think that this could be a major breach of public trust. I can think of only one reason to not make this type of disclosure (if it is not being made already).
Perhaps disclosing this: “You may qualify for payment programs offered by your creditors that would provide for even further reduction of interest which could deliver more financial relief to you in your time of need. You can contact the billing department by calling the toll free number on the back of your card to inquire about your banks payment plan options”. Something along this line.
I do not know if these disclosures are being made. They should be. What if this type of disclosure is not being made by the CCCS’s? If a slowtimer like me can see that the well crafted action this article covers could be adopted into an action that centers on unjust enrichment of the CCCS at the expense of the people needing the help, that should mean the consumer bar has already thought about it.
Banks either stop offering customers payment plans and leave that to the exclusive province of the CCCS’s like they used to, or CCCS firms should conspicuously disclose all payment options available to the consumer. Given the track the banks are on I don’t see them ceasing the offers they make direct to their customers. If
These days the payment relief consumers need is in bankruptcy. That’s likely true of the people who qualify to enroll with a CCCS firm for lower payments too.
I agree with the author. Things just got tougher for CCCS.
Good point. If a non-profit credit counseling agency is acting in the best interest of the consumer, should they not mention the creditor internal programs over any DMP they may extend if the terms are more favorable for the consumer directly?
That’s a loaded question for sure. The obvious answer is yes but I wonder how many actually are. Seems like another major fiduciary exposure for CCAs.
While I do not know whether or not the disclosures are being made I suspect they are not. In the instant case I would be shocked if they were (given all the facts alleged).
I do not know how Capital One Bank goes about offering the payment plans to the customer and at what rate but I do know from many sites on the internet that Chase Bank, Citi Bank and Bank Of America offer payment plans to the customer as low as zero percent for the life of the balance. If the big banks are going to continue to do this kind of plan (or any plan that offers a lower payment than the CCCS’s can do) with customers I do not know what the horizon is for the CCCS’s. I doubt it is a long one before the sun sets.
Maybe the complaint we are discussing could be amended. More than likely it will be future suits that include the failure to disclose (if not being disclosed now) this known fact. If my suspicion that there are no disclosures being made on this important fact are correct, the lawsuits from the plaintiffs bar will come and selection may be as simple as throwing a dart with a blindfold on.
While I have always hated this type of commercial, it is conceivable that one might air that has this to say “Have you enrolled xyz or abc bank credit cards with a consumer credit counseling service? Call us now and find out more.”
The more I think about it, the tougher it gets.
People struggling with debt who have been effected by the recession should always be encouraged to seek out and speak to a bankruptcy attorney prior to enrolling in repayment plans.
Firstly, allow me to commend this sites contributors and managers. I truly find the articles to be refreshing with a blunt delivery covering critical topics that are important to the many.
This particular post is superb. I read the entire suit and I find it to have been well crafted. The allegations in the action likely have far reaching implications for CCCS firms nationally.
If I were upper management at one of these firms I would be concerned.
Here is an observation. I have read here and elsewhere about the big banks offering reduced payments direct to their own customers. The payment reductions are better than what the banks allow CCCS firms to offer consumers. Are the CCCS’s clearly and conspicuously disclosing to consumers that the persons banks may offer a lower payment than they are able to offer? If they are not making this clear disclosure I think that this could be a major breach of public trust. I can think of only one reason to not make this type of disclosure (if it is not being made already).
Perhaps disclosing this: “You may qualify for payment programs offered by your creditors that would provide for even further reduction of interest which could deliver more financial relief to you in your time of need. You can contact the billing department by calling the toll free number on the back of your card to inquire about your banks payment plan options”. Something along this line.
I do not know if these disclosures are being made. They should be. What if this type of disclosure is not being made by the CCCS’s? If a slowtimer like me can see that the well crafted action this article covers could be adopted into an action that centers on unjust enrichment of the CCCS at the expense of the people needing the help, that should mean the consumer bar has already thought about it.
Banks either stop offering customers payment plans and leave that to the exclusive province of the CCCS’s like they used to, or CCCS firms should conspicuously disclose all payment options available to the consumer. Given the track the banks are on I don’t see them ceasing the offers they make direct to their customers. If
These days the payment relief consumers need is in bankruptcy. That’s likely true of the people who qualify to enroll with a CCCS firm for lower payments too.
I agree with the author. Things just got tougher for CCCS.