As a student of debt history I’m probably one of those odd geeks that spends time reading outdated and arcane material about consumer debt and debt relief activities.
Recently I sat down and read a 1968 document put out by the NFCC. Today they are called the National Foundation for Credit Counseling but back then they were the National Foundation for Consumer Credit.
Ever since I became involved in credit counseling in 1994 I have been of the opinion that credit counseling repayment plans should be based on what the consumer can demonstrate they can afford, and not what the creditors want.
In fact this is the way credit counseling help is delivered in many other parts of the world, outside the United States.
In 1968 CCCS was operating in 70 communities and in 31 states and Canada. They were growing fast. The world was their oyster.
So imagine my surprise when I read that back in 1968, the NFCC and Consumer Credit Counseling Service (CCCS) actually settled debt using the the pro-rate or pro-rata approach as part of the primary mission to assist people.
When you read “pro-rate” it’s really debt settlement. Settling the outstanding debt for less than is owed.
A pro-rated solution says that if you owe can only afford to repay say 50 percent of your minimum monthly payment each month then each creditor should be repaid 50 percent of the minimum payment they would expect to receive. In the end the creditor will receive 50 percent of the debt owed.
According to the 1968 documents from CCCS, “Generally, 50% or more of these families that come to a Consumer Credit Counseling Service for help are put on a “pro-rated” payment basis and liquidate their indebtedness. Less than 2% of these families go into bankruptcy.”
If credit counseling today could exercise the same approach to assist debtors, they’d be able to assist substantially more people and help people find real alternative solutions to bankruptcy. Their lobbies would be packed with people.
Back in 1968, CCCS was far more aggressive against creditors than they are today. When did they lose their edge?
As the 1968 guidance said:
The credit facility has been made available by business to meet the needs of consumers. Hence, businessmen must see to it that it functions properly. Future public acceptance and intelligent use of our consumer credit system depends largely upon how business and finance accept and make good their responsibility. They must see that the people are not caught, harmed or harassed as they use this system of buying and bor rowing. They must be offered a helping hand when the “chips are down.”
No matter how successfully those who use credit are trained, or how diligently the administration of each credit transaction is perfected, there will always be some in difficulty. Some suffer by their own negligence or ignorance. Just as many suffer through no fault of their own.
Those in difficulty should be the responsibility of business and finance. If the problem is placed at the doorstep of other agencies, either public or private, the free enterprise system will pay dearly in the long run.
It certainly appears that the CCCS of 1968 recognized the credit community needed, or must, participate in solutions to help people when they were down. Those solutions included the acceptance of partial payments and a close working relationship with debt relief groups.
Part of the approach of the early CCCS organization was that of education. By 1968 there were over 3,000 school systems using their study materials in classrooms. It’s interesting that today there are probably fewer school systems than that still using NFCC education materials on a regular basis. What happened?
As a fundamental tenant of CCCS at the time it was clearly stated that the community based charitable services “are not and shall not be operated for the special benefit of any individual or business enterprise.” I’m assuming that meant the creditors as well.
Much is made about the fact that debt settlement is the third rail of credit counseling today. It is fairly common knowledge that if a credit counseling agency offered debt settlement today that Chase Bank would stop paying them fairshare.
It’s been made to be the worst possible thing a credit counseling office can even whisper. But in 1968 settling debt was something the offices did through their pro-rating program and they routinely did it.
They managed to repay the debt owed for less than a full balance payment and they did it for free for the community.
The organizational instructions for CCCS offices at the time even specifically spoke about the benefits of settling the debt.
Where this is not possible, creditors should consider settlement providing partial pay-out using all available proceeds of income and available appropriate liquidated assets; under the rule of ” like treatment for like creditors,” in both the “secured” and “unsecured” categories respectively.
And in this approach the needs of the consumer were put first, including, I would argue, the consideration of a safe savings plan to protect the consumer as the payment plan was rolled out.
In considering payment possibilities, the interest of the consultee should be protected by first making adequate provision for necessary living expenses of the consultee and his family.
Even debt consolidation loans back then were a solution used.
In a minority of cases, loan consolidation may be considered according to principles established by the Board of Directors.
Credit counseling agencies of the time were also not supposed to talk about bankruptcy. Instead, consumers were to be referred to local bankruptcy attorneys or Legal Aid for assistance.
The Counselor is entitled to give the debtor any advice of a legal nature. In the event that any questions come up concerning the provisions of the Federal Bankruptcy Act or in any manner involving the debtor’s legal rights or remedies, the debtor should be referred to his personal attorney, or if he is not in a position to retain one, to Legal Aid. The Counselor should state that the sole function of the Consumer Credit Counseling Service is to work out with creditors a voluntary arrangement whereby the debtor will be given a longer period for the payment of his indebtedness or, in unusually difficult cases, whereby the debt will be pro-rated (settled).
Suggestions Offered for Counselors
Credit counseling is said to include these fundamentals:
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Counseling is not difficult , but it requires hours of consultation with both the debtor and the creditor. GOOD COMMON SENSE, knowledge of the fundamentals of credit, and the economic facts of life in the community will be basic.
But apparently the intention of credit counseling when it was founded was not to provide payment plans, not sure I quite believe that. But in 1968 they said:
This Service was created to help people with debt problems, The Counselor advises and counsels debtors on how to plan and how to get out of debt, In acute cases, he may have to handle their funds, pay their debts and teach them budgeting, Regardless of how these problems arose, the counselor should try to be of assistance.
Even the script of that time has the credit counselor telling the consumer they can settle their debts.
“We do not make loans in this office. Our aim is to help you work out payment of the bills you already owe. We total your monthly living expenses and subtract this from your net monthly income. The difference tells us how much you can apply to your debts. If the amount is not large enough to make full payment on your outstanding bills, we contact each creditor to see if he will reduce your payment, so that what you can pay will be satisfactory to him, though not a full monthly payment. If we are successful in getting the payment reduced, we set up an account for you. Whatever amount we determine you can apply to your debts in a month’s time is divided by the number of pay days you have each month. You pay us so much each pay day and we disburse the money to your creditors. There is no charge for this service. “
The organization even had a form for all of the offices to use to plan out the settled payments.
What happened? Did creditor control kill credit counseling?
If you would like to read the guide for yourself, you can find it on our online site, Consumer Credit & Debt History.
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