Credit/Debt Recovery

Let’s talk Non-Profit

One of the issues that will come up again soon is the tired non-profit vs. for-profit credit counseling argument. If bankruptcy reform passes and filers are required to seek counseling before their debts can be discharged, it’ll help credit counseling, sure. And it’ll help the people filing BK, too.

But there’s a lot of potential ugly in all this. Will Ameridebt-style mills usher BK filers through quick, worthless education programs just to collect the fee? Will BK attorneys refer their clients to the counselors who pay a kickback fee, or will they send them to the most reputable agency they know?

I think the for-profit side has been on the warpath because they need to be rid of the non-profit before this thing passes. If they can get the IRS to strip non-profit status from NFCC-style agencies, then the for-profits will have a seat at the table when the bankruptcy filers are sent out to get credit counseling.

Part of the debate stems from a lack of understanding of the nature of a non-profit organization. Non-profit doesn’t mean charity. Everyone assumes all non-profits give their services away for free, and that they get by on donations and grants. There are plenty of non-profits with commercial objectives. The distinction is that no one owns a non-profit; there are no shareholders to benefit should the non-profit make a profit. There’s less incentive to overcharge and maximize returns, but there’s still a desire to make money. Even non-profits have to provide for their employees, buy equipment, pay rent, etc.

Look at Thrivent Financial for Lutherans. A Fortune 500 company, Thrivent has 62 billion dollars in assets that they manage. And yeah, they’re non-profit. If credit counseling agencies aren’t run out of a church basement, they’re criticized for not being non-profit enough. What about Thrivent?

Well maybe they’ll be criticized, too. I have a congressional report, (thanks, Paul Richard) that has some things to say on the subject of commercial non-profits (they’re talking about insurance companies). The suggestion is that organizations whose activity is commercial rather than fraternal should lose tax-exempt status, because it gives them an unfair advantage. There are eight pages of debate on the subject in the report, which I’m still slogging through.

But look at this story about non-profit hospitals. Nonprofits are taking a beating everywhere, it seems.

This stuff is only beginning, and it’s already giving me a headache. I’ll be screaming about the anti-nonprofit bias in the media, I’m sure. But now I’m going to take some aspirin.

Bankrutpcy reform delayed

Consideration of bankruptcy reform in Congress has been pushed back, but only by a week. I'll do my best to stay on top of it, though there's not much else to report right now. Working on another post at the moment.

Creditors Depressing Credit Scores

I can't believe I missed this story from last year's Boston Herald about credit card companies not reporting accurate credit limits and depressing people's credit scores. Once again, it's nice to see big dinosaur media take up a story I blogged over six months ago.

I'm not even being a smarta$$ about that. I really am glad that this issue is getting attention; I don't need credit for whining about it first. And this Boston Herald story is excellent; is sums up the problem in clear, succint language. I suggest you read it and then take a look at your credit report and see if you're being hosed by your credit card company.

And I should point out that this is the kind of thing a reputable credit correction service can help you with (unlike the $400 credit repair scams that take the easy route and commit fraud). A good credit report reviewer can help get the credit limit noted correctly and hopefully repair any damage that's being done to your score.

Bankrutpcy reform will pass?

Now I'm hearing that BK reform has a better than 50% chance of passing, and will be introduced this week.

This thing is just too close to call. Unlike the superbowl, I can't predict with any reliability whether this bill will pass. That's a little troublesome, since whoever loses here will probably be devastated by the outcome (kind of like that election we just had in November).

Except that my side of the thing has been left at the altar by this bill many times over the course of the last decade. We've gotten used to disappointment.

BK Reform prospects dim?

Not everyone thinks BK reform will actually be voted on this week. Here's a story from Yahoo that's a couple of weeks old.

This article highlights some of the genuine problems facing the bill that I can't even unravel for you. I'm focusing on the benefit of this legislation to all of us; but that's not the entire bill. The bill also deals with reforming corporate bankruptcy, which isn't my specialty, I'm afraid. I can't say how that part of things will shake out. I can say that the bill isn't the evil thing its enemies make it out to be. There's probably room for compromise here, but the bill did once pass the senate 99 to 1, so it can't be that bad, can it?

MMI acquires Ameridebt portfolio

It's a big news week for debt recovery. Tuesday, the Baltimore sun reported that Money Management International would take over 60,000 AmeriDebt clients. This is a good deal for MMI, needless to say. That's an understatement. It's a freakin' sweet deal for them.

And it's good for the clients. MMI are good guys. The article quotes MMI's president Ivan Hand, a stand-up guy if there ever was one. So there's not much to complain about here.

Except, (you saw that coming, didn't you?) I was never aware that the AmeriDebt portfolio was up for sale. This announcement is the first I'd heard of it. Naturally, there's at least one other reputable credit counseling firm I would like to have seen in the running to get these accounts.

But honestly, MMI getting to help these people is good for everyone. One of the reasons we all hate AmeriDebt so much is that they tarnished the reputation of the entire credit counseling industry with their practices. Now MMI will have a chance to heal some of that damage by helping the folks AmeriDebt took advantage of. I wish them the best of luck.

BK Reform Today?

Word is, the Senate may consider bankruptcy reform legislations as early as today or tomorrow. I'll be following this and will keep posting as developements happen.

An improving economy is being credited for the new urgency behind the proposed legislation, which I'm on the record as supporting.

That doesn't mean the bill won't be ruined by members of Congress inserting poison pill amendments designed to kill the bill.

Naturally, bankruptcy attorneys are against this bill. They've worked hard for decades to erase the stigma of declaring bankruptcy, so more people would do it and line their pockets. ABA and NACBA are pulling out all the stops to derail this bill.

There are a lot of lies associated with this legislation. The big one is that people who need bankruptcy won't get it. That's not true... even Elizabeth Warren said the legislation won't affect bankruptcy filings. She doesn't like the bill, by the way, but at least she doesn't lie about it.

When bankruptcy lawyers are asked about this legislation, you hear stuff like, "debtors I work with have lost their jobs, and have high medical bills... they can't afford to pay both their credit card bills and to feed their family." Listen. if you've lost your job and can barely afford to feed your family, you'll get to file bankruptcy. It's asinine to suggest otherwise.

Who once said, "you get the government you deserve"? I think we get the laws we deserve. I said once before, the FDCPA is an onerous law, but the collection agencies got saddled with it because of their long history of abuses. Now, congress will act to curb the long, slow deterioration of personal responsibility in our society. People keep insisting that everything is the credit card companies' fault, because they have the nerve to extend credit to people. I believe people should be educated to make smart choices about the credit they have available to them. The bankruptcy reform bill provides for that.

I'll keep my eye on this and report any developments.

(UPDATED: Initially, this post said that the ABI was joining NACBA to oppose BK Reform. That was a typo. I meant the ABA - that's American Bar Association, not American Bankruptcy Institute. I apologize for the error.)

Follow-up on lawsuits against creditors

A week ago I promised to follow up on the notion that credit card companies can do something to avoid the nasty round of lawsuits and legislation that are heading their way.

(I assert this in reaction to the story that Capital One is being sued for misleading advertising and telemarketing practices. More lawsuits like that are on the way.)

I wrote this post once already, but lost it in a power outage, and was too frustrated to come back and reconstruct it until now. So let’s try this again.

Because of new practices like universal default and new media scrutiny from Frontline and the New York Times (who “exposed” universal default more than six months after Paul Richard did, and well after I’d blogged about it here) the creditors’ reputation is at an all-time low. Virtually everyone is convinced that they are heartless, greedy, and routinely engaging in unfair business practices at the expense of their consumers.

What can they do to counter this nasty reputation they have and stave off the lawsuits and legislation that will come along to punish them for their bad behavior?

Here’s a radical idea; they could start a non-profit industry designed to help their customers when those customers get in over their head in debt. They could even take on the responsibility of funding the industry through contributions from the debts they collect.

Okay, I’m being a smartass. The creditors founded the NFCC in the 1950’s as a community service, to give something back to their customers who needed some help to resolve their debt issues. It was an unassailably good idea, in my opinion.

But something happened over the last twenty years or so. Consumer advocates and media outlets came to see the credit counseling industry not as an altruistic enterprise created by creditors in a genuine attempt to help consumers. They decided that the credit counseling industry was a collections wing for the greedy old creditors, and just another way to get their blood money from people who couldn’t afford to pay. Something created in good faith has come to be seen cynically by just about everyone outside the credit counseling industry itself.

But the truth is, credit counseling doesn’t serve creditor greed. I know logically, it seems to observers that creditors like it, that they collect funds that otherwise would be lost to bankruptcy, etc.

Creditors hate credit counseling. They HATE it. That’s why creditors could care less that the industry is now crumbling. Credit counseling is the charity case the current mega-conglomerate creditors inherited from their grandparents. If credit counseling was such a cash cow for them, they’d be doing more to protect it from the forces that are now destroying it.

When creditors look at their bottom line, they have to determine what cuts to make to save money. (And I’m not talking about bankruptcy here… when their customers file BK, they just raise interest rates and fees on the rest of us. BK is already factored in.) The number one line item on a creditor’s budget is payroll.

So the first option available to a creditor looking to cut expenses is a round of layoffs.

But wait, what’s the number two line item? A few years ago, it was Fair Share payments to credit counseling agencies.

Yes, the second largest expenditure for creditors at the turn of the century was making payments to this “collections wing” of theirs, this cash cow that provides then with such a huge benefit. /sarcasm

So when faced with budget cuts, or a need to increase profits the quarter before an earnings report, or a desire to get a raise or promotion, creditor executives go straight to the number two line item to make cuts. As they whittle down their contributions to support credit counselors, the industry deteriorates.

I’m saying that creditors need to make a bold move here; assist in reforming the credit counseling industry they created, set up a new funding model that works long-term, and do it only to help their customers, before those customers hire lawyers and write their congressmen.

BoingBoing post about collection agency scam

BoingBoing was one of my favorite weblogs until I got fed up with all of their Soviet apologetics. But today I saw a post there that fit the subject of my blog to a T, and I wanted to point to it here.

A BoingBoing reader emailed them with his story of a collection agency scam involving a false notation on his credit report. Unfortunately for this fellow, the false notation will likely keep coming back every so often until the collection agency is thoroughly wiped out by the authorities (and even then, they may sell his fake debt to an an even less scrupulous collector or lawfirm).

The story posted there is a great example of why credit report review services can be a boon to consumers. In the example, the man did the right thing; disputed with the credit bureau, reported to the BBB, and contacted his state Attorney General. A legitimate nonprofit agency can help you with these tasks if something like this has happened to you.

Unfortunately, this kind of scam continues to happen with increasing frequency. Once I helped someone remove a bad account notation from his credit report that was there due to identity theft (which is another minefield to deal with) only to see the creditor sell that same debt, which they knew was the result of fraud and therefore uncollectable, to a collection agency.

What's the moral, Aesop? Check your credit report. Know your score. Make any necessary corrections. And don't be afraid to get help if you need it (just make sure you seek out someone honest to help you.)

MLK

"We are prone to judge success by the index of our salaries or the size of our automobile rather than by the quality of our service and relationship to mankind."

Martin Luther King, Jr.
1929-1968