Credit/Debt Recovery

Don't play this lottery

I heard about this stunningly bad idea and got to thinking about the lottery. (The idea from this clown in Arizona is to turn every election into a lottery where one voter will get $1,000,000.)

You already know how bad the odds are on winning the lottery. You're more likely to die from drinking tap water than win. Yet, according to Forbes, 20 million Americans spend $1,000 per year on lottery tickets.

I guess that's the kind of imbecile the good doctor in Arizona is trying to draw to the polls on election day.

But that's not what this post is about. 19,999,999 of us are wasting $1,000 per year on lotto tickets. That $1,000 per year put in an IRA would actually be the size of a decent lottery jackpot by the time you retire. And it won't be taxed as drastically as the winnings of the one guy who does win that lottery jackpot.

So if you're spending more than a couple of bucks a year on the lottery, stop. Of course, a persuasive case can be made that you're better off playing the lottery than voting. Maybe Arizona will combine two bad ideas into one terrible plan.

Your debt burden is worse than you think

Read this.

Understand that this situation is just getting worse... if you are a parent, you must do whatever you can to prepare your children to be fiscally responsible. Our government has clearly decided that financial responsibility is a relic. At the very least, teach your own children to be better stewards of their money so they won't suffer quite as much under the burdens our generation is creating for them. (If you've got a kid who's at a 3rd grade level, here's a good place to start.)

And maybe stop wasting votes on the Blue vs. Red idiocy and find a party of principle.

Voluntary Identity Theft?

I was in the supermarket a few days ago getting lunch when I saw the sign behind the counter (near the cigarettes) that said "It's Your ID--don't use it to buy cigarettes for kids."

The sign is actually printed by Philip Morris USA through their Youth Smoking Prevention department, and is displayed in states where it isn't actually illegal to buy cigarettes for minors. In states where it's a crime to buy cigarettes for minors, their signs say "Don't buy cigarettes for kids. It's not just wrong, it's illegal."

For now, let's skip the obvious first reaction--if it's my ID, then I should be able to do whatever I want with it.

It got me thinking about a Shawn, a friend from undergraduate school. He lent his birth certificate and social security card to a number of underage friends so they could apply for driver's licenses with his name and birthdate on them. An absolutely foolproof fake ID. I remember having a beer with three guys with the same SSN, name, and birth date. There were a few other people I knew who let minors use their info to get IDs in this way.

It's voluntary identity theft. Why would someone take the risk of letting another person control his identity this way? What if one of those kids had gotten into a car accident after drinking? What if they'd applied for credit at some department store?

I think when we place so many age-based restrictions on things, and Real ID style fascism creeps into our system, people decreasingly feel like "it's my ID." After all, Real ID mandates so many things with regard to drivers' licenses that it really isn't your ID--it's a Federal ID, in every sense of the word.

And that's a shame, because we all have to be more diligent than ever in protecting our identities. The government isn't going to do that for you. I know in a few years when we're all showing our government-issued Real ID at every Soviet-style checkpoint, convenience store, and arbitrary police stop, it's going to feel like our ID isn't our own. But just because we're losing control of our identification papers doesn't mean we should be lax in securing our own financial lives. Handing over your ID to some kid is a dumb idea--so obviously dumb there really shouldn't need to be a law to prevent it.

Someone file a lawsuit, quick!

I was reading up on the impending rise of student loan interest rates, when I came across this page on avoiding default from Sallie Mae:

Whatever you do, you want to avoid bankruptcy. Bankruptcy is the most serious negative that can affect your credit record. Filing for bankruptcy indicates that you are unable to meet your financial obligations. In this case, your financial affairs are turned over to a trustee for administration and distribution of remaining assets to creditors. After bankruptcy, it is difficult to obtain credit. Bankruptcy stays on your credit record for up to 10 years.

Why haven't the bankruptcy lawyers of America sued this off of the internet? This is the kind of thing they're calling "Unauthorized Practice of Law" these days. If an EOUST-approved credit counselor said something like this, disengenuous self-appointed "experts" would be trashing them in every print outlet that would listen, and the legal action wouldn't be far behind.

For the record: consult a qualified attorney before making a decision about bankruptcy. This blog does not offer legal advice (so there's no need to sue me! Fake negative reviews of my book will continue to do just fine.)

Student loan rates set to rise

I know I've mentioned it before, but student loan interest rates will go up on July 1st. CNN says you should consolidate your federal student loans right now. If you're paying 5 percent or so, you have until June 30 to lock that in by consolidating.

Very Sad News

I got word yesterday that Bob Cusack, Chairman of the Board of my favorite credit counseling agency (that's Springboard, the best employer I ever had) passed away.

Bob was the heart and soul of the agency, having served on its Board since it was established (as CCCS of the Inland Empire) in 1974. Until recently he was the Board Treasurer, but stepped up just this year to become Chairman.

Bob Cusack was committed to helping consumers recover from debt, and in his long association with the credit counseling industry, he never lost sight of the people we were working for--our clients. Throughout the debt-and-credit-help book I wrote when I was Springboard's Director of Education, I used Bob's wisdom whereever I could. In fact, I've stolen from Bob more than a few times on this blog.

A personal hero to me and many others, Bob will be deeply missed.

One final note; originally from the Buffalo area, Bob was a life-long Bills fan (Bob and I talked football almost as much as we talked credit). This is the only time I'll ever say this, and I'm doing it for Bob: ... GO BILLS!

Bob Cusack

More lies about credit counseling

Add public radio's Marketplace to the list of WORM outlets who are spreading lies about credit counseling.

Markeplace editor Chris Farrell responded to a "Mailbag" question on the Friday, May 19th show.

Farrell starts by saying that credit counseling is "largely a disgrace in this country" and that the IRS has said that "40% of the industry--we don't like."

Not true, not true, not true. Read my last post for the real numbers (5%, not 40%).

Of course, Farrell then proceeds to give good advice--he recommends that the caller go to CCCS of San Francisco for credit counseling. So credit counseling isn't a "disgrace" when they do it?

There's way too much hype over this IRS business. A small portion of the credit counseling agencies controlled a huge chunk of the industry's revenue while enjoying non-profit status. Unfortunately for them, that attracted the attention of the IRS, and now people who know better are using the story to bash the entire practice of credit counseling.

And there's not necessarily anything wrong with being a for-profit counselor. No, a for-profit will probably never be approved by the EOUST to provide bankruptcy counseling, but they can negotiate with your creditors as easily as a non-profit can, and they might have a lot to offer clients who aren't interested in financial literacy education, housing counseling, or the other community service aspects of nonprofit counseling.

And finally, just because the IRS doesn't like someone is no reason to call them a disgrace. Remember who the real villians are.

Non-profit status revocations

Monday the IRS announced that they canceled the tax-exempt status 41 credit credit counseling agencies. (link to BusinessWeek article)

First of all, this is old news: the IRS may have just made the announcement, but we've known about this for some time. It's been in the Wikipedia entry on credit counseling almost from the beginning.

But there's a misconception here that persists everywhere from AADMO's press release (which I linked to yesterday) to Wikipedia (since I lost the edit war when trying to keep the article useful and non-biased). The AP article says the agencies in question represent "more than 40 percent of the revenue in a $1 billion industry." That's not the same thing as saying they represent half of the industry.

We're talking about 41 agencies out of almost 1,000. Sure, those agencies represent almost half the industry's revenue, but there are still 740 others who haven't lost their nonprofit status.

Think of it this way; say your local Major League Baseball team has a total team salary of $47,000,000 (yeah, they're never going to make the playoffs). Suppose they have a superstar who earns $22,000,000. That's 47% of the team salary right there. Now supose that superstar is caught using steroids. Would it be fair to say "Half the team is on steroids!"?

No, the real statistic here is 5% of credit counseling agencies have lost their non-profit status. Not 50%. Not 40%. 5%.

The IRS commissioner suggested that consumers looking for credit counseling call "one of the 150 consumer counseling organizations approved by groups like the Better Business Bureau." Good advice.

I'm not saying to avoid for-profits; just do your research and choose carefully. I have acquaintances in the for-profit counseling sector who think the non-profit credit counselors have an unfair competitive advantage. I don't see it that way. If the non-profit is on the level, then they're committing a lot of resources to education and community service, not to mention responding to IRS audits and EOUST scrutiny. (And lawsuits from bankruptcy lawyers, etc. etc. etc.) The only way a non-profit gets an unfair competitive advantage is if they don't really do all of the non-profit community education work that goes into being a 501(c)3; hence the IRS revocations. Meanwhile the for-profit agency doesn't have the same community or education obligations (and there's nothing wrong with that; a lot of clients don't want education, they just want a DMP), so those resources are freed up to pay taxes. That's utterly simplistic and leaves out a lot of important issues (like accreditation, federal & state laws, etc.), but it's my position.

AADMO conference today

Today in Austin, TX, AADMO (American Association of Debt Management Organizations) is holding its Spring Conference. They're going to be talking about transitioning credit counseling from tax-exempt to for-profit and taxable non-profit.

Here's their press release about the conference.

I think it's great that AADMO is doing something to help its member agencies thrive in a changing environment, and it's way more than I've seen from the NFCC in terms of service to its members. I'm not sure if AICCCA even still exists.

The only problem I see here regards IRS 501(c)3 revocations. AADMO Executive Director Mark Guimond says "This current process simply means that credit counseling agencies will now have to pay taxes like all other businesses." I'd respectfully disagree with that.

As I see it, there's room for both non-profit and for-profit credit counseling agencies. If the IRS sees that a COA-accredited non-profit agency is committing a lot of resources to providing education to consumers and serving the community, there's no reason to assume they'll revoke their tax-exempt status. Sure, the IRS has revoked a lot of 501(c)3's from credit counselors recently, but they started with the biggest agencies that earn the most money. I just don't expect them to revoke the non-profit status of mom & pop CCCS agencies that have COA accreditation and have been approved by the EOUST to provide bankruptcy counseling.

But I could be wrong. Time will tell. And if I am wrong, AADMO members will be glad they were provided this opportunity to come up with strategies for coping with the loss of non-profit status. Even though I don't think the entire industry will be forced to pay taxes, I certainly don't think the conference is a waste of time, because it's difficult to predict what the IRS will do.

I'd also like to point out the last paragraph of the release, which I think sums up the problem with the NFCC:

AADMO is the only trade association to have held state law compliance workshops with the New York State Banking Department and the California Department of Corporations upon enactment of their respective laws governing credit counseling and AADMO is the only trade association for the industry to publish a formal summary of state laws that has been reviewed by state regulators.

The NFCC doesn't do this for its member agencies; if you saw yesterday's post, you know they seem to prefer cracking down on their members rather than helping them. If Mark Guimond is right about the entire industry losing its non-profit status, there will be no NFCC very soon.

NFCC gets sued, deserves it

The National Foundation for Credit Counseling (NFCC) changed its policies earlier this year; any member agency that receives a Notice of Proposed Revocation from the IRS (that is, if the IRS investigates your non-profit status with an eye toward taking away your 501(c)3...) must notify the NFCC. They must provide the NFCC with a copy of the notice, and be put on "probation" immediately. (And be drummed out of the NFCC if they fail to successfully contest the revocation.)

The NFCC board members who voted for this policy have taken leave of their senses. They increasingly seem to prefer to police their member agencies rather than serve them.

How does this policy further the NFCC's charitable purpose? (That's a trick question--it doesn't.) Not to mention whether this policy is even legal, which it seems to me it isn't.

I'm really getting sick of defending credit counseling from its attackers, only to have the NFCC pull nonsense like this that plays into anti-credit counseling hysteria. Just today I saw another article that said a.) half of all credit counselors lost their nonprofit status, and b.) credit counselors are really collection agencies for the creditors. Neither of those things is true, and I'd go so far as to say they're both malicious, dirty lies. But then the NFCC keeps refusing to defend its member agencies from attacks while formulating breathtakingly dumb new policies like this one...

Well now it has cost them. CCCS of Central Ohio (Consumer Credit Counseling Service is the "franchise name" for NFCC member agencies) has sued the NFCC and gotten a Temporary Restraining Order preventing the NFCC from enforcing their new policy. (The judge who granted the restraining order obviously sees how flawed this policy is.) They should simply reverse the policy right now and save everyone a bunch of trouble (not to mention the legal fees, which will be paid for by member agency dues).

I'm curious how the NFCC's board can justify their actions in this matter. If any NFCC members read this, please feel free to weigh in. And if you happen to be a board member, what the heck are you thinking?