Credit/Debt Recovery

Message from AADMO

I just got back in town and saw the latest comment from AADMO; I figured I'd throw it up here in its own post.

The American Association of Debt Management Organizations (AADMO) will show the Internal Revenue Service’s “in-house” training program and video for credit counseling agency investigations on October 25, 2006 at the AADMO Fall Conference in Las Vegas.

This internal training program and video was developed by the IRS in conjunction with the Attorneys General from various States and the FTC. The video, of several hours duration, was used extensively within the IRS and shared with the States.

“This is critical information for anyone who is a lawyer who has a credit counseling agency as a client, anyone in a leadership or management role in an agency or serves on the board of an agency. This is a rare opportunity for the industry to learn the federal government’s inside perspective on the legal evaluation of credit counseling,” said Mark Guimond, Executive Director of the AADMO.

According to the video, “We (the IRS) will explain why we are revisiting what has been a settled, or at least a very quiet area of the law, for 30 years. We will tell you about the federal and state concerns over abuses in this area and how we, here at EO, hold the key to the enforcement effort. Most importantly we will show you how to analyze these cases, how to process them and how to coordinate them.”

The video continues, “It is our hope that you, our front line troops, will be prepared to perform your pivotal role."

“There are a lot of people who have speculated about the nature of the credit counseling investigations. Knowing the content of this training program will help educate the industry about the legal factors and elements of operations of which the IRS is critical. It was truly fascinating to learn some of the areas of focus and what is considered legally acceptable – it seems that a lot of experts have missed some truly important information,” added Guimond.

Other sessions at the AADMO Fall Conference will include:

• How to Become a HUD Approved Housing Counseling Agency
• The World After Tax-Exemption Revocation: Transition Options, Personal Liability and Who Has to Pay the Taxes?
• Tax Exemption Update: IRS Guidance, New Legislation, But How Much Do We Really Know?
• State of the Industry and Legislative Update
• Complying with the Virginia Credit Counseling Law
• Knowing and Understanding the Changes to the Law of Iowa
• Panel Discussion of the IRS Training Video
• And More to Come

The AADMO Fall Conference program and registration information can be found at www.AADMO.org or by calling 281-361-2325.

ABOUT AADMO
AADMO is the largest trade association for the credit counseling and debt management industry. Nationwide, the majority of licensed and legally operating credit counseling agencies are members of AADMO.

AADMO is an industry education and advocacy organization whose mission is to promote and ensure the continued operation and viability of credit counseling and debt management organizations. AADMO provides its members and the consumer public with information about the credit and debt counseling industry.

AADMO members are consumer credit counseling agencies, debt management organizations, credit counselors, personal finance educators, credit and debt information educators, consumer lawyers and many others.

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.

It's interesting to compare the AADMO conference program to that of the NFCC; the different priorities of the two trade organizations become pretty clear.

Vacation time

Posting will be light this week; probably nothing more until the weekend, unless I can figure out why my Bank of America VISA bill has a minimum payment that is exactly 1% of my outstanding balance. I thought minimums had gone up?

(My personal standard minimum payment is 100%. I'm not awake enough to do the math, but it seems like BofA wants my credit card to be an interest-only loan...)

Revisiting RALs

A week or so ago I posted about RALs, or Refund Anticipation Loans. I was referring to a BizzyBlog post with which I agreed, saying essentially that RALs should be avoided, even after a recent drop in fees.

I got some email that convinced me that just saying "RALs are a bad deal," was insufficient. It's lazy blogging, I know; sorry about that.

I'd like to delve a bit deeper into refund anticipation loans, just so it's cleary why they're such a bad deal.

•The interest rate is ridiculous. Even with recently lowered and/or eliminated fees, the APR works out to 40%, and can get as high as 700%. (I'm not sure how often it gets that high, but it's possible.) It's just plain silly to pay this kind of interest on a RAL, because:
• These are secured, short-term loans. High interest rates are justifiable because they compensate the lender for risk. With RALs, there's no risk; the loan is backed by the taxpayer's refund. And that refund takes about 2 weeks to arrive.
• E-filing makes them unnecessary. When consumers e-file with a professional tax preparer and have direct deposit, the refund arrives in around 10 days. Our commenter from H&R Block said he's seen refunds in as little as 3 days. There's no reason to pay huge interest just to get the money a few days sooner.
• Ultimately, these loans are government-supported. That means we, with out tax dollars, pay to support the RAL industry. The IRS essentially becomes a free credit bureau in helping RAL lenders decide to whom to issue a loan. Well, free to the lender, not to us as taxpayers.

Now, like I said in my comments to my previous post, I don't think RALs should be outlawed or restricted. I think lenders should be free to offer them, and consumers should have the choice to get one if that's what they really want. I just want to educate people about the math behind them so they'll understand what a bad deal they really are.

In that spirit, there are some common arguments against RALs that don't convince me at all:
• "Consumer confusion" about the nature of RALs. The argument goes that a majority of people who take out RALs don't realize that they're loans. I don't buy the argument that RAL lenders are tricking people; in fact, we know that H&R Block counsels against RAL, but ultimately leaves it up to the taxpayer. People choose the bad deal, just as they choose to smoke, drink, drive sans seatbelts, etc. (And they should be free to continue to make such choices.) I know guys who cash their paychecks at the grocery store every week, and pay a hefty fee to do it. How many of us pay $4 ATM fees to pull out $20? That's a 20% fee. I'd love to blame "consumer confusion," for that. The only genuine issue here is that if your refund doesn't come through for some reason, you've still got to pay the fees on the money you borrowed. I think the borrower gets that, whether s/he understands that it's a loan or not.
• RALs unfairly target minorities. Minorities take out RALs more often, but it's not like there's something built into the product that makes this so. If the economy is such that more minorities feel they have to turn to RALs, then there's a problem there, in the larger economy. RALs are just a symptom.
• RALs "drain" or "siphon off" loan fees. I love this. Does no one take economics classes any more? That money doesn't go into a black hole; when a company charges a fee for services, services the consumer wants and is willing to pay for, that money is working as it should, building our economy. There's a lot of complaining about how many taxpayers who qualify for an earned-income tax credit use RALs. Those loans are "siphoning off" the money we're giving the poor. This is the nature of welfare; where does it stop? Should EITC recipients only be allowed to spend their money on approved purchases? Or is that tax credit the price of their freedom?

Banks focus on ID Theft

Today the comment period for the proposed "Red Flag regulations" ends. Announced back in July, (here, here, and here, among other places) federal regulators proposed that creditors come up with a hard strategy to protect their customers against identity theft. It's been out for comments for the past 60 days, and now we can expect it to be implemented.

I predict that creditors will end up being stiffly regulated on all of this. They are going to be required to develop written rules and review them annually, thus creating a paper trail that will ensure some future gov't investigator's paycheck.

I'm wondering if there can be a third-party support system for the identity theft problem. Now that creditors are going to be held more responsible for identity theft ('cause that's what all this is really about; putting responsibility in creditors' laps), is there room for an industry, perhaps a non-profit concern, that the creditors could refer identity theft victims to when they need help? It would be a good move on their part to do so, both from a customer service and a PR perspective. They could set up grants to help fund it, and then no one (no one intellectually honest, that is) could accuse them of not doing something to help their customers who've been victimized.

That last paragraph may sound vaguely familiar; it's essentially the story of credit counseling. Of course, when they (creditors) created that non-profit industry to help their customers who fell behind, they were accused of creating a "stealth collections wing", but I still think the identity theft idea has merit.

If only the NFCC had any vision beyond dwindling fair share and figuring out how to break even at BK counseling, they could be developing something like this for their member agencies.

Some Questions for the NFCC

I recently posted about Steve Bucci's column on HR4, a newly-passed law which places a slew of new restrictions on credit counseling. I wrote that while Bucci's column is a good overview of HR4, I thought the law itself was probably unnecessary and not beneficial.

In her comment to that post, Dianne Wilkman has gone farther, calling HR4 "anti-consumer." What can I say, Dianne? When you're right, you're right. HR4 is a disaster on the credit counseling front. I should have been stronger in my original post.

What Dianne also points out that interests me particularly is the credit counseling industry's indifference to all of this.

I have some questions for the NFCC Board members (and I'm talking to you, Susan Keating, Paul Weiss, William Binzel, Robert Ensinger, Sally Parker, and Michael Turner):

1. Did you submit comments on the proposed FACTA rulemakings of the past couple of years?
2. If no, then why not? Dianne Wilkman does, and sticks up for the consumer every time. She usually publishes her comments on pending legislation on her company's site, but she seems to be the only figure in credit counseling who does this. Does the NFCC leadership even care?
3. Come to think of it, why don't you care? Do you think you can keep your snout in the DMP trough forever? Sucking up to credit card issuers will only get you so far.

And don't even try to deny sucking up to the creditors; anyone can see from the agenda of your annual conference that the NFCC cares about only 2 things: regulating the credit counseling industry and pleasing creditors. (Readers, don't be deceived; the "NFCC Advisory Council" is mostly made up of creditors, not an equal mix of "credit grantors, social service agencies, consumer advocates, educators, and vendors," as they suggest.)

Avoid Refund Anticipation Loans, no matter how much they lower the fees

I want to point everyone to this spot-on BizzyBlog post. I don't have anything to add;
refund anticipation loans, or "rapid refunds" should be avoided at all costs.

ID Theft at Hewlett-Packard

I'm sure the board members of HP who were affected by the recent scandal didn't think they'd be the victims of identity theft. Some of them may not realize that's what happened to them. There's a lot of talk about "spying" and "pretexting," but what happened was Identity Theft. Investigators posed as the board members and illegally obtained their phone records.

Similarly, I bet Michael Steele, Lt. Governor of Maryland, didn't expect his political opponents to steal his identity in order to undermine his Senate campaign.

The lesson here is don't assume it won't happen to you. Even if you think your identity isn't worth stealing, even if you are careful with your personal information, you never know when, why, or how a thief might compromise your identity. Be diligent, check your credit reports regularly, and take this stuff seriously.

Steve Bucci on HR4

HR4 was recently passed and puts new restrictions on credit counseling. Bankrate's Debt Adviser Steve Bucci wrote this column highlighting some of the major provisions.

I'm not as conviced as Bucci that these new rules were necessary or beneficial, but he provides a good overview. His columns are always worth reading, of course.

Reverse Mortgages for Widows

I find myself recommending reverse mortgages lately; I really think it can be a great option for seniors who have built up some home equity or own their homes outright.

I know a recently widowed woman who is very concerned about her finances; given her housing situation, I think a reverse mortgage is a great option for her. The best part is, you have to be counseled by a HUD-certified housing counselor before you can get a reverse mortgage, and that counselor will be able to answer questions and provide professional guidance free of charge.

Here's HUD's 10 Things to Know About Reverse Mortgages.

Funeral home literature

I was out of town much of last week attending a funeral, and just three weeks before I attended another funeral that was a bit closer to home. The more recent funeral home I visited put forth exclusively religious materials, but the prior funeral had some interesting info to offer the bereaved; pamphlets like "Coping with loss," "Getting through the first weeks after a death," "Helping children grieve," and lots of information about the process and costs of burying a loved one.

All this stuff is great, and I definitely think it's good to have on hand when first coping with that sort of loss. But something was missing and given my area of expertise, I had to field a lot of questions about personal finances after a death. I was able to help with some things, like dealing with your late spouse's credit card debts, but there were some things that cried out for a lawyer's expertise. (Even the AARP's Greif and Loss site suggests seeing an accountant or lawyer to sort through these issues.)

I really think a pamphlet about finances for the recently widowed would be a great help to people. Some funeral homes may have this kind of information available, but I'm having a hard time finding it. This is the sort of thing the NFCC should produce as a public benefit. (And lots of dues-paying NFCC members just laughed involuntarily and spit coffee all over their computer screens. But it can't hurt to make the suggestion, can it?)