Credit/Debt Recovery

The role of good journalism

I just heard an interesting interview yesterday on the local Walt Bodine radio show. He had a guest on discussing political advertising. He talked about how people often ask why political ads are allowed to make such misleading and sometimes downright false claims.

The answer, of course, is that there are first amendment issues, and they basically get to say what they want. The best defense, he said, is good objective journalism.

My sentiments exactly. When I resist government legislative restrictions on credit counseling and the debt recovery industry, my position is that it's not the government's place to limit or regulate what credit counselors do (unless they're outright breaking the law, and some credit counselors do that). If there are bad players in the credit counseling industry, it's up to journalists, loudmouth bloggers like me, and entities like the Better Business Bureau to step in and call them out.

What we don't need is government passing more restrictions on an industry they don't understand. And right now, the only people helping legislators understand the industry are those with enough money to hire lobbyists--and that ain't the true non-profits.

I'll continue to maintain that if the media does its job well, we'll be able to keep in check many of the profiteers in the credit counseling and the creditor world as well. If an information campaign about, say, universal default warned everyone not to sign up with creditors and banks who employ that despicable practice, the creditors and banks would eventually stop doing it. Much better than rushing to Washington to get our Big Brother-nanny government to take care of us. That keeps us weak, dependent, and powerless.

Bad News for Ameridebt

Newsflash: Ameridebt isn't really non-profit.

Okay, that's not exactly news. If you didn't know that already, this must be your first time here. Welcome.

According to this article on accountingweb.com, the IRS has filed a $15 million dollar claim against Ameridebt in anticipation of stripping away the profiteering credit counseling firm's 501(c)3 non-profit status.

I've been praising this IRS investigation since it started last year. It's about time they weeded out the bad players and gave the honest credit counseling services a chance to flourish again. There are a lot of problems facing reputable credit counselors these days (diminishing or disappearing fair share, legislative intrustion, attacks from "consumer advocates") but the prevalence of dishonest players like Ameridebt (and many others) is the single biggest problem for the industry right now. They are so visible and so large that a lot of consumers don't even know there's such a thing as "reputable credit counselors."

Well, there are, and they won't have any problems defending their non-profit status. Of course, some prominent consumer advocacy groups are out to get the industry, and they'll be pushing for all credit-counseling services to lose their tax exempt status (under the deluded belief that credit counseling is a wing of the creditor's collections industry). I don't think this will happen, but time will tell.

Another heinous Predatory Servicing practice

Over the past couple of years, I've seen more and more examples of creditors falsly reporting to the credit bureaus in order to negatively affect a client's credit score.

What I'm seeing more of is a creditor reporting the client's credit limit as being the same as their balance. Suppose your credit limit is $1200, and you owe $452. Some creditors will report your credit limit as $452 instead of $1200. Now it looks like you're using every dime of credit you have, and that seriously diminishes your credit score. If they reported accurately that you have a higher credit limit, it would actually improve your credit score.

This is predatory. And it's particularly evil because it's such a sneaky way to hurt someone. Is it illegal? It should be, but I don't think we're going to see the FTC cracking down on the creditors who do this. Unless we raise our voices, that is.

Which creditors do this? I know of a couple off hand; one's a friendly neighborhood retail store that's probably just moved to your area whether you like it or not, and the other wants to know what's in your wallet so they know how much they can take. No hassle my a$$.

Predatory Servicing

I've resisted the urge to label creditors as evil. They do evil things, certainly (universal default, for example), but in my business I believe we need to work together to help consumers and in so doing forge a healthy economy.

That's why I must break ranks with "consumer advocacy groups" who are way more anti-creditor than they are pro-consumer.

But the creditors continue to do short-sighted, stupid things that are bad for the consumer, bad for credit counseling, and in the long run, bad for the creditor.

I'm talking about Predatory Servicing. A lot of creditors (mostly sub-prime lenders) have gotten into trouble for Predatory Lending over the last few years. They pick a low-income area where consumers don't have much choice in lenders, and take advantage of them with high-interest, fee-laden loans. And, of course, they preyed on minorities; lenders regularly inflate interest on loans to minorities above what their credit score suggests.

Now that Predatory Lending has gotten lenders sued, dragged before congress, legislated at, and vilified by the media and writers like me, we're seeing the rise of Predatory Servicing.

Creditors are showing utter contempt for their customers, refusing to offer viable workouts, taking away concessions, and basically making it more and more difficult for a consumer to pull him/herself out of a tough situation with the help of a credit counselor.

Here's an example. A major creditor, (Maybe I'll Name them Another time, but believe me, they're a Major Bank in North America) is in the practice of sending their clients who are in trouble to a DMP-mill for servicing. When they have a client in trouble, they don't refer them to the NFCC, or give them a list of options, they send them straight to a bunch of profiteering crooks who are as bad as Ameridebt ever was (how bad? I expect a perp walk any day.)

Why do they do this? Why send your valued customer to hacks who provide shoddy service and don't have any educational programs or HUD-certified housing counseling? Stupidity. In the short term, it's better for this creditor. The DMP mill I'm talking about doesn't get any Fair Share. So these clients get what passes for credit counseling services, and the creditor doesn't have to contribute.

What kind of service do you think the DMP mill provides when they're not getting Fair Share? We know they're not providing housing counseling, tax preparation, education, or any of the helpful services a reputable counselor offers, and at 0 Fair Share, they're not going to bend over backward to help the client with what few services they do offer.

The whole arrangement is junk. It's bad for the client, bad for the agency, and serves only the short-term interests of the creditor.

You've heard of the Fair Debt Collection Practices Act? It's incredibly onerous, and in truth, wildly unfair. It hamstrings Debt Collectors in their work and goes way overboard in protecting the debtor from even the mildest inconvenience when dealing with debt collectors.

Thing is, I have no sympathy for debt collectors. They brought it on themselves. If they hadn't been so abusive, so evil, and so willing to cross the line into harrassment, there'd have been no need for the FDCPA. They got what they deserved.

Now, the creditors are setting themselves up for the same kind of fall. By being stupid, short-sighted, and greedy, they're creating a class of dissatisfied and underserved consumer, attracting the ire of media types and writers like me, and setting themselves up for a congressional smack-down that will have them legally bound to pay Fair Share and offer favorable workouts if they're not careful.

Just like with Predatory Lending, Predatory Servicing will catch the nation's attention, consumer groups will howl, and junior congressment will take the opportunity to pass a law so it will look like they've earned their pay. Creditors must change course now, before that happens. Take away the consumer group's and the government's excuse to brain them with the crowbar of socialism. Lots of creditors are smart; someone with an MBA should examine this, and they'll see that in the long run, Predatory Servicing will cost them a lot more than it will save them in the short term.

We'll delve into other examples of Predatory Servicing anon.

CRCS strikes again

More nonsense from this bunch of asshats. Consumers for Reponsible Credit Solutions has just sent out a press release warning that unless congress acts to change credit counseling laws, there will be an explosion of bankruptcies.

Let me state this right up front: this is crap.

Okay, now for the analysis. For one, have you noticed all my previous posts about consumer debt declining for 3 straight quarters, or credit card delinquency being at a four year low? This is not a recipe for "an explosion of bankruptcies."

CRCS starts their press release by correctly saying that without credit counseling, a lot more people would file bankruptcy. But they say "access to those services may not be available in the majority of states in the future unless laws are changed." That's a flat-out lie. Access to CRCS's brand of for profit credit counseling may not be available, and that's to the consumer's benefit. Laws are being changed; see my post earlier this week about Illinois acting to prevent CRCS-type counseling agencies from resuming their profiteering ways (realize that CRCS is formed from the ashes of Ameridebt).

CRCS goes on to reiterate that NFCC agencies are "creditor-controlled" because they get "most" of their funding from the creditors in the form of Fair-Share contributions.
First, "most" in this case means 60%. Yes, a majority of the funding still comes from Fair Share, but that's dwindling every day. Second, that doesn't mean the creditors "controll" anything. COA-accredited agencies aren't allowed to act for the benefit of the creditor only; they'd lose their accreditation if they did.

Another thing I guess I'll have to say until I'm blue in the face: NFCC credit counselors create win-win situations. They're not trying to take sides. It's not Client Vs. Creditor, or vice versa. Credit counselors (honest ones) try to bring everyone to the table to help consumers avoid bankruptcy. That's it.

CRCS also claims that most non-profit credit counselors are "exempt from basic state and federal oversight." Let me tell you; when I was working for Springboard in California, we didn't feel "exempt" from anything. We had legislative fee caps that sharply limited what we could charge for our services. And a lot of other states made us jump through flaming hoops to get licensed. The claim that there's no oversight of credit counseling is another bald-faced lie.

How about this dirty tactic? CRCS says that "creditor-controlled agencies typically serve the interests of creditors and their profits more than consumers." For one, it's a lie. Creditors' and consumers' interests are not mutually exclusive, despite what phony irresponsible press releases tell you. And it's the CRCS-type profiteer credit counselors who serve the interests of their own profits. So much so that they've been sued and legislated out of business, hence the reason for founding CRCS in the first place! This kind of dirty lie is so devious it's actually brilliant. Accuse your enemy of committing your own transgressions; that way we end up in an endless point-and-shout match, each of us saying, "No, you did it," "Not, it was you!," ad infinitum.

The bottom line? Non-profit counseling agencies don't have profit. So how can they serve the interests of their profits? Non-profits are struggling to stay alive; they don't have shareholders to pay dividends to. If you want to see credit counselors serving the interests of their own profits, by all means pass the laws the CRCS recommends. Then Ameridebt will rise up from the ashes and resume ripping people off.

They go on to misrepresent the IRS investigation of credit counseling (it's agencies like those that make up the CRCS that the IRS is gunning for, not the NFCC), but now I'm just tired and angry.

The CRCS made a couple of good points in their 80-page hatchet job on the NFCC, but at the end of the day I think they must be regarded as self-serving liars and everything they say should be regarded with skepticism, no matter how reasonable it may sound.

New Illinois law to regulate credit counselors

According to this article in the Belleville News-Democrat, Illinois has passed a revised law designed to prevent credit counseling agencies like Ameridebt from overcharging clients.

Finally, a media outlet has properly noted the difference between profiteers like Ameridebt and true non-profit agencies. NFCC agencies aren't the least bit worried about laws like this one, because we've never been in violation of them. (True, many of us feel we're over-regulated, particularly with regard to fee caps, but the Ameridebt/NCC practice of taking the client's first payment as a 'contribution' never crossed our minds. It's about time they made that illegal.)

I still think it will take some time to completely weed out the bad guys in this industry, but you can see that the process is under way. My prediction is that by the end of 2005 the credit counseling industry will be smaller and more honest. (Smaller in terms of fewer overall number of agencies, no in number of clients or $ disbursed.) I think we only need to require COA accreditation across the board, and the battle will be won.

Non-Profit Status in Jeopardy

The IRS plans to pull non-profit status from many credit counseling agencies, according to this article at SFGate.com.

The IRS reviewed about half of the credit counseling industry and found that many organizations do not qualify for 501(c)3 status because of 1) operation for a substantial nonexempt purpose, (2) substantial private benefit, and (3) private inurement.

The CCCS world I have inhabited and continue to defend is not the focus of the IRS investigation. The IRS distinguishes between the original NFCC agencies and the newer trade associations like AICCCA and AADMO, calling the latter two "newer commercial-type organizations."

It's that commercial activity that may have AICCCA agencies running against the "operation for a substantial nonexempt purpose" criteria and may be putting their tax-exempt status in danger.

In defense of AICCCA, I know of many perfectly reputable AICCCA agencies. AICCCA does, however have a few less-than-savory members, and they may be endangering the entire association.

Several media outlets have picked up the story from an IRS memo, but what they leave out is troubling and telling.

The original IRS memo says "Many credit counseling organizations provide valuable advice, education and assistance to those seeking to better manage their debt..."

That sentence doesn't show up in any of the media coverage I've seen on this memo. Newspapers have jumped on the negative, painting a picture of an entire industry in difficulty. This belies the fact that there are hundreds of NFCC agencies who "provide valuable advice, education, and assistance...."

Also, notice our old friend Travis Plunkett from the CFA is quoted in here. While Travis defended the NFCC recently, there's no mention of that here. One of the reasons I've long considered the Consumer Federation of America an enemy of credit counseling is their consistent calls to strip away credit counseling's non-profit status. Reputable CCCS agencies simply could not operate if they lost their 501(c)3 status. It would be "game over" for the entire industry.

It seems the IRS has gotten it right by distinguishing between NFCC agencies and other, newer profiteering firms. But the CFA and the media is dropping that part of the story and attacking credit counseling in general. Let's hope the IRS continues to make the right decisions and takes down the big profiteers without destroying a 50-year-old service industry.

Questions to Ask Your Credit Counselor

More on the Consumers for Responsible Credit Solutions.

They posted on their web site a list of "Important Questions You Should Ask When Choosing A Credit Counseling Agency."

I've decided to compare that to Springboard's "Five Questions You Should Ask Your Credit Counseling Agency."

Springboard #1: Is your agency accredited?
As in, Council on Accreditation, a certification that CRCS's parent organizations could never achieve. (They could come forward and prove me wrong, but that will never happen.) COA accreditation is rigorous, and it's nearly unique to NFCC member agencies in the credit counseling world.

Of course, the CRCS doesn't make a single mention of accreditation.

CRCS #1 Are you customer focused--relying on customer satisfaction to stay in business or are you funded mostly by credit card companies and big banks?
What they really mean is "Where do you get your money--by charging huge fees to your clients, or fair share contributions from creditors?" That's the big red herring here. They attack NFCC non-profits for receiving (ever declining) contributions from the creditors. As though that marked some sort of ethical failing. But what they advocate (without saying it directly) are huge fees to be charged from the client... ask yourself, if you were in need of credit counseling, would you rather have the counseling paid for primarily by your creditor or yourself?

Springboard #2: What fees do you charge?
Aha. A question the CRCS doesn't want you to ask. Because NFCC charge modest fees (in accordance with the law) and they only take from the client what they must to get by. They'd rather see the "credit card companies and big banks" pay for the counseling because they can afford it, and it's better for the consumer that way.

CRCS #2: Do your board members work for credit card companies, banks or other creditors?
I don't know the specifics, but NFCC member agencies are required to have a minority of board members who are actually creditors. (I'm unclear on this, but I think they can have a maximum of 40% of the board made up of creditors.) The rest of the board would be local members of the business community, journalists, college professors, etc.
But the entire question is bull$*!%. The distinction they're not mentioning here is that non-profit agencies' board members are volunteers. Yeah. They don't make a dime, and they time they devote to helping COA accredited Non-Profit NFCC member agencies is a donation. Ameridebt board members? Volunteers. Don't make me laugh.

Springboard #3: Does your agency have any local branches I can go to for help?
Old-fashioned thinking dictates that face to face counseling is better than the alternatives, and it should be made available. The other important thing about this is that we have nothing to hide. In our non-profit world, you can always find us and are welcome at our headquarters. The NFCC's been around since the 50's. They're not going anywhere. The kind of profiteering fly-by-nights that the CRCS advocates have a habit of disappearing overnight.

CRCS #3: Does your agency follow the rules of any national organization with executives from credit card companies, banks or other creditors?
Huh? They're slamming the NFCC here, and Susan Keating in particular. It's stupid. By the way, have you noticed Springboard's questions are brief and to the point, while the CRCS's are long-winded and loaded?

Springboard #4: Does your agency provide any local education programs or support for me while I'm on a Debt Management Plan?
Like the face-to-face seminars I used to teach, and the availability of a counselor if you need budgeting help or additional counseling? When I was with Springboard I volunteered my time to speak at colleges and for local groups, and we had 6 or 7 free educational seminars a month in Southern California.
And for the folks who didn't live in SoCal, we offered Credit When Credit Is Due.

CRCS #4: Can I "do business" over the phone or must I suffer the embarrassment and inconvenience of appearing "in person?"
What a loaded question. For the record, the NFCC agencies I'm aware of (yes, including Springboard) offer counseling by phone and by internet. This question is merely to disguise the fact that the CRCS agencies don't want to offer face-to-face counseling; they're DMP mills who want to give quickie 20-minute counseling sessions by phone. "Responsible Credit Solutions" my a$$.

Springboard #5: Will your debt repayment program handle all of my debts?
NFCC agencies work with all creditors, even those who don't contribute to them. (Imagine that, a big greedy bank that doesn't feed its pet counseling agency.) Non-profits will help with every account because there's no profit motive beyond staying afloat. There's no for-profit agency waiting in the wings to cash in on their clients. Not with reputable NFCC members, anyway.

CRCS#5: Do you keep regular, convenient business hours?
Of course. Who doesn't?

CRCS#6: Are customers frequently on hold or do you offer an IVR system?
I think this stems from the nonsense Consumer Reports article back in 2000 that suggested NFCC agencies were technologically behind the times.

CRCS #7: Can I access services from you over the Internet?
Every agency I know of offers Internet services.

CRCS #8: What kind of education services do you offer? Are they user-friendly and easy to access?
In the text under this question, they say "If an agency claims to offer education services, verify that they don't require you to appear in their office in person in order to use these essential tools. After all, what business in this day and age can afford to refuse to serve their customers either over the phone or on the web?"
Oh, please. Credit When Credit Is Due is the hottest thing going in education among NFCC agencies, and it can be completed by self-study, via the internet, or in face-to-face workshops. Let me turn this question around on these jacka$$e$.

If an agency claims to offer education services, verify that they offer both face-to-face educational workshops and self-study and internet programs.
Because you will not find a single professional educator anywhere, ever, who will tell you that face-to-face education isn't vastly superior to self-study.

What a bunch of loaded bull$&!% questions. Meaningless, every one of them. Stick with the NFCC, folks.

Anti-NFCC Report Making Waves

About a week ago, a new group called "Consumers for Responsible Credit Solutions" issued an 80-page report that sharply criticizes traditional non-profit credit counseling. They lash out at the NFCC in particular, basically protraying the entire organization of counseling services as puppets of the creditors. (It's an old line, and one that I deal with in Repair Your Credit And Knock Out Your Debt.)

The CRCS web site has a place to download a .pdf copy of the report (all 78 pages). Look on the right hand side where it says "Special Report."

I admit I haven't gotten through the whole thing; I'll bring you more reactions as I get further into it. So far, I think they've made a lot of excellent points but have also made a few fundamental misunderstandings of the non-profit CCCS world.

And, of course, there's yesterday's report about the Consumers for Responsible Credit Solutions that came out in yesterday's Baltimore Sun (I'd link straight to the article, but the Sun has an idiotic registration system). The Sun tells us that CRCS was created by the Ballenger Group, a for-profit company with ties to a dozen credit-counseling agencies and their own Washington lobbyists.

This explains a lot about the report actually; now that I know who wrote the thing, I'll have a better idea of what they're getting at as I read the report.

One initial reaction: the Ballenger group was created by vultures circling Ameridebt's corpse. They even used some of the carcass pickings to put together the new group. One aim of the Responsible Credit report seems to be to drag reputable cccs agencies down into the muck with Ameridebt and their ilk. COB readers will know how I feel about that.

I'll be reading the report and bringing you my reactions, but my gut feeling at this point is in line with what CFA director Travis Plunkett said: this is an "unwarrented hatchet job" on the NFCC, and "overall, consumer groups consider the NFCC a credible trade association made up of agencies that by-and-large try to provide quality credit counesling to consumers at the lowest possible charge."

(An amazing quote: I've long considered the CFA an enemy of credit counseling, but Plunkett clearly sees this new CRCS group as a greater threat than the NFCC.)

Stay tuned for more on this big story!

Creditors Who Don't Get It

Yesterday I belayed my urge to spew bile in favor of a more positive posting. Not today.

With all that's gone on with Ameridebt and the NCC, thousands (perhaps over a hundred thousand!) of their clients find themselves stuck, without their credit counseling agency doing anything for them.

Naturally, other more reputable credit counselors are seeking to help all of these clients who have been left hanging; Springboard is waiving enrollment fees for former Ameridebt clients.

The problem is with some of the creditors.

By now we all know Ameridebt was taking advantage of their clients; they were charging a huge upfront fee and then providing shoddy service. In California and other states, enrollment fees are capped by law. This didn't seem to matter to Ameridebt.

My question was always "why would a creditor cooperate with them when they're so clearly evil?" The answer was, some creditors LIKED the fact that Ameridebt would charge such a high initial fee. They figured the clients who had to pay so much at the outset would be more likely to stick with their debt management plan... they'd have too much invested to quit.

Problem was, Ameridebt collected that first payment and then provided shoddy service. There was no incentive for the agency to keep the clients on the plan; they'd already made their money, and every client interaction from then on was a drain on the agency. The best case scenario for Ameridebt was a client to signed up, paid the large fee, and dropped out a month later. And they made that happen.

So anyhow, now we find those same clients adrift, hopefully hooking up with COA-accredited agencies (the kind that charge modest monthly fees for the life of the plan--so they have every incentive to keep the client successful until their debts are completely repaid). Problem is, some creditors *cough*cough*BankofOurCountry*cough*cough* are making those clients reapply as though they are signing up for a new DMP-- which is a problem, since creditors won't "re-age" more than once in a set time period (it varies from creditor to creditor). The point is, it's bad for the clients.

Other, more responsible creditors, like Citibank and MBNA, are letting those clients roll their existing plan over to a new credit counseling agency with out penalizing them for having been a victim of Ameridebt's greed. Why not Bank of TheCountryWeAllLiveIn?

Why not?