Just truely amazing. Did these dumbasses really believe people file just for the heck of it?
Law puts debt agencies in a bind
By Melissa Allison and Emily Heffter
Seattle Times staff reporters
PREV of NEXT
Paul Schmid / The Seattle Times
Related
Tougher law led to spike in bankruptcies
Anyone who wants to file personal bankruptcy now must visit a credit counselor first, thanks to a new bankruptcy law that kicked in last fall. Lenders hoped counseling would persuade some borrowers not to file bankruptcy.
But the sessions aren't changing anybody's mind about filing, credit counselors say, and the required counseling is putting the agencies in a financial bind.
Credit-counseling agencies say they bring in a significant portion of their revenue from debt-management plans but lose money on each pre-bankruptcy counseling session.
One state agency figures it costs $133 for a 90-minute counseling session, but it collects about $36. Costs are lower for agencies that do part of the counseling by Internet.
Debt-management plans allow consumers to make one monthly payment to the agency, which divides the money among creditors. Agencies get a "fair share" fee from creditors for a portion of the amount they are able to collect.
Agencies frequently negotiate better pay-off terms from lenders, who would rather have a portion of what's due than none of it.
If agencies could persuade consumers to use debt-management plans rather than file bankruptcy, they would collect fees on the plans.
But almost all of the 99,000 or so people who have gone for pre-bankruptcy counseling since October have headed into bankruptcy instead.
Agencies say they can't afford the wave of new clients long-term unless more people sign up for debt-management plans or the agencies find another source of income.
"We're only a few months into this," said Catherine Williams, spokeswoman for Money Management International, a large agency based in Houston. "We knew going into it that it was something that is part of the mission that we're supposed to do."
But it would have helped if officials had considered the financial burden it could place on credit-counseling agencies, Williams said.
"We're going to continue to do the counseling and worry about where the money comes from later," said Laurie Tufford, chief executive of Consumer Credit Counseling Service of the Tri-Cities in Kennewick.
Even though it's expensive to provide pre-bankruptcy counseling, agencies pursue the approval to do it because it gives them legitimacy in an industry that is rife with abuse.
"It's kind of a nod of approval, if you will," said Greg Cannenberg, the director of counseling at Boise-based Debt Reduction Services.
The Financial Services Roundtable, an association of the nation's largest lenders that pushed for the counseling sessions in the new law, has given grants to some agencies approved by the U.S. Trustee's office for pre-bankruptcy counseling, including Tufford's.
The grants, based on the size of the agencies, range from $22,500 to $300,000.
The Kennewick agency, with 12 employees, gave 240 pre-bankruptcy sessions from mid-October, when the law changed, through February.
Employees added
By contrast, Consumer Credit Counseling Service of Greater Atlanta has added 50 employees, for a total of about 200, to handle the 25,000 pre-bankruptcy counseling clients it saw in the first four months after the law went into effect.
"We basically tripled our workload," President Suzanne Boas said. "We're cautiously optimistic that we'll be able to continue to provide the service."
About 140 agencies are approved for pre-bankruptcy counseling in U.S. Bankruptcy Court in the Western District of Washington.
Agencies' new financial troubles demonstrate that the credit-counseling requirement isn't working, said Travis Plunkett, legislative director for the Consumer Federation of America.
"It's beginning to look like it doesn't help [debtors] in any way," Plunkett said. "It merely becomes an administrative burden."
Bankruptcy attorneys agree.
Brad Botes, executive director of the National Association of Consumer Bankruptcy Attorneys, is worried that agencies will raise their fees and "create a bigger burden on people who are in a desperate financial situation." He hopes Congress will remove the pre-bankruptcy counseling provision.
No one, including the roundtable, can keep pouring money into a system if it's not viable, said Steve Bartlett, president of the organization.
How it'll play out
As the new law plays out, credit-counseling agencies might be forced to push the credit-card industry for more money and for better provisions for consumers, Plunkett said.
The industry lobbied for the counseling provision, but Plunkett said it hasn't backed up its support with much money.
In the meantime, Plunkett worries that the financial struggle to provide the service could cause a conflict of interest.
"An agency might choose to enroll someone in a debt-management program when it's not appropriate because they're in a bind," he said.
Over time, Bartlett thinks agencies will shave their costs so that each counseling session doesn't put them into the red.
He also expects more to choose debt-management plans over bankruptcy in the future, which will bring in more money for counseling agencies.
Agencies will find some way to make the system work, Bartlett said.
"Right now, it's not a stable financial situation," he said.
Melissa Allison: 206-464-3312 or [email protected]
Emily Heffter: 206-464-8246 or [email protected]
Law puts debt agencies in a bind
By Melissa Allison and Emily Heffter
Seattle Times staff reporters
PREV of NEXT
Paul Schmid / The Seattle Times
Related
Tougher law led to spike in bankruptcies
Anyone who wants to file personal bankruptcy now must visit a credit counselor first, thanks to a new bankruptcy law that kicked in last fall. Lenders hoped counseling would persuade some borrowers not to file bankruptcy.
But the sessions aren't changing anybody's mind about filing, credit counselors say, and the required counseling is putting the agencies in a financial bind.
Credit-counseling agencies say they bring in a significant portion of their revenue from debt-management plans but lose money on each pre-bankruptcy counseling session.
One state agency figures it costs $133 for a 90-minute counseling session, but it collects about $36. Costs are lower for agencies that do part of the counseling by Internet.
Debt-management plans allow consumers to make one monthly payment to the agency, which divides the money among creditors. Agencies get a "fair share" fee from creditors for a portion of the amount they are able to collect.
Agencies frequently negotiate better pay-off terms from lenders, who would rather have a portion of what's due than none of it.
If agencies could persuade consumers to use debt-management plans rather than file bankruptcy, they would collect fees on the plans.
But almost all of the 99,000 or so people who have gone for pre-bankruptcy counseling since October have headed into bankruptcy instead.
Agencies say they can't afford the wave of new clients long-term unless more people sign up for debt-management plans or the agencies find another source of income.
"We're only a few months into this," said Catherine Williams, spokeswoman for Money Management International, a large agency based in Houston. "We knew going into it that it was something that is part of the mission that we're supposed to do."
But it would have helped if officials had considered the financial burden it could place on credit-counseling agencies, Williams said.
"We're going to continue to do the counseling and worry about where the money comes from later," said Laurie Tufford, chief executive of Consumer Credit Counseling Service of the Tri-Cities in Kennewick.
Even though it's expensive to provide pre-bankruptcy counseling, agencies pursue the approval to do it because it gives them legitimacy in an industry that is rife with abuse.
"It's kind of a nod of approval, if you will," said Greg Cannenberg, the director of counseling at Boise-based Debt Reduction Services.
The Financial Services Roundtable, an association of the nation's largest lenders that pushed for the counseling sessions in the new law, has given grants to some agencies approved by the U.S. Trustee's office for pre-bankruptcy counseling, including Tufford's.
The grants, based on the size of the agencies, range from $22,500 to $300,000.
The Kennewick agency, with 12 employees, gave 240 pre-bankruptcy sessions from mid-October, when the law changed, through February.
Employees added
By contrast, Consumer Credit Counseling Service of Greater Atlanta has added 50 employees, for a total of about 200, to handle the 25,000 pre-bankruptcy counseling clients it saw in the first four months after the law went into effect.
"We basically tripled our workload," President Suzanne Boas said. "We're cautiously optimistic that we'll be able to continue to provide the service."
About 140 agencies are approved for pre-bankruptcy counseling in U.S. Bankruptcy Court in the Western District of Washington.
Agencies' new financial troubles demonstrate that the credit-counseling requirement isn't working, said Travis Plunkett, legislative director for the Consumer Federation of America.
"It's beginning to look like it doesn't help [debtors] in any way," Plunkett said. "It merely becomes an administrative burden."
Bankruptcy attorneys agree.
Brad Botes, executive director of the National Association of Consumer Bankruptcy Attorneys, is worried that agencies will raise their fees and "create a bigger burden on people who are in a desperate financial situation." He hopes Congress will remove the pre-bankruptcy counseling provision.
No one, including the roundtable, can keep pouring money into a system if it's not viable, said Steve Bartlett, president of the organization.
How it'll play out
As the new law plays out, credit-counseling agencies might be forced to push the credit-card industry for more money and for better provisions for consumers, Plunkett said.
The industry lobbied for the counseling provision, but Plunkett said it hasn't backed up its support with much money.
In the meantime, Plunkett worries that the financial struggle to provide the service could cause a conflict of interest.
"An agency might choose to enroll someone in a debt-management program when it's not appropriate because they're in a bind," he said.
Over time, Bartlett thinks agencies will shave their costs so that each counseling session doesn't put them into the red.
He also expects more to choose debt-management plans over bankruptcy in the future, which will bring in more money for counseling agencies.
Agencies will find some way to make the system work, Bartlett said.
"Right now, it's not a stable financial situation," he said.
Melissa Allison: 206-464-3312 or [email protected]
Emily Heffter: 206-464-8246 or [email protected]
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