Springboard - Non-Profit Consumer Credit Management

Resources: Articles and Materials

Springboard Non-Profit Consumer Credit Management Lauds
Congressional Inquiries into Credit Counseling Industry

With good reason lawmakers, consumer groups, and regulators have set out to investigate and reform the credit counseling industry to protect Americans after complaints of dishonesty and profiteering. The committee review found "alarming abuses" among three companies, AmeriDebt, Amerix and Cambridge Credit Counseling Corp. and their affiliates. In the past 10 years, our industry has been overrun by a small number of large profiteers who are sweeping in debt-ridden consumers with slick advertising campaigns in order to fuel business models built on private enrichment. And it is private enrichment that is the common thread to the agencies under investigation by Congress, state regulators and the IRS. This private benefit is characterized mainly by self dealing on the part of management with their own private companies as well as unseemly high salaries.

As Congress, the IRS, and state legislators contemplate regulating credit counseling, we urge them to consider two important concepts: 1) protect and nurture the nonprofit business model and demand high service delivery standards, and 2) encourage sustainable funding mechanisms that demand accountability and support from all segments of the U.S. credit system.

Regarding the first concept, we must ask ourselves what happened to the traditional nonprofit business model? There's more than enough blame to go around for the current dysfunction and there's a bigger picture of complex dynamics as well. Traditional counseling agencies did not innovate enough to keep up with the new market entrants. Credit card issuers and other lenders have granted enormous amounts of credit throughout all segments of society and it's their debt that keeps getting rolled into pyramiding first and second mortgages. Card issuers are the core funders of the counseling industry and it is their borrowers that are credit counselors' main customers. Their outcome-based funding model, which rewards only the “debt management plan” outcome, is fundamentally flawed and subject to abuse. It is this outcome that has been most exploited by profiteer counselors. Most of the major card issuers now have “pay for performance” funding plans that are built on criteria that are frequently not revealed to the agencies. Creditors must be part of the solution by supporting counseling and education regardless of outcome, but this is not necessarily desireable to legislate. Citibank is breaking new ground in this direction.

Turning to the second concept, most of the mortgage and auto finance industries do not incentivize holistic solutions for delinquency. Traditional consumer credit counseling services carry much of the load of housing counseling in local communities yet HUD certification and grant rules are often an obstruction to deploying these services effectively and in an economically sensible way. Since bankruptcies are driven by household debt (mainly unsecured) this has the impact of perpetuating losses in our communities and keeping residents from advancing to homeownership or holding onto their homes. GMAC-RFC's Homecomings Financial Division has led the way in nurturing a holistic counseling system that is not outcome-based, freeing the counselor to advise what's best for the client.

Consumer groups are pushing for reform but their good intentions are heavy handed. The National Consumer Law Center and the Consumer Federation of America, and Consumers' Union have drafted “model” legislation that could put the entire industry out of business. This legislation is flawed and appears driven by the interests of trial lawyers. State legislators are urged to consult reputable industry trade associations for a better understanding of what will achieve real consumer protections and what won't.

We're already seeing that the good intentions of government and consumer groups risk limiting choice unfairly for consumers and will harm traditional community based agencies by choking off the means to sustain a viable business. Now the industry is faced with the specter of a patchwork quilt of state regulations that are having a harsh effect on the smaller community based agencies. In fact, several states have recently enacted onerous requirements that amount to protectionism for in-state agencies, unfairly limiting choice for consumers. Mandated bonding requirements are of special concern; a small agency's capacity to get bonded can get used up quickly by various state requirements. New York and Maryland have punitive bonding requirements that have shut their residents off from many reputable agencies.

Debt is the new servitude for too many Americans so financial education deserves to be front and center as a public policy priority. We urge all stakeholders to focus on two objectives in formulating legislation: 1) protect the traditional nonprofit counseling model that provides demand high service delivery standards with reasonable consumer protections and 2) encourage creditors to support counseling and education regardless of outcome.

Genuine reform will be built on these two concepts.

Springboard, a nonprofit credit counseling and education organization founded in 1974, offers assistance with money management and budgeting through confidential counseling, debt management and education programs for financially troubled consumers. Springboard is accredited by the Council on Accreditation of Services for Families and Children, signifying high standards for agency governance, fiscal integrity, counselor certification and service delivery policies that ensure low-cost confidential services performed in an ethical manner. Springboard is a member of the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies. Springboard has counseling locations offering face-to-face assistance throughout Southern California , and provides counseling online and through their nationwide phone counseling center as well. For more information on Springboard, call 1-800-947-3752 ext. 702 or visit their web site at www.credit.org.