Be Scared

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Group:
This is a posting from a member of NACBA concerning Debt Counseling. It's a
bit scary.
Jim King
For the last 7 years, my major worry about the new bankruptcy law has been
the credit counseling certification gatekeeper requirement.
After 10/17/05, as you know, you cannot file a case without the credit
counseling certification. Period. And, don't count on your U.S. Trustee to
waive this requirement in your area.
Why?
Because one or more of your local consumer credit counseling outfits will
get approval. You can count on it.
According to the U.S Trustee employee in charge of the approval process (who
spoke at the convention, see below), the applications for approval are
rolling in.
And from whom?
You can bet that many, if not most, of the applications are being submitted
by existing "credit counseling outfits", and by this I mean the standard,
garden-variety organizations which are basically, as the IRS put it, really
not much more than "collection agents for the credit card companies".
How do I know?
Last weekend, I attended the semi-annual convention of one of the 2 major
national consumer-credit-counseling trade associations. There are the NFCC
and the AICCCA. I attended the AICCCA convention.
There must have been in attendance a couple of hundred members various
credit counseling outfits from all over the country, many of which outfits
operate nationally.
The topic of the new bankruptcy law came up tons of times. And when it did,
it reminded me of programs on tv show piranhas engaged in a feeding frenzi.
Many, if not most, of these outfits stated at the conference, in no
uncertain terms, words to the effect that they see the new credit counseling
certification requirement as their opportunity to "cherry pick" through all
the clients you send them for DMP candidates. Please stop and let this
statement sink in.
For those of you that may not know this term, DMP means Debt Management
Plan, which is the debt repayment plan they hawk on behald of the credit
card companies. For your further information, and this is important, up to
NOW, that simply means they cobble together a repayment plan for people
based on the current deals being offered mostly by credit card companies.
Up to NOW, the only benefit to the consumer is that they could lower
interest. The credit card folks, as I understand it, never agree to
decrease principal.
Even so, these outfits feed ferociously off of the consumer's stigma about
filing bankruptcy. Probably, for many of our clients, all they have to tell
our clients is this: Looking very sincerely into our client's eyes, they
simply utter these words: "You don't reallly want to file bankruptcy do
you?" Or how about: "It will ruin your credit."
And, then, all the work you did back at your office, all the time and energy
you spent, to shore people up by addressing their "hard wired" fears about
bankruptcy goes flying out the window.
The bottom line is that unless you doing something to avoid it, many of your
clients, whom you have already advised to file bankruptcy, are going to go
to these outfits and NOT return.
Please understand that these outfits truly believe in their DMP product.
You have to understand this. Many, if not almost all, of these people are
fine human beings dedicated to the consumer. My take on it is that they
are just as dedicated to helping the consumer as we are (excepting of
course, as I understand it, some of the outfits like Ameridebt).
Even worse, they are almost zealous in their disdain, even loathing, for
bankruptcy. I don't think I am being overly dramatic when I tell you that,
at the convention, there were moments when I almost thought I was in church,
with "bankruptcy" being mentioned in much the same category as satan.
Sure, if pushed, they understand and even ackowledge that for SOME
consumers, bankruptcy is the only alternative, but we must be careful not to
overread these statements. We need to focus on the word SOME.
These outfits all acknowledge that SOME of the consumers you will send to
them, they cannot help, either because the debt problem is one they cannot
solve (read they cannot do anything to help with secured or priority debts)
or because the consumer is too far gone.
In the same way, some of us would probably agree that "some" consumers,
especially those with up-to-date secured debts and relatively low amounts of
unsecured debt and salvagable credit could benefit from a DMP program that
merely lowers the consumer's interest rates on a few credit cards.
The problem lies in the overlap. From their point of view, many of our
clients could have been "saved" by a DMP. From our point of view, many of
the folks put into a DMP are really better candidates for filing bankruptcy.
It's a matter of focus. The DMP is their hammer. Bankruptcy is ours.
And where is the overlap?
It's our Chapter 7 clients, with their secured debts up to date. These
clients are "the" prime target for these outfits.
This is the group that these outfits will "cherry pick" from.
And, please don't fool yourself. These outfits are very good at selling
their DMP product. They know how to handle all the objections. They
especially know how to feed off the our clients' negative "hard wiring"
about bankruptcy.
On the other hand, maybe that's OK. Maybe you will only lost 1 or 2 clients
out of 5. If that's OK with you, no problem.
It's not OK with me. I have seen too much pain caused by debts. I have
heard from too many people, whose lives are far better for having broken the
debt cycle by filing bankruptcy. I have seen way too many people put into
DMP plans they cannot afford. I have seen DMP's suck consumers so dry that
not even filing bankruptcy can help.
Think about it. When you recommend bankruptcy, how many times is it a
client whose only problem is that their interest rates are a little too
high, and whose problem would be fixed by merely getting a few credit card
companies to lower their interest rates somewhat? I expect the answer is
"None", at least with respect to the consumers for whom filing bankruptcy is
recommended. The truth be known, by the time we recommend bankruptcy, at
least with regard to Chapter 7 candidates, they need real reductions in
principal, not just interest, in order to "make it".
Do you really want to hand these consumers over to a DMP provider, for
purposes of getting the required credit counseling certification?
And then there is the dreaded "bottom line". I am committed to helping
people. Absolutely. But I admit it. Here it is. I have to stay in
business in order to help people. That's the sad truth. And to stay in
business, I have to have enough business (paying customers) to pay the
overhead.
Well, the truth is that these outfits are in business too, and need paying
customers too. So, it only makes sense that they have no intention of not
taking full advantage of this new law, as an opportunity to pick up new
business by "cherry picking" our clients.
So my question is this.
Listmates, what are you going to do to deal with this reality?
I can think of only 3 choices:
(1) Lose clients to the DMP outfits and hope that, sooner or later, they
clients will see the truth and come back.
(2) Thoroughly innoculate (metaphorically) clients before they leave your
office on how DMP work and who they really serve.
(3) Send them to an approved non-DMP organization for certification.
More later about the AICCCCA convention later.
Got to go help some people get a "fresh start".
John Orcutt

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