October 1, 2002 - Through our many conversations with a wide variety of industry professionals, we have learned that many are unclear about what credit counseling is really about today, and what factors should be considered by credit grantors when selecting a credit counselor. The following explanation has been provided by Steve Ruderman, a 20 year veteran of the financial services arena.

The World of Credit Counseling
By Steve Ruderman
Today's world of credit counseling is dramatically different from just a few short years ago when most consumers seeking help visited a local agency in their community, to now, where services are delivered over the telephone and via the internet, in addition to the traditional in-person session. With dramatic growth in recent times, credit counseling has evolved into a major role in the debt reduction arena: just take a look at expense line items in your Profit & Loss Statement - frequently, costs associated with Debt Management Plans (DMPs) are one of the largest incurred in credit and collection operations.

Considering the numbers of credit counseling agencies doing business today, both for profit and non-profit, as well as for profit service providers, the important questions are: which ones to do business with; - on what basis; and, - importantly, what return should you expect? Since credit grantors provide fair share payments to counseling agencies, these questions need to be asked of the agencies or related organizations to be sure the services offered bring value to your institution, your customers are receiving the right advice and guidance, and your funds are well spent.

There are two national organizations in the credit counseling industry today: The National Foundation for Credit Counseling (NFCC), and the smaller Association of Independent Consumer Credit Counseling Agencies (AICCCA). Both groups and their member agencies are not-for-profit, and their combined membership is about 200 agencies. There are approximately another 1,000 independent agencies in the country with no affiliation to either group. NFCC and AICCCA both have strict membership standards and guidelines that members must follow to remain in good standing. Visit their websites to learn more: ; Here are some key questions you might ask the credit counseling agencies you use:
  1. What services are offered? Competent agencies provide full budget counseling, financial education programs, home buying and housing counseling, and DMPs.
  2. How are services delivered? Only by telephone? Internet? In person? Does the client have a choice? Do results differ by method?
  3. Are the staff qualified to give financial advice? Are counselors certified? By whom? How are they trained? Do they follow scripts, or is advice custom tailored to each client's unique situation?
  4. Does the agency focus primarily, or only, on setting up DMPs? What percentage of consumers seeking help are offered DMPs? What qualifies a client for a DMP?
  5. What fees are charged to customers? Initial consultation? DMP set-up? Monthly maintenance of DMP? Is the initial fee a full month's deposit? What happens if a consumer can't afford the fees?
  6. How are fees disclosed to clients? In writing? In plain language, prominently displayed on contracts or documents? If a full month's deposit is required up front, is there a pro-rated refund if the client is not satisfied with service or drops out of the plan?
  7. Does the agency disclose to the customer that they also receive funding from creditors? Is this disclosure also in writing?
  8. Is the customer advised, in writing, how long it will take to complete the DMP?
  9. What does the agency tell clients about their credit bureau records? Anything you know to be untrue?
  10. Does the agency include all unsecured credit in their plans? If not, why not?
As you can tell, there are many factors to consider when choosing a credit counselor, and this is true whether you are a consumer, or a creditor. Consumers seeking help with their financial problems are under great stress, and can easily be taken in by unscrupulous operators in the credit counseling industry. When this happens, the customer certainly doesn't benefit, but neither do you as the creditor because funds that might have been repaid in a legitimate plan have gone to a scam artist. Frequently, when this happens, the consumer then files for bankruptcy or, at best, has to start over again with another agency, losing even more ground in the process. As creditors you have the power to control the activities of those agencies that are tarnishing the image of the industry, hurting your customers, and doing you a disservice.

Legitimate credit counseling agencies serve the dual role of helping those consumers in need and protecting your assets. They require your ongoing support to thrive, but operate openly and honestly, creating the classic "win-win" situation. You can ensure that only the best survive in the industry by applying some good business judgment as you manage your responsibilities: set standards for agencies to conduct business with you; create an environment that acknowledges when your customers need help, and encourage their decisions to work with legitimate agencies; and, distribute your fair share funds only to agencies that meet your standards, and deliver competitive performance.

Credit counseling generally is the most viable alternative to bankruptcy. When delivered correctly to consumers who truly need help, they are rehabilitated, and you not only have protected your loan or recovered the balance, but you have the opportunity to retain customers who have learned lessons that will stay with them for a lifetime. Your support of the customers needing credit counseling, together with a well-managed program to identify and support the agencies delivering the best service, will enhance your ability to get the best results from your portfolios.

Steve Ruderman has been in the financial services arena for over 20 years. He has been on the board of CCCS of San Diego, Senior Vice President of Sales for Amerix and is currently the National Sales Advisor for the NFCC. Steve also runs his own company, Executive Level Sales Outsourcing Services, , a high level sales outsourcing company dedicated to developing highly productive sales forces.