Friday, April 8, 2011

Harvey Warren, author of Drop Debt: Surviving Credit Card Hell without Bankruptcy, is seeking to set the record straight on recent bad press about the non-profit credit counseling industry. Warren also has a view towards the industry actually providing a vital role in the recovery of the American dream. With so many seeking help, the bad guys come out to the woodwork and take advantage of people in desperate straits. But the majority of the industry are honorable men and women looking to do their best to bring some stability to millions in this unstable economy.

Once the darling of consumer advocates and consumer protection bureaus, the tarnished and sputtering non-profit credit counseling industry may be the last, and best, hope to stop America's total economic collapse. Homeowners struggling with mortgage payments and credit card payments may face an unnecessarily grim future without savvy financial counseling. Credit counseling is poised to provide a balanced and effective response, if, and it is a big if, legislators and regulators will give them to authority to come to the consumers' rescue.

Analysts in the financial sector are just now starting to report on the explosive relationship between the nitro of housing and the glycerin of credit cards. This potentially deadly debt cocktail is starting to reveal itself in readily available data.

Consider that personal bankruptcy filings totaled 1,538,033, up 14.4 percent from the 1,344,095 non-business bankruptcy filings in September 2009. This is the highest number of non-business filings for a fiscal year since FY 2005, immediately prior to the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act in October 2006.

In a February study commissioned by the credit reporting company TransUnion, 79 percent of adults said they would rather be delinquent on their credit cards than their mortgages. Despite this, TransUnion reports that of the consumers who defaulted in last quarter of 2010, 52 percent defaulted on their mortgages and kept their credit cards current, compared with 22 percent who defaulted on their credit cards but kept their mortgage current.

It is not surprising, however disappointing, that the Home Affordability Modification Program (HAMP) has failed to deliver the intended outcome. Foreclosure filings have increased dramatically over the two years that HAMP has been in place. According to foreclosure data from RealtyTrac, a record 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009, and 2.3 million in 2008, with the prediction that filings will increase 20% in 2011. The firm's data also indicate that bank repossessions continue to increase, from just less than 820,000 in 2008 to over 918,000 in 2009 to 1.05 million in 2010.

Some leading consumer advocates suggest that the unaddressed and unnecessary burden of excessive credit card debt is the reason that many failed to qualify for HAMP. Simply, homeowners needed to shed their unsecured debt in an orderly and transparent way in an effort to save their homes. There was no standardized plan or methodology to accomplish that goal, until now.

A small and courageous group of credit counseling agencies, in collaboration with the private sector, has begun their own initiative to address secured and unsecured debts. Unlike the bad old days of Ameridebt, these new collaborations with responsible business interests may hold the key to improved and expanded credit counseling services. In particular, an initiative in Utah through the non-profit AAA Fair Credit Foundation is using very sophisticated assessment and underwriting tools to come to the aid of consumers who are too financially distressed to qualify for full balance assistance.

Unlike the bad old days, this effort to work with the for-profit sector is overseen by the Utah Attorney General and the Utah Legislature having been enabled by Senate Bill 79.

The idea, although controversial, is as old as banking itself; adjust the repayment schedule based on sound underwriting.

The objective, create a qualifying process to help near bankrupt consumers determine exactly what they can repay and in so doing avoid a trip to federal court. Once the credit counseling agency has determined that the customer does not have the funds to qualify for a full balance Debt Management plan, they are offered a new "less than full balance" option rather than being immediately referred to a bankruptcy counsel or finding their way to a troubling debt settlement company. In most cases, customers have the ability— and willingness—to pay some of their debt even though they cannot pay all of it.

In collaboration with the non-profit Responsible Debt Relief Institute, certified credit counselors at AAA Fair Credit Foundation use a sophisticated assessment tool, the RDR Algorithm, to determine with precision exactly how much their distressed customer can pay in a set period of time (36-60 months) based on a certified and documented hardship. The RDR™ assessment is then reviewed and verified online by the consumer.

If the consumer's debt repayment capacity indicates that creditors may help them with hardship programming, they are fully informed by certified counselors at AAA about the pros and cons of pursuing workouts with their creditors. If the consumer is not interested, they are referred to bankruptcy counsel. If the consumer expresses interest in avoiding bankruptcy, the AAA certified credit counselor offers a branded less than full balance debt relief plan, the Debt Resolution Plan™.

The Debt Resolution Plan™ (DRP Certified™) through non-profit credit counseling is the result of years of research and development and is being deployed as a safe and sound alternative to controversial debt settlement operators. It is clear, based on the size of the debt settlement industry, that consumers want an alternative to bankruptcy. So, are banks not racing to adopt this plan? The banking industry, facing billions in losses, is loath to give up collection options without a fight. In this case, winning that battle may cause them to lose the war. It is too soon to tell exactly what the major credit card issuers will do with respect to their collection policy on these matters, but it is clear that the banks have a shared desire with the consumer to avoid skyrocketing losses in bankruptcy.

The certified counselors at America's accredited non-profit credit counseling agencies are in place to be the safe and sound first responders for consumers who are at risk of losing their homes and suffering through the agony of bankruptcy. But, like any disaster relief agency, legitimate non-profit credit counseling needs to have the support of government and the authority to provide the services needed to address the realities of this current economic catastrophe.

As credit counseling providers search for a wholesome relationship with businesses focused on consumer solutions, it is imperative for consumer advocates, consumer protection agencies and lawmakers to find a way to revitalize the credit counseling industry with more latitude to provide a wider range of services. More than an urgent agenda item, the rapid modernization of the credit counseling industry must be seen as an emergency measure to save what is left of America's battered economy before there is nobody left to rescue.

About Harvey Warren:



Harvey Z. Warren is actively fostering a powerful national coalition of consumer advocates, lawyers, banking and collection leadership to establish guidelines for non-adversarial debt relief through non-profit credit counseling. A graduate of Ithaca College with a Master of Science degree from Syracuse University, Warren has worked with tens of thousands of debt-crushed consumers and appears frequently on radio and television commenting on the consumer debt crisis in America.

For more about Harvey Warren go to www.dropdebtbook.com or email at debtwriter@yahoo.com

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