Wage Goodbye

Consumer Credit Counseling Services of Nebraska (CCCSN) closed its doors this year.  The agency opened in 1976 and was viewed as the best organization to help debtors avoid bankruptcy by establishing repayment plans with creditors.  The agency has been acquired by GreenPath Debt Solutions of Farmington Hills, Michigan, a large credit counseling agency with 60 offices in 13 states.

The closing represents a real loss to Nebraska residents.  CCCSN offered face-to-face financial counseling, but that type of organization has become expensive to operate. Credit counseling agencies are largely funded by a fee called “Fair Share” in which the agency used to keep up to 15% of the funds being paid in credit card payment plans.   However, in recent years banks have reduced that rate to 3 or 4 percent.

As the fair share rate has dropped, the industry has been forced to consolidate and larger credit counseling agencies with centralized computer and phone systems have gobbled up less efficient local agencies like CCCSN.  Although GreenPath still maintains an office in Omaha and Lincoln, the agency does not even come close to matching the personal counseling services provided by CCCSN.  Two or three GreenPath employees have replaced the large veteran staff CCCSN used to employ.

When the fair share rate was 15% the agency could afford to spend time in face-to-face meetings with clients. The agency was not limited to establishing Debt Management Plans (DMP) although that certainly was a core function.  CCCSN helped many customers avoid bankruptcy by teaching them to establish workable budgets. Those days are gone.  With lower fair share rates the only way to stay profitable is to enroll as many customers in a DMP as possible and then to farm out the work to a national organization. Personal counseling is basically a thing of the past.  Veteran counselors are gone. Lower paid data input workers are now the norm.

The dramatic changes in the credit counseling industry have been documented by professors Robert Manning and Anita Butera in their report A Failing Grade For the Post-BAPCPA Credit Counseling and Bankruptcy Education Industry?  Those changes include:

  • A growing dependence on referrals from credit card collection departments.
  • A reduction of Fair Share compensation rates from 15% to 3 or 4%.
  • A growth of for-profit credit counseling companies disguised as nonprofit credit counselors that utilize a maze of related companies to siphon off revenue from their nonprofit sister companies.
  • A consolidation of credit counseling agencies in favor of larger agencies that utilize economies of scale, large IT departments and DMPs that follow the strict guidelines established by the credit card industry.
  • A reduction in face-to-face counseling.
  • A movement towards DMP mills largely controlled by credit card collection departments though referral agreements best described as a Master-Slave relationship.
  • A failure of the Internal Revenue Service to deny nonprofit status to agencies that are controlled by a single family that siphon off revenues to their for-profit entities.

My own observation is that clients can not distinguish the difference between traditional credit counseling agencies, DMP mills, debt settlement firms and other debt relief agencies all claiming to be nonprofit agencies. Debtors cannot distinguish the true nonprofits from the profit-maximizing wolves in sheep clothing nonprofits.  As a consequence, the older community-based credit counseling agencies are dying nationwide.

Goodbye CCCSN.  We hate to see you go.

Image courtesy of Flickr and Sean MacEntee