One of the more disturbing aspects of the nonprofit credit counseling industry is the complete lack of disclosure about the success rate of their programs. In recent years the industry has come under fire for keeping such statistics a secret.
A poll of National Foundation for Credit Counseling (NFCC) members that was provided to university researchers found that only 21% of repayment plans were completed. Another 21% of participants pulled out in order to finish paying on their own, a form of success, while 51% simply dropped out or filed for bankruptcy. The figures were based on plans that terminated in 2002.” Behind the Credit Counseling Curtain.
Realizing the need for disclosure and the opportunity presented, Cambridge Credit Counseling began to release reports of its operations. Some of the highlights of its reports include:
- Weak Graduation Rate. Just 37.9% of enrollees from the first half of 2008 completed the full term of their program.
- Repayment Plans Accepted by Creditors. 96.9% of the payment proposals have been accepted by creditors.
- Reduced Interest Rates. Those who enrolled during the first half of 2013 saw their interest rates reduced by an average of 54.6%, and their monthly payment reduced by 27.5%.
- Number of Debts in Plan. The average number of creditors per enrolled client was 5.65, and average debt enrolled per client was $20,464.41.
- Length of Plan. The duration of the typical payment plan was 49 months.
- Majority of Customers Not Offered Payment Plans. Consumers who contacted Cambridge in the first half of 2013 were only offered enrollment in a DMP 34.4% of the time, with only 21.0% actually enrolling.
Cambridge reports that a key factor in improving the success rate of their Debt Management Plans is the constant monitoring and follow up with newly enrolled clients. The establishment of routine financial check-ups were cited as a vital factor in boosting plan success rates.
A few things jump out in this report. First, the success rate of the Cambridge program is almost double the rate of the industry as a whole. Is that a result of Cambridge doing a better job of managing the plans or is that because Cambridge will not offer a DMP to those customers who lack the income to complete the process? Most likely it is a combination of these factors.
Why is no other credit counseling agency reporting the success rate of their payment programs? No doubt the chief reason is that their success rates are significantly lower and the only way to boost their results would be to turn away clients who are unlikely to complete the payment plan. Credit counseling agencies are funded primarily by DPMs, so to turn away customers would have a dramatic impact on their bottom line. Said another way, large credit counseling agencies are enrolling customers into plans that are unlikely to succeed just to generate revenue.
Only 21% of the people who contact Cambridge for help enroll in a DMP. Of that amount, only 37.9% complete the plan. Thus, only 8% of the customers who contact Cambridge actually complete the debt repayment process. The success rate for other agencies that do not report results is undoubtedly lower.
Those who are considering whether to enroll in a credit counseling payment plan may want to see if Cambridge would accept them into their program. If Cambridge does not recommend a DMP that is a good sign that repayment is unlikely to succeed.
There is a need for more accountability in the credit counseling industry. Independent audits should be conducted and publicly disbursed. A uniform standard of reporting should be adopted. Nonprofit status should be automatically denied to those agencies associated with for-profit companies controlled by their executives. Those who claim to serve the public should have no objection to having a light shone on their activities.
Image courtesy of Flickr and Phil Comeau