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Changes are taking shape in the credit counseling and debt relief industry as regulators and legislators continue their efforts to rid the industry of unscrupulous providers. In fact, the Federal Trade Commission (FTC) started the effort about a year ago by instituting stronger consumer protection laws in an effort to level the playing field among for-profit and nonprofit industry participants.
What's not fair about the current system that needs leveling? It turns out - a lot, beginning with something called "fair share" payments, a decades-old system under which some debt relief agencies are paid fees by the very same creditors that pursue consumers for collection on their debt. These "creditor kickbacks" or "grants" are awarded to agencies based on the amount they collect from indebted consumers. In other words, nonprofit agencies are collecting their "fair share" of the collected debt.
There's a lot wrong with this system because it creates a serious conflict of interest. Not only do such debt relief firms receive the previously mentioned fees, but they also collect fees from consumers for services they provide. How can a debt relief agency possibly serve two disparate entities fairly and equitably when a good portion of its revenue flows in from fair share payments? Also, what position are they in to truly serve consumers' needs when they're double-dipping and profiting off of consumers' debt?
Admittedly, a few agencies can swing both objectives, but it can't be easy.
That's why CareOne does not accept fair share payments from creditors. Our reasons for this are simple: we believe that accepting payments from a creditor compromises our ability to act solely as an advocate for our customers.
Unfortunately, some of our nonprofit peers don't share our same attitude. And herein lies the problem.
NFCC Seeks Preferential Treatment
Because the FTC can only regulate for-profit businesses, nonprofit companies and nonprofit providers, which make up about 85 percent of all providers, are currently exempt from FTC regulations. This means that nonprofits don't have to follow the strict guidelines that for-profits do. (For example, for-profit companies cannot charge customers upfront for services, and they must fully disclose their fee structures and how long it will take customers to complete settlement plans.)
Therefore, the new Consumer Financial Protection Bureau (CFPB) took up the issue of debt relief this past summer, requesting comments about how to regulate the industry as a whole because unlike the FTC, the CFPB can regulate all providers, regardless of their tax status.
This is a step in the right direction that CareOne supports.
However, The National Foundation for Credit Counseling (NFCC), an association of nonprofit providers, says it supports strong industry rules, but it doesn't seem to want to follow them. Instead, it has voiced ardent demands that the consumer protection rules and regulations set forth by the FTC should only apply to for-profits. That's right. NFCC has asked the CFPB to protect its members' rights to collect fair share payments. It also wants to remain exempt from any new rules that the CFPB may enforce to further police the industry. NFCC has expressed their request for preferential treatment repeatedly.
This simply doesn't make sense, especially in a time where nonprofits are beginning to offer debt settlement programs, which hinge on the provider settling the consumer's debt for as little as possible. Where's the incentive for nonprofits to lower your debt if they're being paid by the creditor based off a percentage of the debt amount paid? To remain profitable, it would seem to be in the interest of the nonprofit to therefore want consumers to pay more because then nonprofits' "fair share" would be more, which would positively impact their bottom line.
By asking the CFPB to guarantee the continuation of fair share payments, the NFCC is putting the financial interests of its members ahead of consumer interests. We believe consumers should be fully informed of these important facts. This level of knowledge will enable consumers to choose a debt relief provider who is best able to represent their best interest.
Jenny Realo is the Chief Product Officer for CareOne Debt Relief Services. In our A Straight Talk on Debt blog, Jenny provides her insights and updates based on her 20+ years of experience in the financial service industry. Jenny is dedicated consumer advocate and places much of her focus on consumer protections in relation to creditor and industry regulatory changes.
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Thanks for the great information, Jenny. I first read about "fare share" payments recently when I was doing some research about the debt relief industry. Receiving such a kickback does seem like a conflict of interest, so I'm very happy to hear that CareOne does not accept them. It also sets my mind at ease that I am actually paying back to my creditors every cent of my debt via my Debt Management Program. If a fare share payment was being given back, then it would seem to me that my creditors really aren't getting everything I owe them.
Thanks again for the very informative article, and for re-affirming that I'm hooked up with the right debt relief provider.
That's why CareOne charges the consumers more than your typical credit counseling company does. Even if the credit counseling companies get fair share, how does that affect you? It doesn't. Regardless if you go to CareOne, or go to your local credit counseling company, your monthly payments will be the same. No one has special concessions with the creditors.
Thank you for posting your question. I wanted to make sure that I address a couple of things you mentioned in your comment. On the fees that providers charge for DMP services, these fees are all regulated by the states and have strictly defined provisions as to how the fees are to be calculated. Most states have elected to make their fees based on the number of creditors enrolled in the DMP or as a percentage of the monthly DMP payment. CareOne, in fact, charges lower fees in many cases where states allow fees to be uncapped. CareOne’s DMP fees will never exceed $50 upfront or $50 per month and average much lower than $50.
On the fair share issue, we believe that it is a critical issue that consumers should be informed about and understand the potential conflict of interest that this presents for the DMP provider. By deciding not to accept fair share payments, CareOne is proud to be able to unequivabily serve as an advocate for the consumer by not accepting any funds from our customer’s creditors. The other important issue that we believe consumers should understand is the inequity in regulation between for-profit debt relief companies and nonprofits. The lack of equitable FTC oversight potentially poses a risk to uninformed consumers seeking reputable debt relief. Ultimately, full disclosure of business practices in conjunction with fair and equitable regulation across the debt relief industry is what is in the best interest of the consumer.