FYI just poking around VERY INTERESTING....part 2

Posted by researching a collection company (66.90.199.107) on October 01, 2003 at 10:27:45:

Most creditors are also becoming increasingly unwilling to reduce interest rates for consumers who enter debt management programs. In the last four years, five of 13 major credit card issuers have increased the interest rate they offer to consumers in DMPs (Bank One/First USA, Discover, Chase Manhattan, Fleet and Wells Fargo). Only two creditors, Providian and Capital One, have lowered rates during the same period, which still leaves Capital One's interest rate at a very high 15.9 percent. Sears, which generally charges interest rates above 20 percent, continues to refuse to negotiate any discount. Bank of America, on the other hand, will completely eliminate interest for consumers in a DMP. Other creditors that charge relatively low rates are Chase Manhattan, at 7 percent, and Providian, at 8 percent. (See attachment B.)

The increasing refusal of creditors to offer significantly lower interest rates causes more consumers to drop out of credit counseling and to declare bankruptcy. According to a survey by VISA USA, one-third of consumers who failed to complete a DMP said they would have stayed on if creditors had further lowered interest rates or waived fees. Moreover, almost half of those who dropped off a DMP had or were going to declare bankruptcy.

"By slashing agency funding and charging credit counseling consumers interest rates that are too high, credit card companies are leaving debt-choked Americans with few options other than bankruptcy," said Travis B. Plunkett, the Legislative Director of CFA. "It is hypocritical for the credit card industry to demand that Congress give them relief by enacting the bankruptcy bill, while closing off credit counseling as an effective alternative to bankruptcy for many consumers."

Creditors have recently made some efforts to stop the trend toward low-quality, high-cost counseling "mills." For example, MBNA will not fund an agency at all unless it meets requirements related to its accreditation status, its financial practices and the amount of fees consumers are charged. However, each creditor applies different requirements to counseling agencies. This has significantly increased the administrative burdens on and costs to agencies.

Bankruptcy Bill and State Laws Could Expose Consumers to Unscrupulous Counselors

Just over 1.5 million Americans declared personal bankruptcy in 2002. Credit counseling mandates proposed in federal bankruptcy legislation (H.R. 975) - and already a part of some state laws - could increase the number of consumers who are served by disreputable credit counselors. The bankruptcy bill would require debtors to receive a credit counseling briefing before filing for personal bankruptcy and to complete a counseling course before being discharged. Although the legislation seeks to insure that agencies meet certain standards of quality, it does not authorize funds to investigate these agencies, their fees, practices or success rates. This will make it harder to prevent shady operators from getting placed on the list of approved agencies maintained by bankruptcy courts and trustees, and to ensure ongoing compliance.

Public Policy Recommendations

1. The Internal Revenue Service should aggressively enforce existing standards for non-profit credit counseling organizations. The IRS should also use its power to impose "intermediate sanctions" when agencies pay unreasonable or excessive compensation to individuals associated with them.

2. Congress and the states should enact laws that would directly address abuses by credit counseling agencies. Among other provisions, the law should:

Prohibit false or misleading advertising and referral fees.
Require credit counseling agencies to better inform consumers about fees, the sources of agency funding, the unsuitability of DMPs for many consumers, and other options that consumers should consider, such as bankruptcy.
Prohibit agencies from receiving a fee for service from a consumer until all of that person's creditors have approved a DMP.
Give consumers three days to cancel an agreement with a credit counseling agency without obligation.
Cap fees charged by agencies at $50 for enrollment or set-up. Allow only reasonable monthly charges.
Require agencies to prominently disclose all financial arrangements with lenders or financial service providers.
Provide consumers with the right to enforce the law in court.

3. Credit counseling trade associations should set strong, public "best practice standards" and provide for vigorous, independent enforcement of these standards. They should also require that all of their members publicly disclose statistics on the number of consumers who fail to complete debt management programs. Trade associations and individual agencies should work to diversify agency funding and decrease agency reliance on creditor funding. This will improve the financial stability of these agencies and decrease the potential conflicts-of-interest that currently exist.

4. Creditors should increase financial support to credit counseling agencies, especially to improve credit counseling options for consumers who are unlikely to benefit from DMPs. Creditors should also reverse the trend of reducing the concessions they offer to consumers who enter DMPs, and immediately stop funding and doing business with agencies that charge high fees, function as virtual for-profit organizations, or employ deceptive or misleading practices.

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