| Study: A funding gap in bankruptcy
counseling |
| By Brigitte
Yuille • Bankrate.com |
|
Credit counseling agencies say they're losing millions
of dollars and may have to offer less personalized service, thanks
to the new federal bankruptcy law.
The National Foundation for Credit Counseling, or
NFCC, agencies that are approved to participate in the bankruptcy
counseling fear that even though bankruptcy filings are currently
at a 20-year low, increasing interest rates, regulatory changes
on minimum payments and the high percentage of adjustable-rate mortgages
will increase bankruptcy filings to previously high levels.
"We have seen an uptick in the number of consumers needing
the counseling, which is corresponding with the gradual increase
in filings," says NFCC President and CEO Susan Keating. "Overall,
we would expect a normalizing of the filing load to occur at some
point later this year, which equates to sizable counseling increases."
That's bad news for the 106 NFCC member agencies administering
the bankruptcy counseling, because they could lose as much as $12
million this year if the number of 2006 bankruptcy filings hit the
number currently projected by industry experts.
The agencies make up more than two-thirds of all credit counseling
agencies approved by the Department of Justice's Executive Office
for U.S. Trustees, or EOUST, to provide the bankruptcy counseling.
According to NFCC's recent report, the average pre-filing credit
counseling session across the three
different methods of delivery -- in person, over the phone or
on the Internet -- costs agencies, on average, $50.86 per session.
The study also found that the average fee their member agencies
receive for the estimated 90-minute session is $37.71. This amount
takes into account those individuals who have had their fees waived.
That means a $13.15 deficit for each session.
Here's the breakdown in cost for each method of delivery:
| The National Foundation for
Credit Counseling, parent group of the Consumer Credit
Counseling Services agencies, says that agencies are spending
more on the new bankruptcy counseling sessions than they
are taking in. Here are the foundation's numbers. |
 |
|
The NFCC members initially found that they would need to more than
double their counseling volume to meet the demands of the new law.
The NFCC estimated that it would need $20 million for its agencies
to hire and train enough qualified counselors, purchase computers
and other needed infrastructure, and cover the cost of the actual
counseling session.
The NFCC reached out to credit grantors and financial companies
that supported the changes to the law. The report says the Council
on Consumer Finance, a group of financial service companies under
the Financial Services Roundtable, made an initial pledge of up
to $10 million to support the credit counseling industry.
However, the NFCC indicates that it has only received 60 percent
of the $10 million at the time of the report. Steve Bartlett, president
and CEO of the Financial Services Roundtable, a trade association
of consumer credit and finance companies, says much has been done.
"To date, the roundtable has distributed millions of dollars
in two separate rounds of grants to the approved credit counseling
agencies. The grants have ranged from $10,000 to upwards of $185,000
for the agencies in each round," says Bartlett.
He says that the Financial Services Roundtable will not disclose
the total amount that it is giving to the various Department of
Justice-approved credit counseling agencies because it wants to
emphasize its support and the importance of credit counseling.
|
