Another look back in the history of credit counseling and debt relief help. After you read the article, be sure to check the original publication date at the bottom to see how many decades these same problems have been a problem for consumers.
What is interesting is how credit counseling in 1966 would engage in debt settlement in order to help eliminate debt. But today they won’t talk about settling debt for fear of losing their creditor funding.
Enjoy this article from 1966.
Their rescue service finds ways for folks to pay up and get back on their feet
You manage to pay your month’s bills when they come due, even when it isn’t easy. Not everyone is that lucky. The “financially overextended,” a class that makes anywhere from $1,000 to $100,000 a year, runs in the red chronically. Finally a day comes when they can’t fend off creditors any longer. The jig is up. They are bankrupt.
Some folks can’t help it. A personal calamity– illness, loss of job, a poor investment — puts them in too deep.
Others just don’t know to handle money or credit. They muddle and bungle for a while, eventually go under.
Last year there were 180,323 bankruptcies, 91% of them personal. The rate is skyrocketing.
Many bankruptcies may be prevented in the future. Rescue is on the way- available in about 40 cities already- to snatch the debt-ridden out of their troubles, before it’s too late.
Remarkably, enough, the rescuers are loan companies, bank, retail merchants and other credit granters, the very ones who made crushing debt possible to begin with.
Who goes bankrupt?
A Michigan State University study tells what the average bankrupt is like. He’s a man, 30 years old, who got as far as the tenth grade and has a blue-collar factory job that pays him $4,650 a year. He has a wife and three children. And he owes 14 creditors a grand total of $3,180, not counting the mortgage on his home.
The deeper in debt he gets, the more frenziedly he spends. (One man bought four sets of encyclopedias on time.)
Finally, under the crush of bills, duns, threats of seizure and garnishment, he turns to the courts for relief. This costs an additional $250 or so.
But should he have gone to the courts? According to the study, three-quarters of these bankrupts could have paid off their debts within three years. Admittedly, it would have taken self-discipline and a certain amount of luck for many of them. But the other quarter could have pulled themselves out of the hole while still living “comfortably.”
And contrary to what you might think, some merchants and money lenders willingly give a bankrupt additional credit, simply because he can’t go into bankruptcy again for six years. A University of Utah study reports “some lending companies actively solicit bankrupts to be their customers.”
There’s no question that when a person chooses bankruptcy everybody loses. The bankrupt loses because bankruptcy doesn’t teach him how to handle money and credit; nine times out of ten he’ll be back in debt before many months. His creditor loses money and goods and so must charge more to his solvent customers. So they lose, too.
To stop the round of losses–and perhaps, as its critics allege, to forestall possible government regulation– the credit industry is setting up and bankrolling its rescue service, a chain of locally controlled counseling agencies for people who are having trouble keeping afloat financially.
The agencies have been springing up at the rate of two or three a month since the beginning of the year. See the box on this page for a list. In most cities, they are known as Consumer Credit Counseling Services. Some seek donations from all types of business within the community; others levy dues. Generally, their services are free, although, in a few places, such as Salt Lake, Phoenix, Chicago and Sacramento, nominal fees are charged. This is usually $5, and can be waived in dire cases.
Where to find help
At last count, the Consumer Credit Counseling Services described in the accompanying article were is existence in Kansas City (Mo.); Wichita, Salina (Kans.); Cleveland; Charleston; Albuquerque; South Bend, Goshen, Elkhart, Indianapolis, Ft. Wayne (Ind.); Buffalo, Mineloa (N.Y.); Newark; Oakland, Sacramento, San Diego, Santa Ana, San Jose (Cal.); New Orleans; Nashville, Memphis; Salt Lake City; St. Petersburg; Atlanta, Savannah; and Philadelphia.
Others are operating in Columbus (Economy Budget Service); Phoenix (Family Debt Counselors); Shreveport (Family Debt Counseling); Chicago (Family Financial Counseling Service); Tucson (Family Debt Counselors); and Baton Rouge; Des Moines; Painesville (Ohio); Bremerton, Spokane (Wash); Helena, Great Falls (Mont.); St. Paul; Emporia (Kans.); Lewistown (Pa.); and Bridgeport (Conn.).
Services are about to open in Baltimore, Charlotte and Oklahoma City.
If you want a family counseling agency for your community, information is available from the National Foundation for Consumer Credit, 1411 K St., N.W., Washington, D.C. 20005.
No loans, no pooling
The bureaus do not make loans. Nor do they usually suggest borrowing to replace old debts with new. Instead, they have one or two staff counselors whose sole function is to give advice on budgeting and managing money. If need be, the counselor will intercede between the debtor and his creditors. He may persuade them to stretch out a payment schedule that is too tight, get them to halt interest charges or even settle for less than full payment.
The plan is completely voluntary. But if an imperiled debtor drops out and it looks as though he’s not going to make good, the angry letters, dunning calls, garnishments, attachments and repossessions may well pick up right where they left off.
The present network of services was pioneered 11 years ago by an Ohio finance company, Capital Finance Corp. of Columbus, when they city was plagued with cutthroat commercial debt counselors or “proraters” who were charging exorbitant fees to consolidate their clients’ debts.
Consumer Credit Counseling originally started as Economy Budget Service. It was then the brainchild of the late Leon J. Ingram, president of the Capital Finance Corp., a public-spirited 18 state, small loan company which financed and operate it entirely alone at a $15,000 annual cost for 12 years. On August 1, 1967 it was taken over as a community sponsored project. (Social service outlook, Volumes 3-4, New York (State). Dept. of Social Services, New York (State). Dept. of Social Welfare)
These commercial debt-curing plans were rarely carried out, either because some creditors would refuse to go along or the debtor couldn’t live within the plan set up for him, or both. The upshot in many cases was that the debtor merely got more debt, while unethical operators were getting their cut from their clients’ first payments.
Within months after Capital Finance opened its free Economy Budget Service, as it is still called in Columbus, the last commercial prorater had quit town. Today debt pooling for a fee is outlawed or regulated in 25 states, including Ohio.
In 1958, a somewhat similar service was started in Phoenix, known as Family Debt Counselors. It charges a small fee.
From these two experiments grew the idea of the Consumer Credit Counseling Service, now under the sponsorship of the National Foundation for Consumer Credit, Washington, D.C. The foundation is a nonprofit group supported by banks and other lending institutions, manufactures, wholesalers, retailers and insurance companies. It sponsors research and education connected with credit and its uses and distributes a booklet, Using Our Credit Intelligently, to high schools.
The foundation’s education director, Alfred R. Hackbarth, says features of both the Columbus and Phoenix plans have been combined in the new counseling services. Local sponsorship and money now comes from a cross-section of the business community rather than just from loan companies, and the local governing boards include clergymen, teachers, lawyers and labor leaders as well as businessmen.
“There are a lot of people we can’t help,” Hackbarth admits. “But if someone is doing his best to clear his debts and is willing to work at it with us, we’ll do all we can to help him.”
Suppose you were in trouble…
Here’s what the help consists of.
A client, rich or poor, comes to the office, often referred by a creditor, an employer, a lawyer or a social worker. He is financially strapped in some way and needs help to get straightened out.
He is given a set of forms to fill out, usually at home. They will give a detailed view of his financial situation, where his money comes from, where it’s going. Included is a letter warning him that the road ahead is not easy. “Only you can get yourself out of debt…you may have to accept some changes. Certainly you must not create new debts or obligations…there will be difficult decisions to make, between what would be nice or convenient to have and what is really necessary.”
If the client accepts these terms, a preliminary appointment is set up. The completed forms are brought in and all creditors are telephoned and asked to suspend any collection activity, pending a counseling interview. Unpaid balances and terms are verified and, with the client’s permission, a schedule of debts is sent to each creditor.
Then a counseling interview is held. If the client is married, the service usually requests that the wife be present. In two or three hours, the situation is discussed, problems are analyzed and a solution, if one is possible, is worked out and confirmed in writing.
In many cases no further help is needed. “The mere fact that expenses have been corralled onto a piece of paper is often all it takes to help get straightened out,” says Hackbarth.
The client may be asked to turn over his entire paycheck to the counseling service. A detailed budget is worked out, which may not even include a clothing allowance or an emergency kitty. A special checking account requiring signatures of both the client and the counseling service may be set up. The client is encouraged to come in periodically to go over his bills with a counselor and write checks.
If even a bare-bones budget won’t do the trick, payments may have to be stretched out or each creditor may be asked to suspend interest charges or lop off a proportional share of what’s owed him [Debt Settlement]. All this takes hours of telephoning, sometimes with as many as 40 creditors. If any one of them won’t go along, the whole plan is in jeopardy.
If it appears that the case will drag on for more than a couple of years, the client may be referred to a lawyer or the Legal Aid Society.
The services never directly recommend filing for bankruptcy. Nor are clients told where they should or should not stop. “We’ve got to maintain strict neutrality in this business,” says Hackbarth, “or we’ll soon lose the confidence of the creditors. If that happens, the whole operation might as well fold.”
Other debt aids, too
This article describes one kind of debt counseling service. There are others–public and private–that can help, too. Some are free, some are not.
Family Debt Counseling is sponsored by the International Consumer Credit Association, 375 Jackson Ave., St. Louis, Mo. 63130. The program is similar to that of the National Foundation for Consumer Credit and is supported by the retail credit industry. Services are free.
The American Association of Credit Counselors, 213 S. Wabash St., Chicago, Ill. 60604, has about 50 members who practice ethical commercial counseling for a fee, between 10% and 12% of the amount of debt involved.
Various welfare and mission groups also offer clinics and guidance on money management problems in some cities. In others, these services are available from Legal Aid Societies, courts, credit unions and universities. The federal government’s Office of Economic Opportunity also sponsors debt-counseling projects in several cities.
You’ve got to want help
Hackbarth estimates that counseling services can help about half the people who come to them. Some 10% to 15% are sent elsewhere. “They may be having money problems, all right,” he says, “but the real reason for it may be some family or emotional disturbance.”
Others decide the road to solvency is just too grim. They drop out. Sometimes they move away. Sometimes they declare bankruptcy.
Most of these services are so new that impact is hard to gauge. Family Debt Counselors in Phoenix has recouped about $3,000,000 from some 1,500 clients. Economy Budget in Columbus has handled over 6,100 inquiries. More than 5,500 of these were interviews and 1,164 who owed $1,507,042 have actually been through the program. About half of this money went to banks, finance companies and savings and loan institutions, the remainder to everyone from doctors to discount stores.
In some cities, so many people seek help that getting an appointment can take weeks. The bureaus are small and a counselor can handle only two or three clients a day.
Some clients feel they are put on budgets that are too lean. One wife signed on without her husband’s knowledge and there was considerable embarrassment when he found out by chance. Some debtors don’t like the idea of their bosses or creditors being let in on their troubles. Some don’t go for the discipline.
Nevertheless, one striking statistic stands out. As far as is known, no credit-counseling client who has stuck by the program and pulled himself out of debt once has ever had to go back for a second lesson.
July, 1966 Kiplinger’s Personal Finance