Tag Archive for Credit Counselling Society

Licensed Insolvency Trustees and credit counselling agencies: the competitor-collaborator paradox

Credit counselling agencies and Licensed Insolvency Trustees (LITs), formerly known as bankruptcy trustees, offer debt relief options for debt-challenged consumers.  Credit counselling agencies offer Debt Management Plans under which a consumer will pay 100 percent to 120 percent of their current indebtedness to their creditors by way of installments.  Under federal insolvency law Trustees can offer two debt relief options; consumer proposals and bankruptcy.

In many instances, Licensed Insolvency Trustees and credit counselling agencies compete for clients.  Paradoxically, however, credit counselling agencies and Licensed Insolvency Trustees often collaborate serving as a significant source of referrals for one another.

For whatever reason, if a consumer communicating with a trustee’s office or a credit counselling agency chooses not to proceed with the “available” debt relief option then it is very common for that consumer to be given a referral.  This practice–where Licensed Insolvency Trustees and credit counselling agencies–routinely refer individuals to one another might not be in the best interests of a consumer.  An individual given this referral might not be given independent advice as to the full range of their debt relief options.

This practice of mutual referrals is based upon self-interest and not necessarily the best interests of a consumer.  If a Licensed Insolvency Trustee refers consumers owing less than $10,000 to one credit counselling agency–or a group of credit counselling agencies–then there is expectation that it will receive referrals from these credit counselling agencies involving consumers owing more than $50,000 in debt.

 

 

Most trustees decline a file where a consumer’s debts less than $10K

 

As a general rule, consumer proposals or bankruptcy do not take place where a consumer’s debts are less than $10,000.Licensed Insolvency Trustees will decline to make a consumer proposal or file personal bankruptcy where a consumer’s debts are less than $10,000.  A trustee cannot generate any net income on a consumer proposal where a consumer owes less than $10,000.  Furthermore, it doesn’t make a lot of sense for a consumer who owes less than $10,000 to his creditors to go bankrupt.  In Canada it is very common for a debt-challenged consumer who owes less than $10,000 to creditors to be referred by a Trustee to a credit counselling agency.

 

Consumer proposal a less costly debt relief option where consumer owes more than $10K

Under a consumer proposal a consumer will repay an amount–usually somewhere between 25 percent and 50 percent fo their indebtedness–to their creditors, by way of monthly installments over a period not to exceed five years.  In contrast, a consumer who enrolls in a Debt Management Plan with a non-profit credit counselling agency will pay somewhere between $1.00 and $1.20 to eliminated one dollar of their debt.  This means that for a consumer who owes more than $10,000 in unsecured consumer debt a consumer proposal is three times less expensive method for eliminating debt compared with credit counselling.

 

A consumer’s cost when eliminating debt might not be the sole factor, however, when choosing between a consumer proposal or credit counselling.  There are a number of scenarios where an individual might want to choose credit counselling over a consumer proposal:

  1. consumer proposal might not be available because an individual cannot satisfy the statutory insolvency requirement (many consumers are “house poor”)
  2. individual has significant student loan indebtedness in circumstances where the individual has ceased attending school as a full-time student less than seven years
  3. reputational issue: (any member of the public can pay $8.00 to conduct a search with the Office of the Superintendent of Bankruptcy to confirm if a specific individual has made a consumer proposal)
  4. employment-related concerns:  Some individuals might not choose a consumer proposal because they might be required to report the consumer proposal to an employer or a professional association
Affordability obstacle for credit counselling where debts exceed $50K

Under credit counselling a consumer is going to repay 100 percent of their current outstanding principal and interest owing on all of their unsecured consumer debt.  Credit counselling is attractive to some consumers because they are able to lower their payments to creditors because they are repaying their indebtedness by way of installment payments.

The fact, however, that it will cost a consumer between $1.00 and $1.20 to eliminate one dollar of their current unsecured consumer debt means that credit counselling becomes more unaffordable as the total amount of their indebtedness increases.  Few consumer proposals are for more than $50,000.  Scott Hannah, President and CEO of the Credit Counselling Society, Canada’s largest non-profit credit counselling agency, recently informed me that his organization’s average client enrolled debt in the $25,000 to $40,000 range.

Credit counselling agencies and LITs compete for clients where consumer owes $10k to $50k

As noted earlier, Licensed Insolvency Trustees seldom do consumer proposals where a consumer owes less than $10,00 to his or her creditors.  Furthermore, Debt Management Plans offered by credit counselling agencies are not common where an individual owes more than $50,000 in unsecured consumer debt.  This means that Licensed Insolvency Trustees and credit counselling agencies directly compete where the amount of unsecured consumer debt is between $10,000 and $50,000.  All things being equal, credit counselling might be a more attractive option where total indebtedness is closer to $10,000.  Similarly, all things being equal, for higher dollar amounts a consumer proposal might be more attractive than credit counselling.

Practice of mutual referrals often not in a consumer’s best interests

One of the consequences of these mutual referrals is that some consumers will be choosing a debt relief option in a bubble–limited to debt relief options offered by credit counselling agencies or Licensed Insolvency Trustees.

A consumer who is exposed to debt relief options available from credit counselling agencies and Licensed Insolvency Trustees may never be given information about the full range of debt relief options available to them including the following:

  1. Taking advantage of a limitation period to avoid paying a debt
  2. Learning that a consumer might be judgment proof or near-judgment proof in which case a creditor might never recover any monies from them
  3. Circumstances where it might be in a consumer’s best interests to negotiate a favourable one-time lump sum payment with a creditor
  4. Advice that a consumer should dispose of certain assets such as a principal residence

 

Consolidation in non-profit credit counselling industry inevitable

Canadians struggling with consumer debt spend millions of dollars to deal with their debt situation.  Some will take out a debt consolidation loan.  Some will hire a debt settlement firm.  Others will “go for credit counselling”.  Some will meet with debt consultants often referred to as “intermediaries”.  Finally, some will meet with a bankruptcy trustee, now known as a Licensed Insolvency Trustee (LIT), and make a consumer proposal or file for bankruptcy.

Make no mistake.  These debt relief service providers compete aggressively for these clients.  And a significant amount of revenues are at stake.  If you live in southern Ontario try listening to the radio without hearing an ad for a Licensed Insolvency Trustee or Consolidated Credit Services, one of Canada’s three largest non-profit credit counselling agencies.

 

Consolidation coming to non-profit credit counselling industry

The debt relief service industry is currently undergoing a period of consolidation.  We are already seeing this among Licensed Insolvency Trustees across Canada.  It is only a matter of time, however, before we will also see consolidation in the non-profit credit counselling industry.

 

The major players in the non-profit credit counselling

The Big 3 among Canada’s non-profit credit counselling industry includes Toronto-based Credit Canada Debt Solutions and Consolidated Credit Counseling Services, as well as New Westminster, B.C.-based Credit Counseling Society.  One might argue that the Credit Counselling Services of Atlantic Canada should also be included in this group.

 

3 Reasons Revenues for the Big 3 have flatlined

According to financial statements available on CRA’s website, the combined total revenues for the Big 3 have remained stagnant around $24 million since 2012, adjusted for inflation.  This is despite the fact that the Big 3 have spent, collectively, more than $4 million annually on Advertising and Promotion in taxation years 2012 through 2015.

  1. consumer proposals are becoming more popular
  2. higher household debt levels make DMPs less affordable
  3. bill collectors are less likely to “drive” consumers to non-profit credit counselling agencies

 

Consumer proposals are becoming a more popular alternative

One of the reasons that the total revenues for the Big 3 have hit a wall over the past several years is the increasing popularity of another debt relief alternative, the consumer proposal.

Consumer proposals are only available through Licensed Insolvency Trustees.  Under a consumer proposal a consumer will repay an amount–typically equal to 25 to 50 percent of their outstanding indebtedness–by making monthly installment payments over a period not to exceed five years.  In contrast, when a consumer enrolls in a Debt Management Plan he or she will repay an amount equal to somewhere between 100 percent and 120 percent of their indebtedness.

Licensed Insolvency Trustees routinely decline to do consumer proposals where the consumer has less than $10,000 in unsecured consumer debt.  Where a consumer owes more than $10,000 in unsecured consumer debt then a consumer proposal is three times less expensive to eliminate one dollar of debt.

 

Higher household debt makes Debt Management Plans less affordable

According to Doug Hoyes, Founder of Hoyes & Michalos, Licensed Insolvency Trustees, “Ten years ago a consumer who owed $10,000 could afford to do a Debt Management Plan where he or she repaid $1,100 by making monthly installments over three years. Today, however, higher household debt means that Debt Management Plans are becoming less affordable because either the monthly payments or higher or the Debt Management Plans are longer.”

According to Scott Hannah, President and CEO of Credit Counselling Society, the typical Debt Management Plan his agency sees is one where the consumer owes between $25,000 to $40,000.  He concedes that the higher the amount of money owing in a Debt Management Plan the more that affordability becomes an issue.

 

Consumers are receiving fewer collection calls from bill collectors

In the past anxiety generated by aggressive bill collectors to consumers with unpaid accounts were often sufficient motivation to persuade a consumer to contact a non-profit credit counselling agency and enroll in a Debt Management Plan.

Compared with ten years ago, however, bill collectors are much less likely to get a consumer who owes money on the phone to make a demand for payment.  Recent studies indicate that ninety percent of Canadians under 30 never talk on their cellphone.  In the future we should expect that bill collectors might get fewer and fewer consumers who owe money on the phone to make a payment demand.

 

Inevitable consolidation in the non-profit credit counselling industry

According to Scott Hannah, President and CEO of Credit Counselling Society, “in the next three years you will see some consolidation or mergers in the non-profit credit counselling industry.  I also expect that in the future that some of the smaller, community-based non-profit credit counselling agencies will no longer be financially viable in the marketplace.”

 

Share any relevant information with me and our readers

If you become aware of any information dealing with consolidation or mergers in the non-profit credit counselling industry then I would invite you to contact Mark Silverthorn at (519) 827-5513 or toll free at 1 (866) 996-9941 or via e-mail at markasilverthorn@gmail.com

Game changer: Credit Counselling Society enters debt settlement marketplace

 

This weekend I was doing a google search for the phrase “debt settlement” and I ended up on a webpage for the Credit Counselling Society.   This organization, headquartered in New Westminster, British Columbia, is one of the four titans of the Canadian non-profit credit counselling industry.  This organization has offices in every province west of Quebec.  According to its website, www.nomoredebts.org, the firm has 22 offices across a large part of Canada.

I almost fell of my chair when I read their webpage titled DEBT SETTLEMENT IN CANADA/ PROGRAM OVERVIEW.  You can find this webpage reproduced below.

 

CCSDebtSettlementpage

 

 

DebtSettlementpagesecondfromtop

DebtSettlementpagebottom3or3

This webpage appears on www.nomoredebts.org, the website for Credit Counselling Society, one of the four largest non-profit credit counselling agencies in Canada.  Purple circle has been added.

 

 

Credit Counselling Society has the potential to become the largest provider of debt settlement services in Canada

Because of it substantial financial resources and its 22 offices across Canada Credit Counselling Society has the potential to become Canada’s dominanat debt settlement services provider.  Its advertising budget is greater than all of the other debt settlement service providers in Canada combined.

 

 

Creditors support non-profit credit counselling agencies offering Debt Management Plans

The creditor community likes non-profit credit counselling agencies because they are essentially warm and fuzzy collection agencies.  Non-profit credit counselling agencies assist Canadian creditors recover tens of millions of dollars each year.  When a consumer completes a Debt Management Plan with a non-profit credit counselling agency the major banks and credit card companies recover 80 percent to 90 percent of monies owing to them–depending upon the amount of the “fair share contribution” a particular creditor pays to a non-profit credit counselling agency.

 

 

The credtior community is not favourably disposed towards debt settlement service providers

The creditor community, however, does not like debt settlement service providers.  Debt settlement involves a consumer making a one-time lump sum settlement–for an amount signficantly less than the current balance owing–as settlement in full.  It is common for creditors to agree to settlements where the consumer pays anywhere between 20 percent and 50 percent of the outstanding balance.

 

 

Creditors would prefer non-profit credit counselling agencies restrict themselves to providing Debt Management Plans

The creditor community would prefer that non-profit credit counselling agencies stick to enrolling Canadian debtors in Debt Management Plans and recovering 80 to 90 percent of monies owing to creditors.  The creditor community does not look favourably on debt settlement service providers–of any type–because creditors are only recovering 20 to 50 percent of monies owing to creditors.

 

 

Creditor community may threaten to stop making “voluntary donations” to the Credit Counselling Society

I was surprised to see the Credit Counselling Society openly advertising the organization’s debt settlement services on its website because this could invite a devastating reaction from Canada’s creditor community.  The majority of Credit Counselling Society’s revenues come from Canada’s big banks and major credit card companies in the form of “fair share contributions”.

Frankly, I am going to be surprised if the creditor community does not threaten to stop making fair share contributions to the Credit Counselling Society if it does not immediately stop not only providing debt settlement services, but also offering debt settlement services.  The risk of the loss of fair share contributions from major Canadian creditors should give Scott Hannah, the President and CEO of the Credit Counselling Society, cause for concern.

 

 

Canada’s Big Four non-profit credit counselling agencies

The vast majority of Debt Management Plans in this country are done through four major firms, all of which are non-profit credit counselling agencies:

  • Credit Counselling Society
  • Credit Canada Debt Solutions
  • Consolidated Credit Counseling Services of Canada Inc.
  • Credit Counselling Services of Atlantic Canada Inc.

Debt Management Plans are financially lucrative to firms that provide them in large volumes.  These four firms all run high-volume Debt Management Plan operations. Furthermore, these firms all compete aggressively with one another for Debt Management Plan clients.  Finally, these four firms compete with bankruptcy trustees and firms that offer debt settlement services.

 

 

Possibibility that the other major non-profit credit counselling agencies may enter Canadian debt settlement marketplace

There is a real possibility that if the Credit Counselling Society is advertising its debt settlement services to Canadians six months from now that one or more of Canada’s largest non-profit credit counselling agencies will decide to follow suit.

 

 

Contact me if you have any information about a credit counselling agency offering debt settlement services

I would invite anyone with information about a credit counselling agency offering debt settlement services to contact me.  You are welcome to call me at (866) 996-9941 or at (519) 827-5513.  Alternatively, you are welcome to contact me, via e-mail, at mark@comprehensivedebtsolutions.ca

 

You are welcome to call Mark Silverthorn if you have any information about a credit counselling agency offering debt settlement services.

You are welcome to call Mark Silverthorn if you have any information about a credit counselling agency offering debt settlement services.