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The Culture of Harassment and Credit Counselling

April 30, 2013

By D. P. Welbanks

The distance between unlicensed and licensed credit counsellors is far too short. The need is even greater to regulate activities that purport to counsel people. Counselling is a specialized term that implies a wide variety of benefits including trust being given to those who call themselves counsellors to act like counsellors. The following is an excerpt from Almost Empty

“Credit counseling appeared in the United States as the first credit casualties fell to the cold, cold ground of debt collection. In April 2003, a report entitled, “Credit Counseling in Crisis: The Impact on Consumers of Funding Cuts, Higher Fees and Aggressive New Market Entrants, it was revealed, “ in the 1960s, the credit counseling industry developed through the efforts of credit card companies that saw a creative opportunity to recover overdue debts. Debt Management Plans (DMPs) have always been their feature service.” Here the consumer was promised lower interest, one convenient monthly payment, an improved credit report, and no further creditor pressure (or harassment). Often these claims were false and/or exaggerated. The report summarized a historical list of abuses:

• Deceptive and Misleading Practices
• Excessive Costs
• Abuses in Non-Profit Status
• Decline in Consumer Education and Counseling Options
• Improper Ties to For Profit Businesses (such as lenders)
• False and/or deceptive advertising.
• Agencies paid for referrals.
• Agencies purchased debts from consumers and other third parties.
• Agencies made loans to consumers and received compensation for referring consumers to lenders and creditors.
• Agencies compensated employees or contractors based on any formula that provided commissions or incentives tied to the numbers of consumers enrolled in debt settlement or debt management plans.

The above list of abuses demonstrated how credit counselling formed part of a culture of harassment. Many of the not-for-profit profit charitable boards further abused their non-profit status to hide their profit making agendas. No such review of credit counselling has ever happened in Canada.

Credit counselling enjoys respect from other professionals primarily by association. The public have faith in counselling as a science and assume similar principles are at play with people with financial problems.

Social workers and clinical counsellors generally avoid financial issues. The professionals – lawyers, accountants, financial advisors, lenders, clinical counsellors, marriage therapists, social workers – tend to adopt a distrustful attitude towards debtors and drop these cases at warp speed if they should find out they don’t have any money. They are only too happy to hand off struggling debtors to someone else, and it is noteworthy, part of the cultural distaste for struggling debtors involves a generalized phobia of bankruptcy: “Anything but bankruptcy.”

Credit counsellors benefit from this public prejudice which strives to elevate their professional status above the bankruptcy trustee. Credit counsellors present themselves as a superior option to bankruptcy and bankruptcy trustees.

It is important to mention that this perception, fully rooted in the instant gratification culture, misleads many into believing that bankruptcy should be avoided. However, bankruptcy plays a fundamental role in the modern social justice framework. It has a critical job to do. Trustees in bankruptcy are subjected to rigorous examination and study to acquire a license and are compelled to keep up to date with the fast pace of evolving statutory and case law.

An amendment in 1992 to the Bankruptcy and Insolvency Act inadvertently gave credit counsellors (debt poolers for those licensed to credit counsel by the provinces) an opportunity to get a professional designation and allow them to call themselves ‘qualified’ counsellors without too much academic study or prolonged research.

Although this program was restricted to bankruptcy filings and really developed for trustees and estate administrators, it opened the door to outsiders. Overnight, with the speed of parliamentary proclamation, it enhanced the status of credit counselling in Canada tremendously. It also provided a propitious new source of revenue for outsiders (and additional fees for trustees) at an increased cost for the bankrupt.

Credit counsellors could now advertise they were qualified counsellors, even though the certificate related only to bankruptcy and mandatory counselling sessions under the Bankruptcy and Insolvency Act. This may have improved the quality of credit counselling for those who acquired the certificate, but it still fell terribly short of the academic and professional criteria for social workers and clinical counsellors i.e. any other counselling designation. Other professionals would see the idiom, qualified counsellor, as something more comprehensive than the restricted circumstances of debtors immersed in a bankruptcy proceeding.

Unfortunately, the provinces did not respond to the federal initiatives to help debtors and improve the credit counselling process.”

As was the case with debt settlement companies, there are many licensed and unlicensed credit counselling companies that provide helpful services at reasonable fees for debtors. However, the distance between licensed and unlicensed credit counselling/debt settlement activities is intolerably small that, in essence, places all consumer debtors in a position of vulnerability and potential manipulation.


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