Debt Settlement Industry - Public Workshop #536796-00020

Submission Number:
Frank Skrupa
Credit Advisors, Inc.
Initiative Name:
Debt Settlement Industry - Public Workshop
Statement of Frank Skrupa, founder of for-profit Credit Advisors Inc., the oldest debt management program provider in the country. (Credit Advisors, Inc. does not currently offer debt settlement.) The purpose of my statement is to ensure that the early history of credit counseling is corrected as it often misrepresented as having been started in the 1960’s by Consumer Credit Counseling. There were many individuals in the business long before the 1960s and the non-profit providers. In fact, it was founded as a for-profit industry, and was much more consumer oriented than under the subsequent non-profit model. Consumer debt relief agencies or what has also gone under the name of debt pooling, debt pro-rating, check cashing, credit counseling, debt management, etc. were originally for-profit businesses. The services included credit counseling, debt management plans, and in some cases debt settlement. The goal remained the same, represent consumer interests against creditors in their quest to become debt free. In other words, provide the consumer an advocate and liaison between them and their creditors – one working for them not the creditor. This industry began in the 1920’s. Price Patton, an early provider, started his services in the 30’s. In Canton, Ohio, Rudy Barden was the first person to create a large scale organization with 164 offices by 1956. A gentleman by the name of Rabinowitz had dozens of offices in California cities by 1955. Herb Mogul out of Saint Louis had offices in the Midwest in the 1950’s with an office in Omaha in 1955. Seattle had Larimore’s Funding. New York had a very large organization known as Silver Shield in the mid-fifties. Arizona had one of the first organizations to use the mail order business. A trade industry, The American Association of Credit Counselors, existed as early as 1955. It’s members were all for-profit and were required to abide to a specific Code of Ethics which provided for (among other things) the following: • Furnish a clear statement of the charges, terms and list of accounts to be paid. • Take no fee until the debt payment program is arranged. • Accept no account unless a written and thorough budget analysis indicates the term of payment can be met. • Make a conscientious effort to follow every program through to a successful conclusion. • Present the service on its own merits, permit no misleading advertising and avoid advertising in any manner or publication that would detract from the professional standards of the membership. • Make no payment or reward of any nature for referral of potential customers. • Distribute money received for creditors promptly, and to the best interest of the client. These standards are nearly mirrored by today’s accreditation and licensing standards and yet they were created in the 1950’s by for-profit debt relief agencies who even at that time were called credit counselors. In the mid 1950’s Household Finance and Beneficial Finance funded a study on the rise of credit counseling firms (not to be confused with the FTC’s definition of credit counseling firms which did not exist yet.) The study came to the conclusion that if debt credit counseling firms continued to exist and grow, it would be at great detriment to the small loan industry because these firms were representing the consumer’s interest. (There were no credit cards and banks did not make small personal loans so the finance companies were where people went to borrow money.) These creditors determined they needed to get rid of commercial credit counseling. So they helped to create the NFCC whose original purpose was to start lobbying the passage of legislation aimed at outlawing debt management under the auspices of “consumer advocacy.” They stated that debt management should be outlawed as there was no need for it. They achieved some success in the east such as legislation in New York in 1955 then New Jersey etc. In the process though, some states did not believe in limiting the options of consumers. When not all lobbying efforts worked, these creditors determined if they could control the industry they could control the client and therefore insure they were paid first. They began to support an umbrella of offices under the NFCC to provide debt management plans and then pushed legislation to allow that only non-profits could provide debt management. The first non profit agency started in Phoenix, Arizona and was known as Family Financial Counseling around 1959 which later became a CCCS. The NFCC also brought Price Patton in and took control of his agencies, later letting him go and keeping his agencies. He was very bitter about this outcome. However, the NFCC continued to grow in such a manner bolstered by the legislation being passed. Under the support and direction of creditors, the NFCC then became the dominant force in credit counseling whose purpose was to ensure that consumers repaid as much as possible to contributing creditors. This relationship eventually led to the Discover lawsuit whereby this relationship needed to be divulged to the consumers due to its inherent conflict of interest which continues today. Having been in the business for over 50 years, the history is very real for some of us. I hope that these hearings are able to shed light on the benefits of for-profit credit counseling which provide the only consumer focused advocacy programs and do not further protect the creditors under the shroud of creditor supported “non-profit” agencies. Respectfully submitted August 15, 2008