CHRIS VIALE
‘Incorrect accusations’

What once was a business geared toward helping people get out of debt and on the road to financial recovery is now preying upon the very consumers it purports to help, according to the U.S. Senate Government Affairs Permanent Subcommittee on Investigations.

Several nonprofit credit counseling agencies have been targeted by the Senate panel for alleged abusive marketing practices and “read between the lines” scams that have channeled millions of dollars from cash-strapped debtors to the credit counseling agency executives, violating federal tax and fair trade laws. Among the agencies cited for questionable practices by the Senate probe is a national credit counseling firm based in the Bay State.

Agawam-based Cambridge Credit Counseling Corp., a national nonprofit organization providing credit counseling since 1996, was one of several agencies questioned by the Senate panel about its business practices. Also questioned by the subcommittee were national corporations AmeriDebt, which according to its Web site is no longer accepting clients; DebtWorks; and Minnesota’s community-based FamilyMeans Consumer Credit Counseling Services.

“There is a big problem in the industry and the problem is that credit counseling firms, based on the statistics they receive, think they can just do the debt management piece [with the client] and not offer face-to-face counseling, and do this in 15 to 20 minutes and money can be made,” said Mel Stiller, chief executive officer of Boston-based Consumer Credit Counseling Services of Southern New England.

Witnesses who recently testified before the Senate panel, including an ex-employee and ex-customer of Cambridge Credit Counseling Corp., said that the agency did not pay creditor bills on time and that employees were told to give fake names when talking to prospective clients.

Cambridge Credit Counseling Corp. executives acknowledged that there is a problem with people being taken advantage of in the credit counseling industry, but maintained the problem does not lie with Cambridge Credit.

“There is clearly a problem in this industry and I don’t think anyone disagrees with that. But it’s a problem limited to a few companies and we are not one of those companies,” said Montieth Illingworth, Cambridge Credit corporate spokesman.

‘Political Grandstanding’

Illingworth said the Senate subcommittee reviewed the corporate information – including the number of clients and fee structures – but said it did not take into consideration that Cambridge is a national company rather than a local company focusing on a small community.

“When the subcommittee looked at our client numbers and fee structure and reserves, they said it wasn’t the 1950s model they understood. The subcommittee wants to roll back the clock and, on a limited basis, that may have a marginal level of success, but my personal opinion is that this was political grandstanding by making the contrast between the company like ours and a small company based somewhere in Minnesota,” said Illingworth. “The subcommittee pursued this as a prosecutorial manner and they developed a thesis and fit the facts to prove their thesis.”

Cambridge Credit Counseling Corp., a nonprofit provider of credit counseling and budget planning services to clients nationwide, testified on behalf of advancing recommendations for reform within the credit counseling industry, but protested a report issued by the subcommittee, which noted that the “clearly excessive” fee structure of Cambridge Credit is the highest of any credit counseling group it investigated.

Chris Viale, Cambridge Credit Counseling’s chief operating officer, said the report, “Profiteering in a Non-Profit Industry: Abusive Practices in Credit Counseling,” misstates facts, asserts questionable legal conclusions and provides unrealistic recommendations for reform. Specifically, Cambridge Credit Counseling is protesting aspects of the report including citations that fees are not fair or reasonable and are not accurately disclosed to consumers. The subcommittee also questioned Cambridge Credit’s “complex web of interrelated nonprofit and for-profit entities,” noting that its for-profit affiliates are capitalizing on the customers who enroll in Cambridge Credit’s debt management programs. “Almost every possible operation of Cambridge is contracted out to a related for-profit entity,” which earns large amounts of money from the nonprofit parent, the report said.

“While purportedly operating nonprofit, educational entities, the individuals that own and operate the Cambridge Â… conglomerate have grown extremely wealthy from their activities,” the report concluded.

Cambridge Credit’s Viale said that such affiliations between nonprofit and for-profit groups are not unusual, however, and disputed the report’s conclusion that such arrangements are improper.

The Internal Revenue Service recently began auditing 50 credit counseling agencies, including Cambridge Credit, and has a new program for reviewing applications for nonprofit status.

Fake Names and High Fees

In testimony before the Senate subcommittee about two weeks ago, retired museum director and ex-customer Raymond Schuck said Cambridge Credit Counseling Corp. promised to lower his interest rates and help him make monthly payments on his $90,000 credit card and bank debt. But, Schuck said, money he paid to Cambridge Credit Counseling never made it to the creditors.

Schuck testified that the agency took his first $2,000 payment and applied it to a counseling fee, resulting in unpaid bills and additional late fees. Schuck said he eventually was forced to file for bankruptcy.

Viale, however, said the accusation was simply untrue.

“The client of our program made accusations Â… and all of his accusations were incorrect. He signed our service agreements 14 days before sending in initial payment for the program,” said Viale. “If you can read English, our contract clearly states where the fees are going. It’s done twice in disclosures to clients.”

Illingworth clarified that the $2,000 initial client payment goes toward the counselor’s labor fees, which include communication with the creditors, overhead and upkeep on computer systems and “countless hours of time” that Illingworth said counselors spend in setting up client fee budget structures.

Ex-employee John Pohlman told the subcommittee that his time at Cambridge Credit Counseling was spent in a “boiler room” work setting where employees changed their names and received commissions based on the number of customers they signed up per day. Pohlman said managers posted “leader” and “loser” boards to show which employees made the most and least sales, and counselors were told to get the client to sign on to the agency’s debt management program in no more than 15 minutes. Pohlman said that was not enough time to find out about the client’s financial history.

But, according to Viale, Pohlman had only been at the company for six days and was in a training program, so he was not familiar with the role of a typical Cambridge Credit counselor.

“The ex-employee worked here for six days, counseled for nine hours on the phone and never got into a budget discussion with the consumer, and he made accusations that said there is no disclosure discussion but that is completely false. He was still in the training process,” said Viale. “As for the fake names, yes, maybe 10 to 15 percent of our counselors pick other names because there could be 10 other Bob’s working in the company. The leader board is a productivity and self-improvement board for counselors and is simply a motivational tool.”

Viale said the subcommittee staff failed to acknowledge that Cambridge Credit has been licensed, its fees approved and is subject to annual examinations by four state banking authorities. Maine, New York, Michigan and Connecticut have granted licenses to Cambridge Credit.

But another authority may soon regulate Cambridge Credit: the commonwealth of Massachusetts.

While this debate over credit counseling abuses heats up on a national level, here in the Bay State members of the Legislature’s Joint Committee on Banks and Banking redrafted and approved a bill mandating that all credit counseling agencies operating in the state be licensed by the state. The bill, S.2266, is currently sitting in the Senate and awaiting approval before moving to the House for a vote.

“It’s very troubling, looking at this testimony regarding the practices of Cambridge Credit, and in particular how they have treated some of the people in the industry,” said Rep. John F. Quinn, D-New Bedford, co-chairman of the bank committee. “These people [in need of credit counseling] are the most vulnerable people. They are in trouble financially and looking for help and to take advantage of them is outrageous.”

The bill, sponsored and co-authored by Quinn, requires that all credit counseling services obtain a license from the state Division of Banks, stipulates that all fees paid to a consumer credit counseling service must be deposited into a trust account at a federally insured bank, prohibits a consumer credit counseling service from engaging in the practice of law and mandates that the consumer credit counseling service must provide clearly written consent and full disclosure forms to all clients outlining costs associated with participating in a debt management program and any effect it may have on the client’s consumer credit rating.

Illingworth, however, said legislation is not the best way to fight abusive practices in the credit counseling industry. Credit counseling companies need to work together to protect and better serve consumers in financial debt, he said.

“We wish the [U.S. Senate] subcommittee would come to visit us so that we can help them understand what the right public policy should be,” said Illingworth. “The decision, which this country as a whole needs to make, is that we can’t let one group – Congress – commandeer the issue. We all need to work together instead of against each other.”

Executives at Cambridge Credit Counseling say problems exist within the entire credit counseling industry and community-based, one-on-one counseling services are not filling the needs of a national audience.

“The model the subcommittee outlined is one of social and community scope that provides value to their specific communities, but it’s not a national-scope business model. There are only 200 community-based organizations providing counseling where someone can come in and talk face to face with someone, but there are more than 200 cities in our country. We do the same work for our communities, and more, and we’ve taken our scope of service to a national level,” said Viale.

Stiller disagrees with that assessment and said over-the-phone conversations about credit card debt are not solving the overall problems faced by consumers.

“In a traditional counseling session, when you come in we find out what happened. What is the root cause, compare income with expenses, and we talk about a whole range of options,” said Stiller. “Only doing debt management over the phone in 20 minutes does not get to the root problem or give them [debtors] the tools to [solve] future problems.”