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Confession of a Downtown Credit Counselor
A little over 5 years ago, I remember making a trip out to Brooklyn Polytech Institute to offer faculty and staff there a free credit and debt counseling seminar. At that time, I was representing a public non-profit consumer credit counseling agency I co-founded back in 1996, and these free seminars were a significant part of maintaining compliance with the IRS. They were free to all attendees, and free to the organization, agency or company hosting. Back in 02 and 03, consumer credit counseling was under increased scrutiny and growing suspicion due in large part to the bankruptcy filing of Ameridebt, the nation’s largest consumer credit counseling agency. Ameridebt had been caught mismanaging funds and misrepresenting themselves to the public, calling all non profit credit counseling into question. As time went on, more agencies were coming under investigation for funneling profits to for-profit entities and misrepresenting their services to the public. As a 34yr old, still holding on to his last shreds of idealism, I remember thinking aloud on that September day I took the R train out to Brooklyn that “nothing was sacred anymore,… nothing.”
As a small non profit who couldn’t afford mass advertising on TV or radio, we had availed ourselves to speaking engagements and word of mouth referrals as far back as the late 1990’s, as our primary source of advertising. The seminar route was nothing new to us. Since the late nineties we had spoken for free to Church groups and urban development leagues throughout the five boroughs. And by 2002 and 2003, we had extended ourselves to various EAP programs throughout the city of New York in hopes of building a client base and possibly educating a few people as to the inherent dangers of credit card debt, predatory lending and how to properly manage money for unconventional real estate purchases.
As usual, I was armed with an arsenal of educational information from the American Center for Credit Information, HUD, and Fannie Mae. The load included several little workbooks designed to assist potential first time homebuyers in decision making. I think one title, “Knowing When the Time is Right for You,” read like a teenage dating guide. The others, like the “Basics of Budgeting,” and “Money in Motion” also had their distinctly perverse dummied up definitions of fundamental money terminology. But that’s not to say they were devoid of any worthy educational merit. I knew however, drawing on previous experience that the majority, if not all, of these books would never see the light of day. What most people turned up to these seminars for was to learn the secrets of credit repair using the form-letter dispute format. They also came to heat about the legally enforceable statute of limitation on bad debts, or advice on expunging an unpaid judgment. Based on free follow up telephone counseling I’d extend to seminar attendees, I’m confident in saying that money management technique or the consequences of misunderstanding a balloon payment or adjustable rate sub prime loan were very low on the totem pole when it came to the substance of these seminars.
To me, this seminar would be yet another bad example that preaching the dangers of predatory lending practices and sub-prime loans was a complete and utter waste of time. All people wanted to hear about was how to navigate the shortcomings in the credit scoring and reporting system so they too could get a mortgage. After all, everybody was doing it. Mortgages were the latest fad, or addiction, depending how one looked at them. Personally though, I was growing increasingly pissed off over the latest hypocrisy surrounding the credit and debt counseling ‘industry’ where as our beneficiaries, commercial banks and credit card companies, stipulated that our funding would be strictly contingent on our educational merit to the communities in which we serve, and not on how much money we were returning to them through our consolidation programs. This declaration still stands out as one of the most outstanding lies I have ever heard in my life as all credit counseling and credit education was now done over the telephone and the internet. Seminars had been replaced by chat rooms and streaming video. And counseling now consisted of one 20 minute conversation with a certified credit counselor over the telephone who was more interested in enrolling you into a debt consolidation plan than providing any worthy information pertaining to budgeting and money management.
My agency’s face to face method of counseling and education were dead and gone. Banks and credit card companies are just as reliable as any profit driven company when it comes to putting up the facade of social responsibility. It’s just good business, I suppose. They really didn’t want us out there standing on ceremony preaching the inherent dangers of their products too vociferously. And they didn’t want us out in the community blatantly undermining the subprime marketplace because of the money to be made there. After all, as one beleaguered mortgage broker put it to me after I had warned a contingent of 300 first time homebuyers about obtaining subprime loans – “who are you to trash these people’s dreams.” Good question I thought – who was I?
The best I could hope to gain on this particular day in Brooklyn, was a letter, on BPI letterhead, from the Director of the EAP program verifying my appearance on the spot. Typically I’d wait months for such a letter, and sometimes they never came at all. But, we still needed to show up to keep the powers that be off our backs. It also meant yet another day away from my office not addressing the backlog of debt management proposals I needed to send to numerous credit card companies on behalf of an ever growing number of ordinary people who had fallen victim to the old American virtue of buy now and pay later. They were ordinary people who were extended far too much credit given their annual incomes. Ordinary people who never really learned the basics of budgeting. Ordinary people who always believed that ‘next year will be my break out year.’ They were ordinary people who now had to pay up.
It was also around this time 5 years ago where I first starting hearing the term “sub-prime mortgage” on a fairly regular basis. I’d heard it in passing years before but the term was reserved for individuals whose credit scores were too far gone for anything conventional in the mortgage market. Previously, sub-prime was synonymous with hard-money loans. Suddenly, it had a newer significance as the sub-prime market, now backed by more conventional deposit institutions, was bustling in full swing, driving some mortgage specialists and lenders into a frenzy with the sea of money to be made off of extending these difficult loans to individuals with already compromised credit. I also remember thinking to myself in no uncertain terms, one day this will cause some real problems.
On numerous occasions, far too many to recall, I’d had the conversation with my dedicated, but tired business partner about the day when everyone would have to abruptly stop and entirely re-evaluate their ideals, attitudes and most importantly behavior when it came to borrowing money. Our conversations often left us both in complete disbelief at the shortsightedness of not just of the banking community, but also of the human condition itself. Still wrapped in the hope that one day justice would prevail, we’d remark at great length about the thoughtlessness that overtook people when the chance to make a quick buck came into play. It appeared so academic to us that sooner or later everyone would feel a swift and severe backlash from the fury of subprime loans, and, yet again, it would be left to the innocent to clean up the mess. To what extent the average, everyday American would be footing the bill on this, we hadn’t a clue. We suspected however, it would be far worse than anything we had witnessed in previous years.
Something remotely similar did come to mind with the demise of the dot-com industry in the late nineties that culminated with the market crash back in 01. Business in the credit and debt counseling industry did experience a sharp increase in the fall of 01 and winter of 02 as it seemed thousands of people lost jobs in New York City seemingly overnight. Suddenly, a whole new type of debtor appeared. One who had never been in such a position where credit cards were now used as a means of survival, rather than a convenient type of payment alternative. A number of people we tried to assist back then with debt management plans and monthly budgets defaulted on their repayment plans. Many declared insolvency with a chapter 7 bankruptcy as entire debts could be expunged at that time. And par usual, the losses were simply passed on down to the timely cardholder in the form of a fee or a rate increase of some sort.
Our premature prediction of the subprime meltdown however, presented an entirely different kind of crisis both in scope and kind. This would be unprecedented financial devastation and upheaval on a large scale basis. Markets would be vulnerable to collapse around the globe. Financial institutions, even some of the most reputable and storied, would disintegrate in an instant. Jobs would be lost. Retirement packages would evaporate. People’s entire life savings would go right down the tubes. Full on financial Armageddon would be at hand. Back in 03 and 04, I was accused, more than once, of being overdramatic.
I started to become somewhat of a zealot on the subject and often had many of my family members, friends, and peers at odds with me. Many of them would patiently watch me go off on one of my animated tangents about how one day we would all have to face this beast and it wasn’t going to be pretty, I’d stammer. In retrospect, I believe that many of these little rants or furies were also rooted in the resentment I harbored towards the credit and debt counseling industry. It’s true. I hated my own. By 2004, many of the nation’s largest consumer credit counseling agencies had their non-profit status revoked for mismanagement of their trust accounts and their ties to for profit businesses. They had succeeded brilliantly in destroying the distinction and legitimacy I had worked so hard to achieve and refine. I had in fact, established the only New York State Licensed, COA Accredited public non profit ever. I worked my ass off for 8 years to achieve this merit, and I never cut corners, took favors or pocketed a single dime that didn’t belong to me. In short, I guess I was pissed because the same greed had now penetrated my own industry exposing the hypocrisy. But, that still didn’t mean I was wrong about what was to come. A little insane and consumed, yes. But wrong?
I started to watch the stock markets and lending rate fluctuations in an obsessive manner thinking that the dominos were about to start to falling any day now. At some point, I began losing weight and sleep as the banks continued with their funding cuts and my job was now in eminent peril. If we didn’t have a proposed merger in the works with a larger independent agency, I’d have been in receivership myself back in 2004. Just getting a non profit credit counseling agency up to speck can set one back tens, if not hundreds, of thousands. No mind, I figured our services would be in such demand once the rash of foreclosures came about, benefactors would be throwing money at us in order to assist in maintaining economic equilibrium.
But, the sub-prime lending brigade marched on seeming to only to gain momentum throughout 2005, and part of 06 as well. Couldn’t anyone else see this for what it was? I’d hear stories from friends about mortgage brokers who’d advise them to walk on all of their credit card debt and use the money for repayment as a down payment on a piece of property. “Sod your cards with FUSA and MBNA, I can still get you a loan in spite of your paying history,” one of my friends was told. And the initial rate could be refinanced in 12-24 months the pitch went on to say. “At least you’ll own something that you can sell.” How American I thought.
For whatever reason, maybe the impending doom of the inevitable crash or my own personal insolvency, I started feeling a sense of urgency with my work, especially when it came to educating the public. I took any venue provided to voice my hostility towards what was happening. Even students at my ‘understanding and managing your credit and debt’ class at the learning annex didn’t escape my rants. Funding for the agency continued to decline considerably until it was almost abolished entirely save for a few loyal but insignificant patrons In part this was due to maximizing quarterly returns for the banks that funded us, but mostly, I believe it was about snuffing out any voice that was out there preaching the evils of sub-prime lending. The banks loved the fact that we used to assist them in collection efforts, acting as a friendly alternative to traditional collection practices offering budgeting and sound financial advice, but they clearly didn’t want us out there warning people about the dangers their products.
Sadly though for me, as 2005 began to wane and merger talks with my agency were disintegrating, I began to feel my own mortality as a credit counselor more than ever. Funding had been stripped to basic operating expenses, leaving little or no room for salary. The work I once deemed so esteem able and necessary was worth literally nothing to anyone. Here I was on the verge of my 37 birthday, looking back on my last 9 years of work with nothing to show personally. No wife and kids. I’d sacrificed that life for my cause years before. No money stashed away as everything I ever made went back into the agency. I was as broke as many of my clients were. And, no real transferable job skills. The last two years searching for work has been an exercise in futility as far as work in commercial banking or finance.
I’ve tried to salvage some good I may have done. And I suppose on some level, I did. Every now and then I’d get a card from a former client or seminar attendee or student who had my class telling me that something I said had helped them in getting their personal finances back in order. But I can’t shake that nagging feeling that I was never really allowed enough time or opportunity to vocalize my opinions, and coordinate real change in the form of appropriate regulation. For if I had, perhaps none of this imminent peril would be upon us. But then again, who was I too think I could have made any real difference anyway. I was just a kid playing businessman in lower Manhattan. At my agency, we’d never had any real money behind us but we were constantly challenging some of the biggest banks in the world to a public fistfight. We’d go on record with anyone who’d listen to us about the impending disaster. In retrospect, I was screaming at the top of my lungs for people to take notice of the sub prime credit catastrophe that would one day render us financially impotent, but no one really wanted to hear that in a time of pseudo-prosperity and growth. “Get back in your box, creditman. We’ll call if we need you to clean up the mess.” Only problem now is the mess is at hand and I’m long gone…….
About the Author
Jim Steele is still an active board member of CACC - Credit Advocate Counseling Corp. the non profit credit counseling agency he co-founded in 1996. He retired from his position as Vice President in 2006. A graduate from the University of Michigan Ann Arbor, Jim still lives and works in New York City
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