An inside look at the world of consumer debt collection.

Occasionally on the blog, we like to direct you to interesting findings outside of our organization, and this New York Times article on the collection industry is too good to keep to ourselves. The title might lead on to what you can expect: Paper Boys: inside the dark, labyrinthine, and extremely lucrative world of consumer debt collection.






(Note: in support of his full-length book on this very subject, the author of the article, Jake Halpern, will be featured at the Texas Book Festival this weekend!)






Not only is it an interesting (and shocking) read, but it can clue coaches into the potential dangers that their clients face at the hands of collectors. It can also offer a little perspective from the other side of the table (or phone line), and alert us to scams and behaviors to watch out for. Knowing just how murky the industry is, it's our job to arm our clients against any abuses.

Now, that is not to say that all collection agencies can't be trusted, or that our clients should forgo paying out their debts out of fear. As coaches, it reinforces our need to take caution, and to send out those debt validation letters any time we intend to follow up with an agency. This article pairs well with a useful volunteer-created resource--our Credit Counselor Q&A--with Seth Mason of the great local organization (and referral for clients needing more hands-on assistance) Cornerstone Financial Education.

Enjoy!

How can Goodwill serve our Financial Coaching Clients?

Who does Goodwill serve?

Everyone! While there are age-specific programs for youth (ages 14-21), Goodwill helps anyone along the spectrum, including the elderly, temporarily unemployed, and long-term unemployed clients. While it is typically easier for them to find full-time positions, they will also assist folks who are looking for part-time work to supplement their income.

What’s the difference between Workforce and Goodwill?

While both provide an important community service, Goodwill has the capacity to pair clients 1:1 with a caseworker. In fact, Goodwill has never waitlisted a potential client!

Aside from locating potential employers, what else can an employment specialist provide? 

Through their case managers, clients can receive job readiness training, resumes, cover letters, and other supportive services, such as vouchers for public transportation and interview outfits.

My client receives disability. Is there a way for s/he to supplement that income? 

Yes! Depending on the severity of the disability, clients can still seek out Goodwill’s services even when receiving SSDI. Clients will need to take into consideration any earning limits to retain their benefits, but can use Goodwill to seek out part-time work. The Community Rehabilitative Programs specifically serve clients who are in the DARS system.

My client has trouble getting to interviews. Is there a way around this problem? 

Of course! After a client has met with an employment specialist and sought out job opportunities, he or she will be given transportation vouchers in order to access public transportation and get to their interview.

What’s this I see about occupational trainings? 

Goodwill’s occupational trainings will offer clients certifications in specific career-paths. Programs are offered on either full or part-time schedules, and are taught by accredited organizations such as ACC. At the end of the course, clients are able to attend a career fair with organizations who are searching for employees with that particular skill. To get your daily acronym overload, take a look at the list below:

o   CDL: Commercial Driver’s License

o   CAMT: Certified Apartment Maintenance Technician

o   HVAC: Heating Ventilation Air Conditioning

o   CNA: Certified Nursing Assistant

o   Hospitality

o   PC Tech

How can my client get involved in one of their programs? 

Aside from being open to walk-ins and appointments here at the Community Financial Center from 1-5 on Tuesday afternoons, clients can also call 512-637-7580 to set up an appointment, or walk in to any of Goodwill’s three locations:

o   North: 1015 Norwood Park Blvd

o   Central: 1817 E. 6th Street

o   South: 6505 Burleson Road

Boy, that wasn't comprehensive at all. Now what?

For more information on any of these programs, please visit www.Goodwillcentraltexas.org

Coaching against bandwidth poverty.

Howdy Coaches,

We recently stumbled upon a great NPR segment on the behavioral effects of poverty (about 12 minutes long, but worth the time), so take a look!

The segment talks about the stress imposed by poverty, and how that stress can lead to "bandwidth poverty." If you have ever met with a client in an emergency situation, you will recognize it. A client sits down, starts talking about their finances, but gets stuck on the details of an upcoming bill cycle. The loop looks like this: I have a car loan due tomorrow, I get paid on Friday, and rent is due Monday. You try to look forward to the next pay period, but it's hard for the client to imagine what will happen between now and then, and even harder to try to plan for it. It's a stalemate, and you know that it will happen again next month if the client can't plan ahead for it. You may have chalked it up to being scattered or unfocused, but in reality, this lack of focus is not the cause of the problem, but the effect. Their "bandwidth poverty" has forced them to focus on immediate needs, and they can't think beyond the next few days.

To think about this segment from a coach's perspective, it reinforces some of our key roles: to attend to an emotional sense of well-being, to help our clients make informed and deliberate decisions, and to hold the client accountable to his or her goals. Even if it's just for an hour a week, it can make a big difference for a client to sit down and think about their finances, and to take a look into the future at how their decisions will play out over time. It's important to remember that our personal and financial lives are impossible to separate, and even more so for folks living paycheck to paycheck. This is why we are here to encourage, support, and focus our clients on the potential of a less hectic life. And unlike your own personal ISP, we will offer our bandwidth free of charge!

FAQ for Credit Counselors

This is a compilation based on a very insightful United Way Financial Empowerment Boot Camp, as well as a follow up meeting with one of the presenters, Seth Mason of Cornerstone Financial Education. Our very own Kristina D., a volunteer Credit Counselor was there to collect a great FAQ based on her and Seth's experiences. We're certain you will find it useful. Enjoy!

Are all debts in collections the same in terms of the damage they do to a person’s credit? 

No, they aren’t.   A medical collection does less damage to a person’s credit than another bills that has gone to collections.   The philosophy is that it is worse when action you’ve taken by choice (such as getting cable service, a cell phone, etc.) has resulted in an unpaid bill going to collections, as opposed to something that a person has little control over like a medical condition.  

Another important aspect of an unpaid bill in collections is that there are two negative factors at play:  one is the unpaid bill, and the other is that the bill went to collections.  The larger the unpaid amount, the worse it is.   But even if you pay the bill, there will still be a negative effect from the fact that it ever went to collections.   This is not meant to encourage you to not pay bills due, but rather to understand that there still will be a negative effect from the collections, although with time (and assuming no more bills go into collections) this negative effect will decrease.

Is it better to settle and try to pay less? 

A ‘settlement’ note on a credit report is not positive.  What is best to do, if you truly cannot pay, is to negotiate to pay less BUT have this reported as “paid in full.”  This promise should be obtained by the collections agency in writing before you pay.    You should also be wary of a ‘recourse clause’ in a contract, as if that exists the collections agency can try to collect on the remaining debt.  

Do not call the collections agency unless you are prepared to pay the debt.  If you are making an general inquiry, it is best to call “from a place of skepticism.”  In other words, be careful not to acknowledge that the debt is yours, but rather call to say you need to verify the debt, you aren’t sure it is yours.   

Also be aware that if you pay off one collections agency, other collectors may see that (by pulling information from credit reports) and start calling. 

What about dealing with collections agencies.  What are they allowed to do, and what not?

According to the Fair Debt Collections Act, a collections agent:

• Can only contact you between 8:00 am and 9:00 pm in your time zone (you can request that they call at different hours, though this may not work)

• Must identify themselves in every call - - though many will identify themselves by their names, not their company.    You can always ask, “Is this a collections call?”

• Can contact you at your place of employment but only if permitted.  If you do not want this then tell them they are calling at your place of work and that such calls are not permitted.

• Cannot contact you directly if you have hired a lawyer to handle the case

• Cannot threaten false legal actions (though you may hear the words “we reserve the right to sue)

• Cannot discuss the debt with third parties in any form unless expressly approved by you.  They can, however, contact others to try to locate you, and some will do this to ‘shame’ a person into paying. 

• They can call as much as they want but cannot call you in a ‘harassing manner’ (in order to dispute this you would have to show a pattern of harassing behavior)

It’s also important to remember that some collectors feel that they are doing a good deed in finding delinquent payers, and this is what is behind their motivation. 

My client is paying too much in auto insurance and wants to call a few places to gets some quotes but is worried that this will be a mark against her credit.   What’s the best strategy? 

If you are legitimately shopping for credit, such as trying to lower your car insurance rates, you can safely shop around for 14** days knowing that only the first inquiry into your credit will count against your score.  This works for inquiries for the SAME type of credit, (all inquiries related to car insurance) not for different ones (inquiries related to car insurance and home mortgages). **In some cases a credit agency gives you a 45 day window, though it’s unclear how you’d know if you have a 14 day or 45 day window, so the 2-week period is a surer bet. 

Make sure your client is aware that ALL inquiries will be listed on the credit report, even if they did not affect the credit score.   This is a good list to check if you are worried about identity theft.   If there are a lot of inquiries that you can’t remember or explain, check into it!

They say that ‘new debt’ accounts for 10% of your score.  How does one define “new?” 

A credit card is ‘new’ for the first 12 months.   For a home loan, the first 4-5 years.   For smaller loans such as car loans, something in between the two – 2-3 years. 

 “Kinds of Debt” also accounts for 10% of a credit score.  Sometimes clients ask if they should get a loan to improve their credit score, or get a credit card.  I’m not sure what to advise.

Generally the lenders don’t want to see more than one type (revolving debt, auto loan, mortgage) of each loan.    A “healthy mix” of debt is two (2) revolving accounts, 1 mortgage and one auto loan.    However if you have 5 credit cards and are using them all responsibly, you are building up a lot of positive payment history, which can supersede any negative effects of having so many lines of revolving credit. 

The other day my client mentioned “old people credit,” by which he meant good scores that come with age and time.    Can you elaborate?

Sure.  What your client referred to is that high credit scores can only be achieved with both time and good debt management habits.   A person cannot usually achieve a score of 800 early than in his/her early 40s.   You’d have to really know what you were doing in terms of building a credit score to achieve such a high score at a younger age.    Once you reach a score of 750, there is no action you can take to increase your score  (i.ee. there is no reason to take on a new loan, get another credit card, etc.) except to keep on doing what you are doing.   With time it will keep on increasing. 

My client has defaulted on a non-government (private) loan and is worried about going to jail.   What can I advise?

Actually, you cannot go to jail for defaulting on a private debt.  It is true that practically any debt can be sued for, given proper documentation.  The purpose of a debt lawsuit is to prove excessive income or fraud, but does not always result in garnishments.  You may simply end up with a judgment against you.  

In your client’s case, please advise that if he/she is sued, that it is necessary to go to court to prevent a default judgment being made.   Also, if a person is court-ordered to appear and does not, the person can go to jail for failure to appear.  It’s critical to pay attention to all mail received to know a situation – even if there’s a desire to hope a problem will go away if you don’t read or open your mail, this is not a good strategy.

My client wants to keep on checking his/her score in the future after our counseling session.   Is there a way to access this information for free?

The best way to access a free score is CreditKarma.com.   TransUnion established this site so it shows their scores (TransUnion historically used a broader range so their score may be on the high end compared to the other bureaus).    You do have to provide your SS# and set up an account.   It has a neat educational feature that explains what is affecting your score and how your score would change if you took various actions such as getting a loan, a new credit card, etc. 

Statesman Op-ed on Pilot Program

Some of you may remember an announcement we made a few months back concerning the change in how coaches like you can address college savings. Coaches are now able to introduce and even assist with the application for a Texas 529 plan. With more freedom to connect your clients to a valuable savings tool, families in a good position to make this investment will have better access to help. This change is due to findings from our (and other Texas nonprofits') Child Support for College pilot program, which you may have heard a little more about through our Blog Competition Runner-up.

Below is a recent op-ed piece in the Austin American Statesman that gives a nice summary of the program, its outcome, and the reasons why it's important. Take a look! (And for the full report on the findings of the program, follow this link).

Annibale, Widrow: How a small rule change made Texas 529 college savings plans more inclusive

By 

CFED

 on April 24, 2014 4:09 PM | Permalink

Austin American Statesman
By: Bob Annibale, Woody Widrow
April 23, 2014

Research has shown that college savings accounts are critically important to promoting higher college enrollment. A child whose family has saved $500 or more toward college is about seven times more likely to attend college than a child with no savings account. Over the long term, a college degree has a dramatic impact on a person's earning capacity. A Texas community college graduate earns, on average, $240,000 more than a high school graduate over a lifetime; a four-year college graduate earns $790,000 more.

Yet many low- and moderate-income Texans lack easy access to college savings accounts, and they struggle with finding free and independent financial advice. Although 529 programs have no eligibility requirements based on income, research indicates that only 5.4 percent of 529 account holders in Texas earn less than $50,000. Nationally, the median income for families with 529 accounts is $142,000, about three times higher than those without the plans.
Now thanks to a little-heralded rule change by the Texas State Securities Board in February, low-income Texans will be able to take advantage of assistance from nonprofit financial coaches and counselors to better navigate savings plans applications, including the tax-advantaged 529 plans sponsored by the state.

The rule change is important to bolster Texas' growing efforts to promote greater college enrollment among low- and moderate-income populations. Enrolling in the Texas Tuition Promise Fund, one of the state tax-advantaged 529 programs, enables low-income families to take full advantage of the Texas Save and Match Program, administered by the Texas Match the Promise Foundation.

For a group of low-income single-parent families who participated in the innovative pilot program that led to the rule change, the implications are especially important.

More than 100 single-parent families took part in the Child Support for College Program, an 18-month pilot program where custodial parents were encouraged to deposit child support payments into 529 Texas college savings plans. Until the regulation was rewritten, nonprofit financial coaches involved in the program were prohibited from advising the families on the state's 529 programs because most of them were not registered financial planners in Texas. RAISE Texas, a statewide asset-building coalition, worked with the Texas State Securities Board to address this anomaly.

While college savings accounts may not be the panacea for ensuring that all Texas high school graduates have the funds to complete college, they do help families to begin the financial process, along with the educational preparations and expectations, for completing further education. Thanks to the families that participated in the pilot program, low-income parents in Texas have a better shot of saving to send their kids to college. Easier access to 529 accounts and more readily available financial coaching advice are invaluable tools for funding their educational goals. They also are major stepping stones in ensuring the state's college savings efforts are both accessible and inclusive.

Annibale is global director of community development and microfinance for Citi. Widrow is executive director of RAISE Texas.

http://www.mystatesman.com/news/news/opinion/annibale-widrow-how-a-small-rule-change-made-texas/nfgMT/

Hiccups

by Lauren P.

I remember when I was scheduled for my very first client session; I made sure I had pens, pencils, erasers, scratch paper, reference documents and was well versed in everything I had been taught in training. I arrived about half a day early, scanned through the office supplies, and watched the door patiently—only to be no-showed. Being prepared for that, I lost my jitters, and was able to carry my enthusiasm over to my second scheduled appointment about a week later. This one was legit.

She’s a kind woman with a difficult story: her husband is disabled, her son is deaf, she works a full-time job while taking on the role of primary care-giver, and is drowning in debt. After reviewing her situation on that first day, we decided that taking care of one of her Pay Day Loans would be the best way to start. We took the necessary steps to enter her into a program that protected her from the outrageous interest rates that pollute Pay Day Loans, and she would make reasonable payments from then on (Editor’s note: this client has almost paid back her Fresh Start Loan in full!).

Great, I thought – go me! I totally helped this woman out. Well, in our second meeting, I realized it’s not that easy. Yes we tackled a large, money-sucking monster, but that wasn’t the only issue she faced. She was also having a hard time paying her energy bill. Riding the euphoric wave from our last success, I approached this challenge with the same optimism. We would review her financials, create a budget, and methodically pay off her energy bill. Right? Not right.

After extensively reviewing her income, expenses, debts, and cash flow, neither of us could see a solution. Over the course of our hour together, we discussed possible cut-backs, forms of additional income, and what realistic options we could find. But no matter where we looked, there didn’t seem to be a fix that would fit her family’s situation. At the end of our meeting, I knew I had failed her; we hadn’t come up with an answer. She left with an energy bill that, on paper, was not going to get paid.

Editor's caption: the paradox of coaching!

Despite my lack of solution-generating ability during that meeting, she scheduled another one with me. When we sat down, I asked about the energy bill and how things had turned out. She relayed that it had been paid in full by a local church that often reaches out to people who are struggling. Wow. I would have argued with a psychic that her bill wasn’t getting paid, but I was so happy to see that she was a resourceful woman. It reminded me that we were in a partnership, and when one of us struggled, the other could buckle down and pull through. Well anyway, great – another hurdle jumped! Now how to pay the energy bill for this month? (Deflation).

This woman and I have met over six times, and I have become fully invested in her successes. I realized quickly that success will be measured from week to week, because I know that once we tackle a problem, there is another one right behind it. Financial debt is not a game. It’s not easy. It’s not trivial. It consumes your thoughts, influences your quality of life, and takes years to remedy. Meeting with this woman and others has taught me an extremely valuable and rewarding lesson: nothing is fixed with just one patch. While it’s important to celebrate small successes, you can’t lose sight of the ultimate goal. Persistence can move mountains.

The Love of Money

by Matt D.

I realize that I’m in a unique position as a volunteer of the Child Support for College program, but my most rewarding moments with clients have been opening college savings accounts for single mothers.

The first time I met with a client who was inclined to open an account for her child, I was quite conflicted.  I know the importance of a college education, but rationally and numerically, I thought it best to place emphasis on other priorities – like paying off debt and establishing emergency funds. She did have a job but was squeaking by. Just to make a small opening deposit would have been tough on her budget. Not to mention that in my professional practice, I advise prioritizing retirement over college education (there are no loans, grants, or scholarships for retirement). And besides, I knew that Mom’s $100 might only buy one textbook when it came time to use it.

 (Editor’s note: Every dollar counts! According to a recent study, “A low- and moderate-income child who has school savings of $1 to $499 prior to reaching college age is over three times more likely to enroll in college and four times more likely to graduate from college than a child with no savings account.”1).

When she kept pushing for the account, I didn’t exactly stand in her way, but I voiced my reservations. I told her about the plans that were available to her, but also mentioned the possibility of putting this money elsewhere, where it might make a bigger impact down the line. But Mom remained steadfastly committed to a college account, and while the numbers still never convinced me, seeing the commitment she had to giving her daughter a head-start was an eye-opener. Giving her daughter this account, no matter what the amount, meant a lot to her. She didn’t want her daughter to squeak by, but to get the education that Mom hadn’t been able to get.

With my first client, I learned that value isn’t only numerical.  The money might not have been the key to her daughter’s success, but there is an emotional component that often matters just as much, and in this case, more than the numbers.  These moms were eager to do something, anything, to set aside college funds for their children.  So, they did, and I was able to help them.  As I met with more of these single mothers, I changed from being hesitant (even discouraging) to open such accounts to eager. Each of them left the office with smiles on their faces and true senses of satisfaction.  These mothers had given children gifts for their future – small in number, but huge in significance.

1. Elliott, W., Song, Hyun-a, & Nam, I. (2013). Small-dollar children’s saving accounts and children’s college outcomes by income level. Children and Youth Services Review, 35 (3), p. 560-571.

Excerpts from the contest: honorable mentions!

While they weren’t our grand winners, some of our coaches brought up moments that were worth sharing. Here are some excerpts from coaches’ blog entries that seemed to be representative of the experiences we see as coaches. Take a look at what your fellow coaches had to say!

Here, a coach gets to the heart of the matter:
Rob S.
“Money does not solve the problem or even create the problem. Money is simply a tool used during our day-to-day lives...As a coach, it is important to share the tools we have available, but it is just important to spend the time listening and coaching or clients on personal habits that impact their financial solution. Habits and ideals must change for lasting financial success.”

Here, a mini-story about habit change:
Elsa D.
“Chloe spent over $150 dollars at Wal-Mart in 1-wk on things she admitted she didn’t really need: snacks so her son won’t cry while shopping, things for her fingernails, on and on. We were on the right track, because Chloe was acknowledging her bad habits. Similarly, the husband went to a check-cashing store every payday because he wanted to see the money he earned. This led to a long explanation about the money he was not seeing, the money he would save if he opened a checking and savings account. I suggested that he deposit his paycheck into a checking account, and save the amount that he'd been spending at the check-casher. For both of them, it did not take a lot of extra effort, but simpsimple, habit-forming tasks that would allow them to save.”

And here, a coach realizes the power of empowerment:
Larry G.

“I was almost finished with the first session, but we hadn’t accomplished enough. Yes, we knew the items on her credit report, and yes, she had an idea of how to get started, but I could still see that this information hadn’t connected with her yet. I wanted to explain to her how important would be down the road when she decided they were stable enough to buy that new car, or go back to school, or even buy a home. But instead of telling her these things that she already knew, I asked her what she intended to do about it.”

Stay tuned for more coaching blog fun!

Curse of the Shiny Object

I have a client—let’s call her Sue—who was locked in battle with a formidable but conquerable opponent: medical bills. The problem was that Sue was never one to get behind on bills, and when her son broke his arm, she paid a lot of the bills in full (yikes!) at the expense of her mortgage, on which she then fell quickly behind. Luckily, she had a steady income, so it was a comfort to know that her problem had a simple (if stressful) solution. She just needed to cut back, track her spending, and weather this storm with patience and planning. In a few months, Sue could be back on track and ready to start saving. But after the first meeting, I wasn't so convinced that she had the drive to do it.

I’m sure that “steady income” alone has made some of you jealous. In my experience with clients, this is often the deciding factor in whether or not a coach will be able to help a client make progress. So to hear that Sue had a steady income was exciting for me, because I consider myself a problem solver. I like to experience new challenges and unfamiliar territories, because that’s what fuels my curiosity in life.

Unfortunately, that curiosity comes with a curse: the Curse of the Shiny Object (AKA a short attention span). When a problem pops up, I want to solve it—right here and now, before it floats away on the breeze. So when it comes to coaching, I run into problems with my patience and focus. That’s not to say that I’m a bad listener. I always work to hear my clients out, empathize, and find myself asking good, leading questions (after all, I've been through training over a dozen times by now). Where I run into problems is in taking all the information they've given me, and narrowing down my focus onto a few manageable pieces. When we touched upon the idea of a budget, I started a budget. While working on the budget, we ran into student loan payments, and I switched gears into debt prioritization. When we entered her interest rates, I suddenly wanted to know what her credit situation looked like. Sue tuned out, and for good reason. I had the skills to lead her to water, but when I didn't slow down to prioritize and focus, she assumed that she needed to drink the whole lake.

When we met for her next appointment, she was quick to let me know that she “didn't do any of that stuff we talked about last time.” I asked why, and she told me what I should have known: “There was just too much to look at.” Since she was kind enough to identify where we went wrong, it was easy to correct it, and in that second meeting we made an emergency budget to get her through to the next meeting, for which she’d be bringing bills and a list of her debts. I realized quickly that Sue was a very driven woman, but she needed someone to help her map out a plan and hold her accountable. I needed to be her focus, so that she could worry about doing the work.

I know it sounds so basic, but it really dawned on me that in the hour we meet with our client, we are seeing just a brief glimpse of what composes their life. While it might seem like they’re presenting us a dozen different problems, that doesn't mean we need to solve them all at once. As with habit-change, even the most basic tasks take time and effort to accomplish. As a coach, it’s my job to make the process as simple and logical as possible. I’m now happy to report that Sue is nearly caught up on her mortgage, and is still waiting on a large tax refund. I’m also happy to report that the tax refund is the only item on our agenda for the next meeting, as we allocate it one account at a time.