Useful Services Performed

A professional debt counsellor helps debtors to budget and schedule their debt repayments, while providing relief from unfair or harassing creditor collection tactics. In so helping the debtor and his wife to budget and to practice financial discipline, the counsellor chooses sides. He fights for his client, since his basic responsibility is to their interests--though the end purpose of repaying all debts benefits the creditors. The usual results of a professional relationship-bills are paid off, money is returned to the creditor, and the debtor enjoys a learning experience that he carries with him in the future. He is no longer a financial refugee, he regains his self-respect by learning what too many other people, too many of us, take for granted-an ability to control his own finances. Counselling as an Alternative to Bankruptcy or Additional Debt

Without debt counselling, many are forced into bankruptcy. In the past thirteen years, while the U.S. economy has enjoyed its most prosperous decade in history, the annual personal bankruptcy rate has increased 503 percent. Debt counselling is an alternative to bankruptcy, and its disruptive effects on employment, family life, and loss of pride. Like the lesser known and more costly Chapter 13 wage earner procedures, it is a method of paying your way out of debt. Much is made of the fact that debt counsellors do not advance their own money to debtors so as to pay off existing and past due obligations. That is absolutely correct! We believe that individuals already overburdened with bills and debts cannot borrow their way out of debt. It is too costly a solution when the highest interest charges of consolidation loans are considered. We know, because so many of the debts included in the schedule of debts we deal in, are consolidation loans. Furthermore, many debtors are by their very overextended condition poor credit risks and therefore ineligible for such loans. The many credit interests in this country prosper by keeping individuals indebt. We can only survive by resisting these interests and helping the debtor out of debt.

Why Can't the Debtor Help Himself?

You may wonder, as I did before learning answers through experience with our clients and creditors, why a debt counsellor can succeed where the individual debtor fails. Surprisingly, perhaps, our average clients are not uneducated, unemployed and poverty-stricken. Nor are the non-white minorities overly represented. Our "typical" client, fully employed, under 30, average income of $5,000, and with three or four dependents, is not much different from the celebrated profile study made of the average bankrupt. This typical debtor, and the many far more affluent clients we help, need the services of a counsellor to help them budget, deal with their creditors, and avoid repeating these problems in the future. This individual cannot always, or even often, help himself. Where the debtor himself attempts to rearrange his repayment plan with his many creditors, he frequently finds that despite the willingness of certain creditors to go along with him, each one still wants the assurance that no other creditor will receive preference. Quite frequently, therefore, the creditors will not allow such an adjustment. Yet, our experience has enabled us to bring about a workable repayment plan.

Debt counselling services in a sense are similar to those performed by employment agencies. In that field, certain persons will not suffer the embarrassment of applying for a job and being turned down, or of having to accept $1.75 an hour instead of $2.00 because of the relative bargaining positions. The creditors can exert similar leverage on the debtor, in the absence of experienced debt counsellors, that an employer can put on a prospective employee. The professional debt counsellor, like the experienced employment counsellor, can assist in the search for equality in dealing. Today, you no longer hear talk, so common only short years ago, of outlawing employment agencies. Yet, the cry to abolish commercial debt management continues. In the years to come these voices will also disappear in the wake of satisfactory experience under regulatory statutes.

Inadequacy of Non-Profit Counselling

In addition to reasons I've given, it is clear from the very provisions of H.R. 9806 that even proponents of such prohibitory legislation recognize the need for debt management services. If this bill were passed, commercial debt counsellors would be outlawed-but the services could be performed by attorneys or by non-profit or charitable organizations. I would like to emphasize that these

alternatives are as inadequate and unsatisfactory a solution to the overall prob lem as the alternative of bankruptcy. (Parenthetically, I oppose those who counsel bankruptcy as cure-alls or as means of solving social problems. The stigma and economic consequences are too severe.) Consider attorneys' services. Apart from the few lawyers specializing in Chapter 13 proceedings, attorneys do not want to, and cannot afford to, perform debt management services. I doubt that you will find a lawyer who after handling one such case is willing to take on another.

As for the non-profit organizations, the industry welcomes them for the assistance they potentially can give to debtors. However, experience shows that for a number of reasons, they cannot and do not begin to service the needs or numbers of debtors, as we commercial counsellors can and do. Usually, they are either creditor-oriented or paternalistic. They are part of the credit establishment, financed and supported by creditors, frequently staffed by former credit managers, and subjected to creditor pressures. Therefore, they cannot and do not exist to represent the debtor's point of view. They choose the creditor's side. Furthermore, most debtors are unaware of their existence. Frequently, the nonprofit services are offered on a 9:00 to 5:00 basis with appointments often required days or weeks in advance. The occasional debtor who is actually aware of their existence, usually needs immediate assistance and, even more significantly, he and his wife can ill afford time off from work to obtain assistance during such office hours. Cost comparisons which have been made further demonstrate that most non-profit agency costs are about the same to the debtor as those furniished by commercial debt counsellors. Perhaps that explains why commercial counsellors assist thousands, and non-profit agencies assist only hundreds or less in the many cities where they exist side-by-side and where direct comparisons can be made. The charge is made that commercial companies are driven out when non-profit services are established. The facts are otherwise-in Fort Wayne, Indianapolis, Des Moines, Bridgeport, Spokane, and the many cities of California, to mention only a few. The statement submitted to this Subcommittee by Price A. Patton, who runs the Chicago non-profit agency, offers the best evidence, and actual experience, of the inadequacy of reliance on non-profit counselling alone.

Professional debt counsellors ask only that the market place judge which service is preferred by the debtor-and which service better restores his pride. Our average client does not want welfare-type assistance. The therapy of a reasonable fee applies to chronic debtors as well as to others needing assistance. Several Unfounded Charges

Let me briefly discuss other charges that are unfounded.

The charge-creditors do not go along with us. The facts-in my introduction to this business years ago as an auditor, I made bank reconciliation analyses of thousands of checks written each week. These indicated that all major creditors accepted payments. Cancelled checks from ten years of our history indicate less than 10% of our checks are refused. An analysis of 1,000 consecutively numbered checks recently issued from our Detroit office indicated that only one check out of the thousand was returned. We have submitted as an exhibit the detailed tabulation of 1,000 checks issued in February from our Washington office. This convincingly shows that none of the major creditors in this area refuse our checks.

No matter how extensive the opposition to our industry from creditors-and creditor opposition and pressures can be understood since we stand between them and the debtor-refusing payment is foreign to creditors and not in their own interest. In fact, antitrust consequences might attach to any such refusals. Moreover, if a creditor has been notified that a debtor needs counselling in order to properly support his family, it would be unconscionable for that creditor to destroy the very plan that is established to repay all debts. I might add that however silent creditors may be in the District on the question of support for commercial debt counselling, or vocal in their opposition, their many letters of endorsement in support of proposed regulation in states like Indiana indicate concrete approval of the usefulness of the role we play. After effective regulatory bills have been enacted in numerous states, they have even more readily recognized the benefits they receive from our services.

Another charge-we advertise that we prevent garnishments and wage assignments, when in fact we cannot. The facts-while it is obvious that we do not have the legal power to compel a creditor not to attach the wages of one of our

clients, the fact is that debt counsellors have the ability to negotiate with creditors in such a way as to prevent them from taking that final step. It is quite unusual for a creditor to use a wage assignment or a garnishment when he has assurance that he will be receiving regular payments on behalf of the debtor. In over ten years of operation I know of not a single case where garnishments and wage assignments were not avoided after opening an account, assuming regular payments were received. In setting up a repayment plan, we give priority first to judgments, then to wage assignments and garnishments. In the few cases where we are unable to make arrangements of this type of debt, we do not retain the account or any fee, and so advise the client. But once such an account is accepted and the debtor begins making and keeps up his payments, wage assignments and garnishments do not occur.

Real Abuses Deserve Condemnation

I have been discussing some of the charges that are unfounded. Other charges have been made about real abuses-here in the District and elsewhere. We are as concerned as this Subcommittee is with the existence of such abuses-since our integrity is challenged and our very livelihood threatened through "guilt by association". That explains why we, and so many other professional counsellors in the field, have campaigned for meaningful regulation. The debt adjuster who takes his entire fee from initial payments should be outlawed! The company that embezzles or even commingles funds must be stopped! The company that purchases debts, or doubles as a debt manager and a collection agency, or alters the contract, or delays distribution of funds for an unreasonably long time deserves condemnation! Yet each of these abuses is controllable, and has been controlled or banned in the effective regulatory bills enacted over the last ten years. In Michigan, California, Colorado, Illinois-to mention only a few-detailed provisions, comparable to those in the Diggs Bill introduced both this session and in the 1963 and 1965, prohibit these abuses.

The Creative Legislative Solution is Regulation

In my opinion, abuses which have occurred in the District, and throughout the country, were the result of debt management activities not being subject to regulation. The many state legislatures that passed prohibitory bills back in 1955 and 1956, and afterwards, chose the easy method of dealing with abuses-they outlawed the business. However, this legislative response is obviously not an effective solution because of the unfortunate impact on needy debtors. What is needed is a creative legislative solution. It is incredible to suggest, as so many have, that meaningful legislation cannot be drafted to reach problems in this industry; every session, Congress regulates industries and practices of far greater complexity in the fields of banking, savings and loan, automobile safety, and the like. Moreover, it seems contrary to our free enterprise system to prohibit commercial businesses at all, let alone prohibiting them before attempting to regulate the so-called abuses. Has any detailed factual investigation ever been made in the District to show the extent of such abuses, or to demonstrate that regulation would be ineffectual?

The trend in this country has been to regulate the debt management industry, rather than to outlaw it. Many prohibitory bills passed were not based on factual investigations and did not fully comprehend the usefulness of the services provided by reputable professional counsellors. Many were not even opposed. The thorough legislative investigations in California and Michigan, which had the support of professional counsellors, demonstrated that regulatory, rather than prohibitory, legislation, was desirable. The experience since enactment in these states and others bears out such findings and further demonstrates that the undesirable companies disappear after effective regulation is established. This past year, Arkansas, where the debt management story was not told, and Hawaii, where there are no dobt counsellors, joined the group of states outlawing the business. However, during 1967, the states of Iowa, Connecticut and Washington all chose the regulatory solution after careful and extensive deliberations of the sort that Mr. Scalise has previously explained.

From the record of hearings held by other House District Subcommittees in 1958 and 1963, it appears that those Congressmen in attendance recognize that regulation was preferable to prohibition. We urge this Subcommittee to consider and recommend effective regulatory legislation for the District of Columbia, and thereby also recognize the usefulness of, and need for, professional debt management services.

Our Customers are Satisfied

Our group of companies is the largest debt counselling enterprise in the country. Credit Advisors of Washington, D.C., is the largest local debt counselling concern. Our survival and growth locally and nationally can only be attributable to satisfied clients. A few statistics about our local operations support this conclusion. We have helped thousands of burdened debtors since we began operations here in 1962. Credit Advisors last year returned on behalf of District debtors over $800,000 to credit organizations. Without question, we have been the subject of complaints. In correspondence with the local Better Business Bureau in May, we were informed that since June, 1962, the Bureau had received 59 written complaints from our customers-complaints, incidentally, about which we cooperated with the Bureau. During that period of time, Credit Advisors of Washington, D.C. opened over 17,000 accounts! I might also note that after a series of articles were published here about practices in this industry, we received more than 125 letters of endorsement from our customers. We have submitted a sample of those letters, without signature, as an exhibit, and would be pleased to make the originals of these samples and of other letters received available on request. Along with the many other professional debt counsellors in this industry, we are proud to stand on our records of accomplishment and service. Conclusion

Finally, in the course of these deliberations on debt management, I refer this Subcommittee to the findings of Professor Edward W. Reed of the Banking and Financing Department of the University of Oregon, and Professor Robert Dolphin of Michigan State University. Reed, in commenting on the too easy solution of bankruptcy, stated: "Adult education courses along with debt counselling services and debt proration arrangements should be encouraged, but such programs do not reach sufficient numbers of people. Something is needed in addition to these very commendable attempts to solve an important economic and social problem. The need is now." Dolphin, in a comprehensive study entitled "An Analysis of Economic and Personal Factors Leading to Consumer Bankruptcy" stated: "The combination of denial of bankruptcy when not financially needed and financial counselling should be an effective way to curb the rapid growth of personal bankruptcy."

Just as there are no easy legislative solutions to the urban problems, such as I recently observed near our main office in Detroit, and which I know so well, there are no easy solutions in arriving at an equation of debtor needs and debtor protection, as related to the debt management industry. The oppressed debtor, suffering from too-ready credit, subject to current creditor campaigns for more restrictive bankruptcy legislation, vulnerable to garnishments, wage assignments, and confession of judgment notes, should not be denied the fair services of the professional debt counsellor. This debtor should not be denied his own choice of who will help him. The availability of the professional debt counsellor, who serves the debtor's interest exclusively, offers the debtor a meaningful alternative to the so-called helping hand of the credit establishment. Thank you very much for this opportunity to testify.

RESUME OF ELLIOTT HOLLAND

1953-1954: Military Service.

1955-1958: Northwestern University, B.A. Business Administration. 1958-1960: Auditor, Herbert Schoenbrod & Co., C.P.A.

1960-1961: Controller, Dormeyer-Webcor.

1961-1965: Auditor, then Treasurer, Barden Investment Management Corporation.

January to November 1966: Chief of Business Loans, Midwest Area Office Economic Development Administration.

November, 1966 to date: General Manager, Barden Investment Management Corporation.

Mr. SISK. The Chair recognizes the gentleman from Indiana, Mr. Jacobs.

Mr. JACOBS. I might preface my questions, Mr. Holland, by saying my knowledge about your business is limited to ground zero and, secondly, I think your extemporaneous statement was most eloquent.

There are a couple of charges that I have heard-descriptions of your business may be better. My first question is, in the collection of the 12.5 per cent fee to which you referred, is it your policy, as it has been represented, to first collect that fee and then begin paying the debt, or do you take a part of that 12.5 per cent from each payment your client makes through your office to the creditor?

Mr. HOLLAND. I would like to say emphatically no, we do not attempt to take our fee off the top as has been charged in many cases. We write our contracts to extract an individual from debt and we amortize our fee equally over the life of that contract. There is no attempt to take our fees at the beginning or off the top as it is said.

Mr. JACOBS. By amortization, you mean the practice is to deduct the 12.5 per cent from each payment that is made to you so the complement of the money paid to you is directed, I assume, proportionately to the creditors of your client?

Mr. HOLLAND. Yes, sir. For instance, if we were to write a contract that would extend for 23 months we would amortize our fee equally in 23 equal amounts, or payments.

Mr. JACOBS. I know you have stated this for the record and sooner or later I can see it in the record, but for my own edification at the moment, would you repeat the number of accounts that are handled by an employee of yours during a week's time?

Mr. HOLLAND. In different areas it will be a different figure, but I would say the average is close to 60 in our organization.

Mr. JACOBS. Does that mean your average employee puts in up to 60 hours a week working?

Mr. HOLLAND. Our average employee puts in, depending on his stature our managers certainly do put in a week that is even in excess of that, but our average employee puts in a week that would be 48 hours on the average. This would be an average of our consultants, our managers and also our clerical help.

Mr. JACOBS. Do you have figures to show what your per-employee hourly income is?

Mr. HOLLAND. I could submit those figures. I would be happy to submit them to the committee.

Mr. JACOBS. I think that would be very helpful. In other words, what I am talking about is the gross income of your operation per hour, per employee. I think that might be very helpful and enlightening. Mr. JACOBS. As I understand it, if you had a client with a $2,000 total debt, your fee, of course, would be $250 for facilitating payment of that debt?

Mr. HOLLAND. Yes, sir.

Mr. JACOBS. Over what period of time would you expect that contract to run, or your contract with that client?

Mr. HOLLAND. It would be difficult to say because it depends on the structure of the individual debt. One debtor might come to us for assistance who has debts that are due in a relatively short period of time. You might be able to work him out of debt in a period of one year. Another debtor with the exact total amount of debt, but a different composition of that debt would take much longer. If he comes to you and he has an automobile and the note on that automobile is due in 36 installments and, let's say when he comes to us he still has 27 install