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Creditors Created the DMP, But Why?
As credit cards gained in popularity, so did credit card
problems. Creditors began facing mounting debt write-offs as
more and more accounts were turned over to collections. In order
to reduce losses and to avoid alienating their customers, credit
card companies created the credit counseling industry.
At first, the credit counseling industry was controlled by
the credit card companies themselves. They provided most of the
funding and served on the Board of Directors at each
organization. They could see first hand that there was a need to
provide relief to debtors that had committed to repaying debt
without turning to bankruptcy.
Credit card issuers began providing debt relief primarily by
providing lower interest rates on their accounts. This reduced
the cost for debtors to finally get their debts paid and also
served as an incentive for debtors to commit to a
debt
management plan. They saw the educational value of credit
counseling and were convinced that it would help make debtors
smarter consumers.
Credit card issuers want their cardholders to understand they
importance of maintaining a good credit rating and living within
their means. Their service is one of convenience that provides
cardholders with a way of funding emergency spending and of
easing financial transactions. Credit cards are not a tool for
correcting a negative budget. Credit counseling provides the
information to help debtors correct their spending habits.
Creditors Support Credit Counseling Agencies
Ever since the early 1980s, credit counseling agencies began
using more technology to improve customer service and to speed
up payment processing. Credit card companies encouraged this by
providing additional financial support to agencies that utilized
electronic payment systems. Agencies were encouraged to utilize
the means to improve a customer's experience and to reduce costs
for creditors.
Even though credit card executives no longer maintain a
presence on these nonprofit boards of directors, they still
provide support in the form of educational curricula and direct
financial support. The goal is to reduce the share of the
service that debtors must pay for.
Creditors Provide Direct Benefits
Credit card issuers further support credit counseling
agencies by providing benefits to program participants that
would not normally be available otherwise. Sure you can earn a
lower interest rate if you have excellent credit and high
income, but you typically cannot if you are struggling to pay
more than the minimum payment each month.
Credit card issuers want you to recover enough to avoid
default, and they are willing to reduce their short-term
interest earnings in order to recover the entire balance.
Otherwise, they lose money if you default.
Credit card providers are not just being nice when they
lower
your interest rates on a debt management plan. They are also
protecting their interests by reducing their risk. Debtors and
creditors alike benefit when credit counseling agencies are able
to help financially distressed consumers recover from high debt
balances.
Is there anything in it for creditors? Sure there is.
Fortunately, credit counseling is a means for resolving
outstanding debt problems for you and your creditors. After all,
when you avoid default, everyone wins. |
