Credit Counseling Industry Shocked by New Law
Not-For-Profit Credit Counselors a Doomed Species?

For years there has been broad discontent among legislators and administrators over the fraud and kickbacks between "not-for-profit" credit counseling companies and their very profitable affiliates.

Last week the Senate adopted H.R. 4, now called the Pension Protection Act of 2006. It's now going to President Bush, who has already indicated that he will sign it. Most of the public press over this law concerned impact on pension plans, but deep within the bill, there are provisions that will make it radically more difficult for debt management and credit counseling companies to maintain non-profit status. I'm linking an industry press release on the subject here.

Here is a summary of the relevant provisions of the new act according to the AADMO, the American Association of Debt Management Organizations:

The legislation would prohibit 501(c)(3) and 501(c)(4) tax-exempt status for a credit counseling agency unless it:

Â? provides credit counseling tailored to the specific needs of individuals

Â? does not make loans or negotiate making loans

Â? does not provide or charge for credit repair

Â? does not refuse service for the inability to pay or enroll in a DMP

Further, the credit counseling agency:

Â? must charge only "reasonable" fees

Â? must waive fees if the consumer is unable to pay

Â? except as permitted by state law, not charge a fee based on a percentage of the debt or payment

Â? except as permitted by state law, not charge a fee based on a percentage of the amount of the payment savings (actual or projected)

Â? must not have a board without broad community representation and who are not employed nor may benefit from the agencyÂ?s activities (based on certain criteria)

Â? must not own more than 35 percent of Â?back-endÂ? services

Â? must not pay for referrals or be paid for referrals

The language does include specific requirements solely for 501(c)(3) agencies. This includes:

Â? The organization cannot not solicit contributions from consumers during the initial counseling process or while the consumer is receiving services from the organization.

Â? The aggregate revenues of the organization which are from payments of creditors of consumers of the organization and which are attributable to debt management plan services do not exceed the applicable percentage of the total revenues of the organization. The amount is 50 percent.

There is a Â?ramp-downÂ? mechanism for the aggregate revenue threshold of creditor contributions that goes into effect one year after the enactment of the law. That first year of the law when it is actually in effect provides that the threshold is 80 percent, 70 percent the next year, 60 percent the year after, then into the 50 percent level in perpetuity.

The legislation also declares Â?Debt Management Plan ServicesÂ? to be unrelated business income. The term Â?debt management plan servicesÂ? means services related to the repayment, consolidation, or restructuring of a consumerÂ?s debt, and includes the negotiation with creditors of lower interest rates, the waiver or reduction of fees, and the marketing and processing of debt management plans.

There are two consequences of this law that immediately come to my mind as a consumer attorney. If the credit counselors shift their structures to that of for-profit entities, they will be fair game under the Fair Debt Collection Practices Act, at least to the extent that they receive any funding from creditors. Secondly, and hopefully, many of these companies will just go out of business. I do hope that the few that provide statutorily required pre-bankruptcy counseling stay in business, but most of them won't be missed.

Snakes on a Plane - the Novel

August 18, 2006 will become a date that will go down in history. It's the premiere of the movie Snakes on a Plane. For those of you who can't wait for the film, the novelization of the script is available on Amazon.com. if you order today, you should even get the book before the movie comes out, and you can smile in smug satisfaction with a level of inside knowledge that others can just dream about.

Want to See Some Dirty Pictures?
"Wash Me" Art

An artist named Scott Wade specializes in artworks drawn into the dust on automobile rear windows. Big Fish - Little Pond. Link to Autoblog.com coverage

Buyouts Improve GM's Balance Sheet $23 Billion

As reported by the Detroit News, GM got a jolt of financial good news for a change. Thanks to better-than-expected impact of buyouts and other restructuring on GM's future obligations for pension and healthcare costs, GM is looking at liabilities decreased by $23 billion.

Who knows whether this will be enough to raise the general's credit rating. Also, there's not much impact on current cash flow, but every little bit helps.

From the Looky What I can Do Lurlene! File:
Merry Go Round Plus Motorcycle

Say, you're not strong enough to spin a playground merry go round fast enough to fling your child to certain death? Do what this character did on Youtube.com, hook the merry go round up to a motorcycle and people will be flinging everywhere.

It reminds me of when I was a kid, the toy soldiers would be strapped to the platter of the player. The good interrogator questioned them on 16 rpm. The bad guy used 45 rpm. How about 78 rpm? That was for when questioning was over.

The other game was to put all the characters on the turntable. The last one to remain was the winner. Apparently the guy in this video found a way to do this in real life.

BP to Shut Down Alaska Pipeline

BP to Shut Down Alaska Oil Field - Cutting US Oil Supply 8%
Is it time to think about Gas Rationing?

Thanks to corrosion in the oil pipelines, BP is going to cut off supplies from its Prudhoe Bay field in Alaska while it conducts further inspections and repairs. The duration of the disruption has not been announced. Prudhoe Bay supplies about 8% of the oil supply to the United States. Prices hit $76.00 per barrel on the announcement and may go higher. There are signs of further supply disruptions and uncertainty in Nigeria and Iran. Also, output from Mexico may not match expectations. More bad news from Alaska might be forthcoming.

Since oil companies are already making record profits, and there are signs of supply shortfalls with more supply cutbacks pending, should we start considering gas rationing? No one likes rationing, but at least if gas was rationed, the profits gained through "black market" or even authorized trading of rationed shares would be spread broader throughout the US economy rather than going into the hands of oil companies or unfriendly states.

Cristiano K-O'ed by Kamikaze Critter

It wasn't just the elk heart that caused a problem at Elkhart Lake race track, it was the whole freaking elk, or deer or whatever.

Race Driver Cristiano da Matta suffered severe head injuries when his car struck a deer while practicing for the Champcar race in Elkhart Lake Wisconsin. As of mid-day today, he was still in the hospital. s a racing fan my thoughts and prayers go with him.

It seems like every race you hear a driver complaining about bad luck. In my book having a deer run out in front of you on the race track is the epitome of bad luck.

Youtube.com Video of the Week
Knights of the Round Table - in Legos(tm)

The Knights of the Round Table song from Monty Python and the Holy Grail performed by Lego(tm) characters. On second thought, let's not go there, it is a silly place.

Ford: Bad News all over the Place

Ford managed most of the year to keep itself out of the news while GM took all the bad headlines. Now bad news is piling in from all angles. First, Ford not only issued a quarterly loss report, it then revised the statement and doubled the loss. Secondly, Ford recalled over a million vehicles for cruise control problems. Next, Toyota took the #2 sales slot away from Ford. Finally, General Motors announced its redesigned full-sized pickup trucks. Ford's F-150 pickup is its #1 seller (actually the industry's #1 seller), but sales of pickups are down about 36% industry-wide this year. If Ford loses market share to GM and to Toyota (redesigned Tacoma due early 2007), Ford could be in a world of hurt. Thetruthaboutcars.com today came out with a Ford Deathwatch article to go along with the long-running GM Deathwatch series.

There is a bit of good news, Toyota reported higher profits for the quarter, $4.3 billion in operating income. Toyota now has a market value of three times the combined value of GM, Ford, and DaimlerChrysler. I said it was good news, I didn't say for whom.

I want to add a personal note to all this. Yesterday, I was at the Indianapolis Ford (make that Visteon, no make that Automotive Components Holdings, LLC) plant for their annual "Health Fair". The snacks were delicious. They included corndogs, mini-corndogs, White Castle hamburgers, big cookies, and movie-theater popcorn. These healthful treats no doubt lowered Ford's medical expenses enough to ensure profits this year, next year and beyond.

Creditslips.com

Somebody sent me the URL of a blog called creditslips.com. This blog deals with credit, debt collection and bankruptcy. At first blush, it's quite good.