Credit Basics
Credit counselors finding a broad range of victims
South Florida Business Journal - by Kevin Gale
Mark Freerks
Consolidated Credit Counseling Services founder Howard Dvorkin is adding more counselors.
Putting a twist on a line from "The Sixth Sense," a T-shirt at Consolidated Credit Counseling Services says, "I see debt people."
Unfortunately, they are seeing all too many these days.
Howard Dvorkin, the founder of the Fort Lauderdale non-profit, has about 300 staffers but could use up to 100 more counselors with call volume up 80 percent this year. He has an MBA from the University of Miami and the perspective of a CPA who helped clean up after the savings and loan meltdown of the late 1980s and early 1990s.
"Nothing compares to what we are seeing," he says now. "What we are seeing now is a widespread financial meltdown and a lot of people are hurting and have no where to turn to. ... We're seeing a lot of people from a lot of different areas coming to us. Not only subprimes, but all walks of life."
Consolidated, which is 15 years old, is paid 2 percent of client's credit card debt by the card issuers to work with the holders and help them avoid bankruptcy.
A typical client is someone who has been walking a financial tightrope with debt built up over time, Dvorkin said. Then their situation changes, such as loss of a job.
In past years, many consumers used their houses as piggy banks to pay down credit card debt via refinancings or home equity lines. Now, they have built up credit card debt once again, but there's no equity left to tap.
Dvorkin said a report about six months ago showed consumers were defaulting on their mortgages before their credit cards.
"That is frightening and what it tells me is the people were relying on their credit cards to maintain their lifestyle, but were OK with becoming arrears with their house. That's not normal," he said.
Unfortunately, Dvorkin says he doesn't think we are even half way through the current cycle of problems and that 2008 will be horrendous in South Florida and nationally.
The amount of credit card debt it takes to sink a family varies widely. For a low-income family, $2,000 or $3,000 might be insurmountable, but for a wealthier family, it might be $40,000.
Business owners often get into trouble by using their credit cards for business, Dvorkin said. "What the business owners don't understand is even though it has the business name on it, it's typically the underlying person that is responsible for it."
Consumers encountering problems these days tend to be more sophisticated than what he saw as an accountant for Laventhol & Horwath and Arthur Andersen during the Resolution Trust Corp. era, Dvorkin says.
He recently had a call from someone he describes as a "working guy" who had seven investment properties. Three were barely breaking even and two were making money, but two were empty and dragging down the rest of his portfolio. "He was a working guy, but the banks had to believe he had some sophistication level," he said.
With real estate values down 20 percent in some cases, "it is driving good people into bad situations," Dvorkin said.
About 10 percent of those initially seeking counseling at Consolidated are accepted. Consolidated's counselors work with clients to develop a budget and submit a proposal to the credit card companies, which will typically reduce payments 30 to 50 percent, often by lowering the interest rate and waiving late and over-limit fees.
On mortgages, "there is not a lot we can do," Dvorkin said. "That's interesting because I keep reading that these mortgage companies are helping consumers, but I'm not seeing it."
One of the challenges for Consolidated is hiring workers, putting them through three to four weeks of training and then making sure they pass competency tests, he said. "Our service is not a simple product."
The lag time between accepting a client and getting reimbursed from the credit card companies presents a challenge to growth, too said Dvorkin.
A lot of the other counseling services have been devastated by credit card companies cutting the percentage they will pay for their work, Dvorkin said. "I think we have rolled up at least 11 portfolios this year alone of our competitors, because they were financially unstable - which is kind of ironic."
CONSOLIDATED CREDIT COUNSELING SERVICES
Founder: Howard Dvorkin
Web site: www.consolidatedcredit.org
Phone: (800) 320-9929
