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Counselors brace for bankruptcy clients

By Michael Yeomans
TRIBUNE-REVIEW - April 16, 2005 - Telephones could soon be ringing more frequently at Consumer Credit Counseling Service of Western Pennsylvania, when the new bankruptcy legislation adopted by Congress is signed by President Bush and goes into effect six months later.

The new the law will require consumers to undergo credit counseling sessions up to six months before being able to file for bankruptcy, and to complete a financial literacy program afterwards.

"Our programs are already in place to provide the type of bankruptcy counseling and financial literacy education the law speaks to," said Stephen Piotrowski, CEO of the nonprofit agency that operates nine offices in the Pittsburgh region. Piotrowski expects to add more staff to the 20 certified credit counselors now working.

The new requirements are drawing praise from advocates like Piotrowski, but warnings from other consumer advocates who say such requirements will add costs and obstacles for the poor seeking relief from creditors.

Piotrowski says the requirement for credit counseling will result in consumers gaining more control over their finances. More than half of the people who contact or are referred by creditors to Consumer Credit Counseling Service regain control of their finances because its counseling helps them to develop new budgeting and spending habits. The service currently is free and takes about 45 to 90 minutes in person or on the telephone.

Piotrowski said he will look at whether agencies can charge a fee for services to offset the large volume of calls the new law is likely to produce.

"There is nothing in legislation that requires creditors to support the counseling. ... It will be the responsibility of the individual," he said.

About 30 percent of the agency's clients enter debt management programs. In these programs, Consumer Credit negotiates with creditors for partial debt forgiveness, lower interest rates and waiving late fees. The agency then collects monthly payments from the consumer and redistributes them to the creditors, often taking a small percentage for its services.

Consumer Credit Counseling Service recommends seeing a bankruptcy attorney to only about 15 percent of clients.

"The people who truly need bankruptcy will still be able to get bankruptcy," Piotrowski said.

He expects increased competition among credit counseling agencies, including large nationwide concerns like Houston, Texas-based Money Management International, which took a full-page ad in Pittsburgh's Yellow Pages. South Side-based Consumer Credit Counseling adopted a national marketing strategy of its own last year under the name Advantage Credit Counseling Service, in an effort to increase its client volume.

Supporters of the bankruptcy legislation say it imposes new regulations that will eliminate abuses among counseling firms. But critics say the legislation provides too little oversight and too much leeway for wrongdoing.

"This is an industry that has had all kinds of problems, and this may be requiring people to go to those same problem agencies," said Deanne Loonin, of the National Consumer Law Center. "This will somehow be turned into an entrepreneurial opportunity."

Stanley Levine, attorney at the Downtown firm Campbell & Levine, counts Consumer Credit Counseling as among the legitimate credit counseling agencies, but questions the impact such agencies can have for those whose financial condition leaves no other option except bankruptcy, and the impediments the new law will put in front of people who legitimately need the help afforded by bankruptcy.

He said he would view the credit counseling provisions more favorably if there was a corollary requirement prohibiting credit card companies from offering pre-approved credit applications to college students or others with limited means to afford that credit.

Michael Yeomans can be reached at myeomans@tribweb.com or (412) 320-7908.