Getting To The Root Of The Financial Problem
Richard Dunwoody has 30 years experiences providing consulting services to the financial services industry through AFO Venture Group. On today's show Richard offers his opinion on how credit counselling agencies in Canada operate and what this means to consumers.
At our firm we work a lot with local, not-for-profit credit counselling agencies that meet face-to-face with clients using a "whole person" approach. I am a supporter of these kinds of organizations because they meet with people face-to-face, help people deal with the underlying causes of their financial difficulties and teach useful money management skills like creating a budget and finding ways to save money. In fact, I've had two local credit counsellors on this show: Heather Cudmore from Carizon in Kitchener and Sue Davey from Brant Family Counselling.
Richard's disapproval does not lie with these local not-for-profit agencies, but rather, the systems in place in Canada for credit counsellors regarding aspects like qualification and accreditation. He also expresses concerns that consumers are not asking the right questions when it comes to entering into a program like a debt management plan to deal with their debts.
Self-Regulated Accreditation Isn't Always Enough
Richard thinks it is critical that consumers ask the person they are speaking to about their individual background and credentials. In particular, he is concerned that many of the credit counselling agencies in Canada are self-regulated and that this is not rigorous enough in terms of the individual credit counsellor's training and qualification. In fact, he points out that
[of] the top two credit not-for-profit credit counselling organizations in Canada, one of them had zero employees that were certified, had any qualifications. And the second one, only had 67% of their counsellors had any certification.
To clarify, a not-for-profit agency uses their resources to help individuals within their community; spending little money on advertising or unnecessary expenses and meets face-to-face with their clients. Differently, national agencies tend to conduct their conversations over the phone and it can be unclear whether the person on the other end is qualified to provide advice. Richard makes his distinction between the two stating that,
when we talk about regulations and we talk about certifications of credit counselling organizations, I would suspect that most of these local agencies have very strong qualifications both in social work aspects, degrees or diplomas and in the underlying subject matter that they're involved in. This is not true in some of the large national companies.
His concern lies with the accreditation that credit counsellors are required to have when meeting with clients. He insists that their self-regulatory body, the Ontario Association of Credit Counselling Services (OACCS), should be setting standards for all of their members and relaying information about these programs to the public. In Richard's opinion,
...there isn't that regulatory oversight. It's a self-regulatory body that's governing them. They don't have to have any background credentials. They can walk in, sit down at a desk, answer the phone and start telling consumers how to manage their finances. And that's what's concerning.
Richard's proposed plan is that there needs to be a national program (such as the Financial Consumer Agency of Canada (FCAC) programs), outside of the self-regulatory body of credit counsellors, that is supported at the Federal or Provincial level.
Ask Questions & Know What You're Getting
Richard's second message to listeners and consumers is that it's important to be aware of exactly who you are dealing with and what the proposed program will look like from start to finish. Before you pay anything, ask:
What is the deal? What are my creditors agreeing to? ... At the end of the 48 months, what if anything am I going to be owing?
I agree with Richard that it makes sense to ask questions and to ensure that you're making the right decision for your personal financial situation. You need to make sure that the debt management plan that you enter into accomplishes what you want it to, once it has ended. He provides an example stating that,
if I go through bankruptcy, if I go through a consumer proposal, I know what's going to happen at the end. And at the end of that, I walk away and I know that everything is done.
Success Rate & National vs Local Credit Counselling
One of Richard's other concerns about the programs offered through national credit counselling agencies is their success rate. Richard points out that the director of a large national credit counselling organization stated that their debt management programs only have a 43% successful completion rate.
And that's where, when we look at some of the larger not-for-profits, they don’t provide the ancillary services. What they don’t provide to consumers as well, is what are the issues that come post commencement of a debt management program?
Richard believes small local agencies may have a better success rate because they are meeting face-to-face with the client, are probably better trained and experienced and are providing follow-up and ancillary counselling services to get to the root of the cause of their money problems.
5 Questions To Ask Your Credit Counsellor (and your trustee):
- What are your qualifications and experience?
- What are your objectives?
- What happens throughout the debt management plan?
- Has my creditor agreed to lower or eliminate interest on the debt during the program?
- Will all of my debts be eliminated once the program is completed?
Resources Mentioned in the Show
- Ontario Association of Credit Counselling Services (OACCS)
- Financial Consumer Agency of Canada (FCAC)
Articles Mentioned in the Show
- Consumer Debt Counselling in Canada - Andrew C. Dekany (42.6% success rate, pg. 78)
- Global News - Smart Money (discussing limitation periods)
- Toronto Star - "Consolidated Credit Counseling Services of Canada Operates Without Certified Counsellors"
- Toronto Star - "Debt Struggles Spark Concerns"
FULL TRANSCRIPT show #41 with Richard Dunwoody
Doug Hoyes: Welcome to Debt Free in 30, the show where every week we take 30 minutes and talk to industry experts about debt, money and personal finance. I'm Doug Hoyes.
I started the show almost a year ago to provide practical advice on how to become debt free. As regular listeners know I am the co-founder of Hoyes Michalos & Associates, one of the largest firms in Ontario that does personal bankruptcy and consumer proposals. And so, obviously I'm biased. I think for a certain number of people, those are good solutions.
However, this is not the Doug Hoyes show and I try very hard to present varied points of view on this show. I don’t want to just present my opinions, I want other opinions so that you, the listener, can reach your own conclusions.
For example, I'm a big supporter of local, not-for-profit credit counselling. I believe that for many people with money problems sitting down with a credit counsellor and working through a budget and looking for ways to save money is a very worthwhile exercise. A second pair of eyes to review your situation is, for many people, a good idea. Local credit counselling agencies provide a holistic approach to solving problems. Most of the agencies I've dealt with provide a broad range of counselling. They deal with the whole person. Debt problems are often caused by other issues like marriage problems, gambling, drinking problems and other addictions. Full service, local, not for profit agencies, deal with the whole person and can help with counselling on the underlying causes of the issues.
When I say local I mean a person you can meet with face-to-face in your own town and not just a voice on the telephone. By not-for-profit I mean a counselling agency that uses most of its resources to provide services in the local community and doesn’t spend a lot of money on administration or advertising or other expenses that don’t directly benefit the local community.
I've had two local not-for-profit credit counsellors on the show. Heather Cudmore from Carizon in Kitchener was my guest back on how number four. And Sue Davey from Brant Family Counselling was my guest on show number seven. And like all previous shows they're available on iTunes and on our website at hoyes.com.
On both of those shows we had a frank discussion about the pros and cons of credit counselling. So, is credit counselling the perfect solution to your debt problems? As I said we've had two credit counsellors on the show explain why credit counselling is a good solution for some people and I've told you my personal bias, local, not-for-profit credit counselling is a good solution in many cases. Today, we're going to go a bit off the board and talk to a guy who has a slightly different opinion about credit counselling. Like I said I'm not going to agree 100% with all of my guests, but that's what makes this show interesting so let's get started. I'd like to welcome in my guest. So who are you? Where do you work? And what do you do?
Richard Dunwoody: My name's Richard Dunwoody and I'm with AFO Venture Group. AFO provides consulting services to the financial service industry, creditors and those companies that support the creditor's operations.
Doug Hoyes: So, when you say consulting services and creditors so you're talking about companies like banks, financial intuitions and that sort of thing, and what kind of services would you provide? What kind of things are you helping them with?
Richard Dunwoody: We work with them on operational processes, guidelines, policies and interaction and customer service programs and such.
Doug Hoyes: So, you're doing a lot of the back office nitty gritty things and as a result you see a lot of the information that's coming in, presumably from people like myself, but also from credit counsellors which is what gives you some of the background to talk to us today. How long have you been in the financial industry for?
Richard Dunwoody: I've been in the financial industry for 30 years. And I've taken an active interest in the last five years to aggressively understand the different debt remediation processes available to consumers, so credit counselling, bankruptcy, consumer proposal, debt settlement programs.
Doug Hoyes: And we've talked a lot about consumer proposals and bankruptcies on this show cause that's my area of expertise. But let's talk about credit counselling.
And so we've got people listening today who are sitting there going okay credit counselling sounds like a good idea. What are the kind of things you would want someone to know who is considering, like you say, their different debt remediation options including credit counselling? What are the kind of things you think they should know?
Richard Dunwoody: Well Doug, you started off the program explaining your position of supporting the local, small credit counselling organizations that provide a variety of ancillary services and supportive counselling programs. I can't agree more with you. That is, a critical necessary component of credit counselling is also addressing the underlying issues that created the financial issues that consumers face. But what I think the consumers need to understand is those who they're dealing with. What are the qualifications, what are the objectives and what happens throughout the debt management program in credit counselling?
Doug Hoyes: Well, let's pick on some of those things then. So, qualifications, I am a Chartered Accountant, I'm a licensed bankruptcy trustee, it took me many years to get my qualifications. I had to take many years worth of programs, many exams. I assume credit counselling is the same, extensive background like tell me what accreditation they have to go through?
Richard Dunwoody: Well, that would be the natural assumption of a consumer approaching an organization is that these folks have accreditation and they're self-regulated bodies often talk about the accreditation programs that their members have to go through. But research has shown and has been clearly evident that if we take the top two credit not-for-profit credit counselling organizations in Canada, one of them had zero employees that were certified, had any qualifications. And the second one only had 67% of their counsellors had any certification.
So, there isn’t that regulatory oversight. It's a self-regulatory body that's governing them. They don’t have to have any background credentials. They can walk in, sit down at the desk, answer the phone and start telling consumers how to manage their finances. And that's what's concerning.
Doug Hoyes: So, obviously some of them are accredited. It's not like they have - some of them have no experience. And again, the people who I've had on this show and I mentioned their names earlier, Heather and Sue, they've both been in this business for many years. They've obviously taken courses; they have various forms of accreditation. But what you're saying is, the person you're talking to on the phone may or may not have any kind of formal accreditation. So, are you saying then that the first question you should ask is, what's your background, what's your accreditation? Is that a valuable question to ask?
Richard Dunwoody: I think that's a critical question to ask. And to ask if their accreditation comes from their self-regulatory body or does it come elsewhere?
Doug Hoyes: And in Canada, is there an elsewhere?
Richard Dunwoody: In Canada there isn’t an elsewhere, but some of the counsellors will say well I took a math course or I took a budget course in high school and they feel that's their accreditation.
Doug Hoyes: So, what you're arguing for is what? A national accreditation program, a provincial program, what would you like to see?
Richard Dunwoody: Well, I think it's important to have a national program, ok, that is not provided through a self-regulatory regime, but is either supported at the Federal or Provincial level. The Financial Consumer Agency of Canada (FCAC), has a number of programs that they offer. Those programs should be endorsed in more of a certified process.
Doug Hoyes: So, you're looking for something .... I guess the self-regulatory body. Well I'm a Chartered Accountant (I guess we call ourselves CPA's now), and we are a self-regulatory body, we have our own courses, we give out the letters CA or CPA after your name. Is there anything wrong with that?
Richard Dunwoody: Well, there would be if you're self-regulatory body purported to offer these programs but have no control or just simply allowed people to function without those criteria. And if you look at the self-regulatory bodies the OACCS for example the Ontario Association of Credit Counselling Services, they claim that their members have certified counsellors. And in fact, until I raised the issue with them on their website with them back in 2010, they said it was mandatory that any employee of a member of their association had to be certified before speaking with a counsellor. Once that was proven to be untrue, they simply removed that line from their website, that's not regulatory.
Doug Hoyes: So, what you're saying is there - is you don’t know for sure what you're getting. If you're dealing with someone like myself who's a chartered accountant, okay we all know what that means; we all know what the process is to get it. But there are no initials that go after a credit councillor's name; there is no CC designation or anything like that that's universally accepted. You would like to see it more universally accepted with a strict set of guidelines, and making it national in scope.
So, okay I mean that kind of sounds like motherhood to me. I guess I can't really object to something like that. I'd like to talk a little bit more what credit counsellors actually do and get your take on that. But before I do I'm going to take a quick break and I will be back with Richard Dunwoody here on Debt Free in 30.
Doug Hoyes: We're back on Debt Free in 30. My name is Doug Hoyes. My guest today is Richard Dunwoody who has over 30 years experience in the financial services industry and we're talking today about credit counsellors.
And he comes at this from a different perspective. He's not a credit counsellor; he's done a lot of work on the other side of the table for banks and other financial institutions who are dealing with people like myself and consumer proposals, but also dealing with credit counsellors in debt management plans. People who have listened to this show before will know that we talked about debt management plans and Richard you can correct me if I'm wrong here but a debt management plan is a deal put together by a not for profit credit counsellor where the debtor pays off their debts in full and in most cases hopefully they are getting a break on the interest; that's really the big advantage of a debt management program.
So, I've $10,000 worth of debts on three different credit cards, I go to a credit counsellor, they work out a plan where I pay back I don’t know a couple of hundred of bucks a month, $300 a month for four years, whatever it is, and at the end of it the debts are wiped out. So, I've got two questions for you. Number one what is the success rate of those kinds of programs?
Richard Dunwoody: So, Doug I just want to clarify one of your points you made in explaining a debt management program and I think this is a critical point, is that not all debts are paid off at the completion of debt management program. So, a debt management program will span typically a 48 month period, not all creditors will reduce interest or just wipe out the interest on the payments. That leaves consumers at the end of the 48 month debt management program with some residual debts still owing to the consumers. And we saw this back in December in a Toronto Star article where an unfortunate lady had gone through 48 months, paid off most of her debts, but still owed $5,600 at the end of that program.
Doug Hoyes: And what I'd like to do is in the show notes, which are on our website at hoyes.com, that's h-o-y-e-s.com, we'll put links to what you're talking about. So, we've got the links to that Toronto Star article and some of the other resources we're talking about. Cause I don’t want people to be trusting you and me to explain this correctly if there's third party evidence, let's put it out there. So, we'll put that link in.
So, what you're describing then is somebody who is making their payments but if the interest is still ticking once you've paid off the principle well really you haven’t fully paid it off cause there was still interest accumulating, you still owe more, that's really what you're saying.
Richard Dunwoody: That's what I'm saying. And consumers need to be aware of that when they're entering into these debt management programs. Not just accept the counsellor’s position that we're going to try to reduce your interest, but actually confirm prior to making that first payment were they successful in doing that or what are the ramifications if they weren’t successful in doing that? We ask the question about the success of these debt management programs.
Doug Hoyes: And so I want to ask about the success rate. So, just to clarify what you're saying there then, if I'm entering into a debt management program I should ask the counsellor to confirm for me exactly what the deal is. So, did the bank say the interest is wiped out? Did the bank say that the interest is only going to be at half the rate it was? What exactly is the deal? Because I want to know exactly when I'm fully paid out. That's really what you're advocating here, right?
Richard Dunwoody: Before they pay any money to them.
Doug Hoyes: I want to know what the deal is.
Richard Dunwoody: What is the deal? What are my creditors agreeing to? And that to me is just common sense. At the end of the 48 months, what if anything am I going to be owing? If I go through bankruptcy, if I go through consumer proposal, I know what's going to happen at the end. And at the end of that I walk away and I know that everything is done.
Doug Hoyes: Yeah and in a consumer proposal we give you a copy cause we have to sign it. Here is the proposal I'm making, I'm going to pay this much for this long and at the end all of my unsecured debts are wiped out. I mean obviously there's certain exceptions like maybe court fines or something like that or alimony or child support, but you know in advance what the deal is. So, what you're saying in a debt management plan, well let me see the copies from the creditor, the letter that says yep we agreed to this plan, this is what we're willing to take. And like you say that's kind of common sense.
Richard Dunwoody: Yep.
Doug Hoyes: Okay. So, now back to what you were saying which was the second point, success rate. So, what is the overall success rate on a debt management plan?
Richard Dunwoody: Well, in order to explain the success rate when I'm going to reference is a comment or a statement made in a research paper of a graduate law student here in Toronto. And it comes from a comment that he received from the director of one of the credit counselling organizations where they provided the success rate of the files closed in that 42.7% had successfully completed a program. That's astonishing, only 42.7%.
Doug Hoyes: So, about 43%, so you're talking about people who start the program only 43% complete it three, four years later whatever that is. And you find that astonishing because it's such a low number.
Richard Dunwoody: Well, you have greater than a 50% chance of being unsuccessful in the program. Now, what I'd like to see, and this is again a concern of credit counselling, not-for-profit, is that they don’t keep statistics. And I would suggest that the statistical success rate of your small local credit counselling organizations is significantly higher.
Doug Hoyes: And I think that's a very good point. And in my experience, the reason why it's significantly higher is because they are actually working directly with you. Is that correct?
Richard Dunwoody: That's correct. But in most cases they are addressing the underlying issues that lead to the financial difficulty. Again, I’ll explain as a scenario. You can go through treatment for lung cancer etc., but if you don’t give up smoking you're going to fall back into the same trap. And that's where when we look at some of the larger not-for-profits, they don’t provide the ancillary services. What they don’t provide to consumers as well, is what are the issues that come post commencement of a debt management program?
CBC Marketplace did a research piece back about four years ago on a not-for-profit credit counselling programs. And one individual in particular saw his mortgage rate increase, naturally because his credit score fell, and he ended up losing his house. These are the circumstances that people aren’t seeing and so they're saying, hey I need to get out of this program.
Doug Hoyes: And so again, you're drawing a distinction then between local, not-for-profit, full service agencies that are meeting with people and saying okay you know what? You've got other issues, you've got - you know, your marriage broke up, you're going through some marriage issues, let's get you some marriage counselling to help address that issue, you've got gambling problems, drinking problems, whatever.
If we can address those issues as well as looking at your financial issues and working with you over a period of time; multiple meetings to go through your budget, cut back on expenses, help you find a cheaper place to live, find a cheaper car, all of those things you are much more likely to be successful than if all you're doing is talking to somebody on the phone.
Richard Dunwoody: I think you always have to draw that distinction between the local and the national not-for-profit agencies. And here's probably a good illustration of that. When the Ontario government stopped funding the not-for-profit credit counselling organizations, the minister at the time said listen we have to look at this and say is it a service or is a business that they're offering? And their conclusion was that it was a business that they were offering.
And I think that the issue there though is that they're looking primarily at the large national agencies and not the local, small credit counselling agencies. And I think if they had looked at the local, small agencies, I think they would have said no it's not a business, it's a service that they're offering. When we talk about regulations and we talk about certifications of credit counselling organizations, I would suspect that most of these local agencies have very strong qualifications, both in social work aspects, degrees or diplomas and in the underlying subject matter that they're involved in. This is not true in some of the large national.
Doug Hoyes: And that's the distinction we're making. Okay, well I think that's a good place to end this segment. The local not-for-profit agencies that are full service, provide a holistic approach to help deal with the underlying issues. The bigger companies that you don’t meet with in person, it's almost entirely done over the telephone, there is no ancillary counselling. They're probably not spending a whole lot of time sitting down with you going through all those other things and as a result it's much harder to deal with the underlying issues which is why their success rate tends to be a bit lower. Great, I appreciate all that, that's very good advice, thanks for being here today, Richard.
Richard Dunwoody: Thank you.
Announcer: You're listing to Debt Free in 30 with Doug Hoyes. We'll be right back.
Doug Hoyes: It's time for the Let's Get Started segment here on Debt Free in 30. My name is Doug Hoyes and my guest today is Richard Dunwoody who's been in the financial services industry for many years. And we've been talking about credit counselling specifically, but I've got a more generic question for you Richard.
So, someone is listening today and they've got debt problems. What is your advice? What should their mind-set be? Where should they start? What should they do if they're experiencing a bunch of debt problems?
Richard Dunwoody: Well, my first advice to a consumer is take a deep breath and take a step back, don’t listen to the hysteria or the issues that are being raised in the media, as I call it the Chicken Little Syndrome, the sky is falling, the sky is falling. Address your issues with your creditor or your creditor's agent, in many cases being a law firm or a collection agency. Provide the facts to them of your exact situation. Here are my assets, here are my liabilities, I have no assets, here's my income, here is what I can do.
And in every single case, the creditor or the creditor's agent is going to listen to that and try and make the best determination possible of how to resolve the issue. Now there are cases and there are going to be instances where for numerous reasons: marital separation, health issues, loss of employment, that there's just no means to deal with the debt issues of paying them off. Now go and look at what are the options and what are the qualifications of those people in providing those options.
Do the due diligence, but then don’t buy in quickly to what they've offered. Take it back, take it home, look at it and say will my situation change in the next six months or 12 months and decide that this is not a good option or not. Then make that second decision and go and follow through with what option you want.
Doug Hoyes: So, don’t jump into it, take a deep breath, that's really your number one piece of advice. So, you have no objection in fact you're encouraging people to talk to either the bank or the credit card company or the collection agency who's phoning you, tell them what your situation is. There's no reason not to do that.
Richard Dunwoody: There's absolutely no reason. And I think that's the biggest fear and the biggest misconception out there is the minute I start talking to a creditor then I'm going to put myself in a precarious position. This is, and we go back to credit counselling for a second on a Global News show about two months ago, one of the head of the largest credit counselling organizations, I think misinformed consumers. That if you talk to your creditor the statute of limitations - and I'm not going to get into that - but the statute of limitations starts ticking all over again. That is not true, simply not true. Engage your creditor, talk to your creditor and see what options are available to you.
Doug Hoyes: Yeah and you're referring to the Limitations Act which is a provincial statute here in Ontario. There are similar statutes in other provinces and the simple version of the limitations is creditors have - and we're talking about normal creditors - we're not talking about the government, revenue Canada, child support, but banks, credit card companies have two years to take legal action against you. And the question is what does two years mean? And I believe the common law is two years from the date of last activity which would typically be the last time you made a payment to them. So, talking to them on the phone isn’t upping the two year clock.
Richard Dunwoody: That's correct and the courts have repeatedly held that position when the limitation period has been argued. The clock for the two years starts ticking from your date of last payment of that debt.
Doug Hoyes: That's what the two years is. So, the reason we mention this then is there is no reason you're saying not to talk to the creditor, it's not like it's hurting your rights. I mean I would make the comment that if I'm talking to a creditor I probably am not going to reveal to them if they don’t already know where I'm working. I'm not going to give them my employer's address and phone number and fax number. I'm not going to give them my bank account number if they didn’t already have it. But that's not what you're advocating anyways. You're saying hey, talk to them, here's my situation, this is what I can afford to pay each month, can we make a deal. That's what you're saying.
Richard Dunwoody: That's what I'm saying. I do though, advocate sort of a full disclosure. Your financial situation is such that the end result is going to be bankruptcy, whether the creditor knows your employer or not is going to be irrelevant. Creditors don’t want to commence legal action. They don’t want to go through that unnecessary cost. And if you tell them who your employer is, you tell them what your income is and this is what I can do to retire my debt, it's going to be up to the creditor to come up with some other solution which simply does not exist. You can't drum money out of the air.
Doug Hoyes: Yeah and I guess if they can't make a deal, then well you're right, you're going to one of the other options, you're doing a bankruptcy, a consumer proposal or something else that's just the way it has to work. So, great and in real quick summary your advice is take a deep breath, look to the future, understand your options and go from there. I think that's great advice, thanks very much for being with me, Richard.
Richard Dunwoody: Thank you.
Doug Hoyes: We'll be back to wrap it up, you're listening to the Let's Get Started segment on Debt Free in 30.
Doug Hoyes: Welcome back, it's time for the 30 second recap of what we discussed today. On today's show Richard Dunwoody told us that his advice is to question your credit counsellor. Ask what their qualifications are and make sure you know that the creditors have accepted the deal before you start making payments.
That's the 30 second recap of what we discussed today. So, what's my take on credit counselling? As I said in the opening, I believe local, full service, not-for-profit credit counsellors provide a valuable service because they have the expertise to not only help you eliminate your debt but also to help you identify and deal with the underlying issues that contributed to your debt in the first place. I'm not a big fan of agencies that only talk to you on the phone and who's only reason for existence is to make money off you by setting up a debt management plan without doing the hard work of working with you, in person, to solve your debt problems.
That's our show for today. Full show notes are available on our website at hoyes.com, that's h-o-y-e-s-dot-com. Thanks for listening. Until next week, I'm Doug Hoyes. That was Debt Free in 30.