Another thing I would like to say is that it has been said that we favor certain creditors. I don't know where that idea arose in the minds of anyone connected with the industry. We cannot favor any creditor.

It would be foreign to our nature to favor any creditor. We must favor our debtor. We must do what we must do to help the debtor out of debt.

The only time I have seen any favoring of debtors done in the debt management industry is where debt management is operated on a nonprofit basis. I think one of the statements that has been submitted to this committee is by Mr. Price A. Patton. Mr. Patton was the Director of the largest non-profit counselling service in the country, namely, in the City of Chicago. Mr. Patton, in testimony before the Tydings Committee of the Senate, said the originally this non-profit corporation was set up with the help of such individuals as Marshall Field in Chicago and that the creditors were to take a minority interest in this operation. But, as they began to open up and operate and seek clients, the creditors became very much a pressure group; they took control of it to a large degree, and what would occur is that the creditors would send certain of their debtors over and by sending them over to the non-profit organization for counselling service, they are merely saying, "We would like to be favored on your disbursements.” But, as far as a commercial debt counsellor is concerned, he would never favor a creditor.

To go further, sir, as far as the charges are concerned that have been made against the industry, I would like to state that Congressman Diggs introduced his bill—and I believe it is because in the State of Michigan, which is the state he represents, there is licensing for the debt management industry. The same charges that are made here today were made in 1958 and the congress took a look at the debt management industry in 1958 and they didn't take any action.

In 1963, when Mr. Diggs introduced a similiar bill, congress again didn't take action. At that point Michigan had had one full year of experience under the Debt Managment Act and I can say that that is probably one of the contributing factors to Mr. Diggs taking the approach of licensing as opposed to prohibition.

Here agin we sit in 1967 and yet in the District there has never been a true investigation of how reputable counsellors operate and of the great need for their services.

I would like to ask the debtor, our client, the consumer, the person who we help, what his opinion is.

I would like to submit as an exhibit (Exhibit 2) to this committee copies of over 125 letters we received at the time of unfavorable publicity last spring, some of them solicited, some unsoliciated, from our clients. I think these letters are testimony from people who live right here of how they feel about our organization and about the help we have been able to extend to them and how they feel about their own debt picture.

I would like to submit this to your committee, sir.

Mr. Sisk. Without objection, à copy of your Exhibit No. 2 will be made available for the file and subject to inspection by the committee. If possible, it will become a part of the record.

(The material referred to will be found in the files of the committee.)

Mr. HOLLAND. The debtor is the one for whom these hearings are convened and I think he should be the one to finally determine whether this industry is of need and service to the economy.

I thank you, sir.

Mr. Sisk. Thank you, Mr. Holland, for keeping your statement so brief.

As I said, your full statement will be made a part of the record. (The prepared statement follows:)



I appreciate this opportunity to appear before this Subcommittee on H.R. 8929 and H.R. 9806. My name is Elliott Holland, and I am the General Manager of the Barden group of companies. We operate 56 debt counselling offices in the District of Columbia and elsewhere throughout the country under the Credit Advisors and other trade names. I hope my testimony can show this Subcommittee how professional debt counsellors help so many people bogged down in debt. I testify from daily experience in this industry. We know from working with thousands of debtors that they need our services and that they obtain a practical course in financial planning as we help them out of debt. Our actual experience disproves the many unfounded charges made against the debt management industry. Essential Questions to be answered

This Subcommittee should obtain answers to the following essential questions as it investigates this industry: What role do professional debt management companies play in our economy? Are their services useful, and do they satisfy a need? What are the alternatives to debt counsellors presently, and what are the alternatives if commercial debt management were to be outlawed ? Do non-profit organizations fairly represent the debtors, and can they alone serve the needs of those in debt? How do responsible commercial counsellors operate in this field? How can the public best be protected from the abuses which have occurred in the past? Do the facts support the charges leveled against the industry? Which abuses are real, and which charges are unfounded? Debt CounsellingA Definition

Debt counselling has resulted from the phenomenal growth in consumer credit-a credit expansion which has contributed dynamically to the growth of our free enterprise system, but unfortunately has left in its wake large numbers of victims to such easy credit policies. This body of overburdened debtors can be accounted for in a number of ways. Most debtors are buyers with little or no sales resistance. They buy far beyond their means and their abilities to pay. They are victims of easy credit policies. Still others make purchases in good faith, but because of illness, death, loss of employment or some other unforeseen personal catastrophe are unable to meet their contracted payments.

Regardless of the reason for default, each class of debtor faces a variety of pressures, such as demanding telephone calls, written and persistent duns, garnishment, the threat of unemployment. As these pressures mount, debtors often find that the principal solutions are: bankruptcy or professional debt counselling and management.

Debt management companies are not loan companies. Fully qualified and capably trained debt management counsellors have only one objective: To guide persons in debt out of the maze of money troubles in which they have trapped themselves.

We think that the facts, when known, clearly establish the usefulness of professional debt counsellors and the need for their services. The United States Department of Labor stated in several 1966 reports: "If honestly operated, these agencies can perform a real service for persons deeply enmeshed in debt." That, of course, is not the entire quote-for the reports go on to warn of the serious abuses that have occurred in the debt management industry. The concern for these abuses is a concern the industry shares, and has prompted these hearings today. I will address myself to such problems, and the solution to them, later. For now, let us consider the “real service” which my company and other reputable ones in the debt counselling field performs.

Useful Services Performed

A professional debt counsellor helps debtors to budget and schedule their debt repayments, while providing relief from unfair or harassing creditor collection tactics. In so helping the debtor and his wife to budget and to practice financial discipline, the counsellor chooses sides. He fights for his client, since his basic responsibility is to their interests—though the end purpose of repaying all debts benefits the creditors. The usual results of a professional relationship-bills are paid off, money is returned to the creditor, and the debtor enjoys a learning experience that he carries with him in the future. He is no longer a financial refugee, he regains bis self-respect by learning what too many other people, too many of us, take for granted-an ability to control his own finances. Counselling as an Alternative to Bankruptcy or Additional Debt

Without debt counselling, many are forced into bankruptcy. In the past thirteen years, while the U.S. economy has enjoyed its most prosperous decade in history, the annual personal bankruptcy rate has increased 503 percent. Debt counselling is an alternative to bankruptcy, and its disruptive effects on employment, family life, and loss of pride. Like the lesser known and more costly Chapter 13 wage earner procedures, it is a method of paying your way out of debt. Much is made of the fact that debt counsellors do not advance their own money to debtors so as to pay off existing and past due obligations. That is absolutely correct! We believe that individuals already overburdened with bills and debts cannot borrow their way out of debt. It is too costly a solution when the highest interest charges of consolidation loans are considered. We know, because so many of the debts included in the schedule of debts we deal in, are consolidation loans. Furthermore, many debtors are by their very overextended condition poor credit risks and therefore ineligible for such loans. The many credit interests in this country prosper by keeping individuals indebt. We can only survive by resisting these interests and helping the debtor out of debt. Why Can't the Debtor Hclp Himself!

You may wonder, as I did before learning answers through experience with our clients and creditors, why a debt counsellor can succeed where the individual debtor fails. Surprisingly, perhaps, our average clients are not uneducated, unemployed and poverty-stricken. Nor are the non-white minorities overly represented. Our "typical" client, fully employed, under 30, average income of $5,000, and with three or four dependents, is not much different from the celebrated profile study made of the average bankrupt. This typical debtor, and the many far more affluent clients we help, need the services of a counsellor to help them budget, deal with their creditors, and avoid repeating these problems in the future. This individual cannot always, or even often, help himself. Where the debtor himself attempts to rearrange his repayment plan with his many creditors, he frequently finds that despite the willingness of certain creditors to go along with him, each one still wants the assurance that no other credit will eceive preference. Quite frequently, therefore, the creditors will not allow such an adjustment. Yet, our experience has enabled us to bring about a workable repayment plan.

Debt counselling services in a sense are similar to those performed by employment agencies. In that field, certain persons will not suffer the embarrassment of applying for a job and being turned down, or of having to accept $1.75 an hour instead of $2.00 because of the relative bargaining positions. The creditors can exert similar leverage on the debtor, in the absence of experienced debt counsellors, that an employer can put on a prospective employee. The professional debt counsellor, like the experienced employment counsellor, can assist in the search for equality in dealing. Today, you no longer hear talk, so common only short years ago, of outlawing employment agencies. Yet, the cry to abolish commercial debt management continues. In the years to come these voices will also disappear in the wake of satisfactory experience under regulatory statutes. Inadequacy of Non-Profit Counselling

In addition to reasons I've given, it is clear from the very provisions of H.R. 9806 that even proponents of such prohibitory legislation recognize the need for debt management services. If this bill were passed, commercial debt counsellors would be outlawed--but the services could be performed by attorneys or by non-profit or charitable organizations. I would like to emphasize that these alternatives are as inadequate and unsatisfactory a solution to the overall problem as the alternative of bankruptcy. (Parenthetically, I oppose those who counsel bankruptcy as cure-alls or as means of solving social problems. The stigma and economic consequences are too severe.) Consider attorneys' services. Apart from the few lawyers specializing in Chapter 13 proceedings, attorneys do not want to, and cannot afford to, perform debt management services. I doubt that you will find a lawyer who after handling one such case is willing to take on another.

As for the non-profit organizations, the industry welcomes them for the assist. ance they potentially can give to debtors. However, experience shows that for a number of reasons, they cannot and do not begin to service the needs or numbers of debtors, as we commercial counsellors can and do. Usually, they are either creditor-oriented or paternalistic. They are part of the credit establishment, financed and supported by creditors, frequently staffed by former credit managers, and subjected to creditor pressures. Therefore, they cannot and do not exist to represent the debtor's point of view. They choose the creditor's side.

Furthermore, most debtors are unaware of their existence. Frequently, the nonprofit services are offered on a 9:00 to 5:00 basis with appointments often required days or weeks in advance. The occasional debtor who is actually aware of their existence, usually needs immediate assistance and, even more sig. nificantly, he and his wife can ill afford time off from work to obtain assistance during such office hours. Cost comparisons which have been made further demonstrate that most non-profit agency costs are about the same to the debtor as those furniished by commercial debt counsellors. Perhaps that explains why commercial counsellors assist thousands, and non-profit agencies assist only hundreds or less in the many cities where they exist side-by-side and where direct comparisons can be made. The charge is made that commercial companies are driven out when non-profit services are established. The facts are otherwise in Fort Wayne, Indianapolis, Des Moines, Bridgeport, Spokane, and the many cities of California, to mention only a few. The statement submitted to this Subcommittee by Price A. Patton, who runs the Chicago non-profit agency, offers the best evidence, and actual experience, of the inadequacy of reliance on non-profit counselling alone.

Professional debt counsellors ask only that the market place judge which service is preferred by the debtor—and which service better restores his pride. Our average client does not want welfare-type assistance. The therapy of a reasonable fee applies to chronic debtors as well as to others needing assistance. Several Unfounded Charges

Let me briefly discuss other charges that are unfounded.

The charge-creditors do not go along with us. The facts-in my introduction to this business years ago as an auditor. I made bank reconciliation analyses of thousands of checks written each week. These indicated that all major creditors accepted payments. Cancelled checks from ten years of our history indicate less than 10% of our checks are refused. An analysis of 1,000 consecutively numbered checks recently issued from our Detroit office indicated that only one check out of the thousand was returned. We have submitted as an exhibit the detailed tabulation of 1,000 checks issued in February from our Washington office. This convincingly shows that none of the major creditors in this area refuse our checks.

No matter how extensive the opposition to our industry from creditors--and creditor opposition and pressures can be understood since we stand between them and the debtor-refusing payment is foreign to creditors and not in their own interest. In fact, antitrust consequences might attach to any such refusals. Moreover, if a creditor has been notified that a debtor needs counselling in order to properly support his family, it would be unconscionable for that creditor to de stroy the very plan that is established to repay all debts. I might add that however silent creditors may be in the District on the question of support for commercial debt counselling, or vocal in their opposition, their many letters of endorsement in support of proposed regulation in states like Indiana indicate concrete approval of the usefulness of the role we play. After effentive sngulat-ry bills have been enacted in numerous states, they have even more readily recognized the benefits they receive from our services.

Another chargewe advertise that we prevent garnishments and wage assignments, when in fact we cannot. The factswhile it is obvious that we do not have the legal power to compel a creditor not to attach the wages of one of our

clients, the fact is that debt counsellors have the ability to negotiate with creditors in such a way as to prevent them from taking that final step. It is quite unusual for a creditor to use a wage assignment or a garnishment when he has assurance that he will be receiving regular payments on behalf of the debtor. In over ten years of operation I know of not a single case where garnishments and wage assignments were not avoided after opening an account, assuming regular payments were received. In setting up a repayment plan, we give priority first to judgments, then to wage assignments and garnishments. In the few cases where we are unable to make arrangements of this type of debt, we do not retain the account or any fee, and so advise the client. But once such an account is accepted and the debtor begins making and keeps up his payments, wage assignments and garnishments do not occur. Real Abuses Deserve Condemnation

I have been discussing some of the charges that are unfounded. Other charges have been made about real abuses-here in the District and elsewhere. We are as concerned as this Subcommittee is with the existence of such abuses-since our integrity is challenged and our very livelihood threatened through "guilt by association". That explains why we, and so many other professional counsellors in the field, have campaigned for meaningful regulation. The debt adjuster who takes his entire fee from initial payments should be outlawed! The company that embezzles or even commingles funds must be stopped! The company that purchases debts, or doubles as a debt manager and a collection agency, or alters the contract, or delays distribution of funds for an unreasonably long time deserves condemnation! Yet each of these abuses is controllable, and has been controlled or banned in the effective regulatory bills enacted over the last ten years. In Michigan, California, Colorado, Illinois—to mention only a few-detailed provisions, comparable to those in the Diggs Bill introduced both this session and in the 1963 and 1965, prohibit these abuses. The Creative Legislative Solution is Regulation

In my opinion, abuses which have occurred in the District, and throughout the country, were the result of debt management activities not being subject to regulation. The many state legislatures that passed prohibitory bills bark in 1955 and 1956, and afterwards, chose the easy method of dealing with abuses they outlawed the business. However, this legislative response is obviously not an effective solution because of the unfortunate impact on needy debtors. What is needed is a creative legislative solution. It is incredible to suggest, as so many have, that meaningful legislation cannot be drafted to reach problems in this industry; every session, Congress regulates industries and practices of far greater complexity in the fields of banking, savings and loan, automobile safety, and the like. Moreover, it seems contrary to our free enterprise system to prohibit commercial businesses at all, let alone prohibiting them before attempting to regulate the so-called abuses. Has any detailed factual investigation ever been made in the District to show the extent of such abuses, or to demonstrate that regulation would be ineffectual?

The trend in this country has been to regulate the debt management industry, rather than to outlaw it. Many prohibitory bills passed were not based on factual investigations and did not fully comprehend the usefulness of the services provided by reputable professional counsellors. Many were not even opposed. The thorough legislative investigations in California and Michigan, which had the support of professional counsellors, demonstrated that regulatory, rather than prohibitory, legislation, was desirable. The experience since enactment in these states and others bears out such findings and further demonstrates that the undesirable companies disappear after effective regulation is established. This past year, Arkansas, where the debt management story was not told, and Hawaii, where there are no dobt counsellors, joined the group of states outlawing the business. However, during 1967, the states of Iowa, Connecticut and Washington all chose the regulatory solution after careful and extensive deliberations of the sort that Mr. Scalise has previously explained.

From the record of hearings held by other House District Subcommittees in 1958 and 1963, it appears that those Congressmen in attendance recognize that regulation was preferable to prohibition. We urge this Subcommittee to consider and recommend effective regulatory legislation for the District of Columbia, and thereby also recognize the usefulness of, and need for, professional debt management services.

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