to the solution of the debtor consumers' problems since 1922. If they are so concerned about the plight of the families who become casualties of our system of credit, why don't they use their skills and monies to regulate the industry rather than destroy it. Should the debtor be forced to accept the help from creditor oriented services? They are the very people, in most cases who placed him into the plight he is in. We in the industry are in favor of community oriented credit counseling and our American Association of Credit Counselors is willing to help; however, creditor oriented services are no more help to the debtor insofar as getting him out of debt than a "dope pusher" attempting to cure a "dope addict" of the habit. It is my contention that the problems of the ever growing number of families who are becoming casualties of our great system of credit must be solved. However, this solution must come from "free enterprise" without resort to the courts or charities, otherwise in the eyes of the rest of the world our economy will have failed. We take great pride in the factual evidence of our credit counseling and money management program, just as any other profession, business or industry does. What we are doing we are doing for people and upholding the "dignity of man." It is people we work with and it is their particular problems we do all in our power to solve. This then means that the worth of our services must be judged, not by biased opinion, not by book value, not by market value but by human value. The effectiveness of our program and the impact it has on the family during and after the conclusion of our program is the base upon which the values should be set. Our services are geared to meet the immediate problems of the debtor consumer. We have no other interests. Our full time is devoted to that end. My final remarks are that if it is the constitutional right of Mr. American Citizen to choose who should represent him in the highest offices of the nation, who should represent him in his legal matters, who should take care of his ills and his health etc., he therefore should have the right to choose who should represent him insofar as his financial problems are concerned. Only proper regulatory legislation will assure him of this right. THE STORY BEHIND FINANCIAL ADJUSTMENT Co., MINNEAPOLIS, MINN. This folder is for the purpose of explaining our operation to the people who are having Financial problems and others in various professional fields, who are interested in people who do have this problem. In addition to people in Financial difficulties we find that creditors, employers, doctors, personnel managers, attorneys, etc. are interested, due to the close tie in with the wage earner and his problem. Financial Adjustment Co. is founded on the principal of helping people manage their money correctly. It is not based on the idea of aiding or abetting a person to dodge any of his or her obligations. Our main aim is to centralize their accounts under one head on a payment schedule they can afford to meet, thereby being able to present their problem to their various creditors in an honest businesslike manner. At the same time enabling the individual to have only one place to pay instead of several. Financial Adjustment Co. should be thought of as a financial doctor rather the undertaker. Our method of handling a person's financial affairs consists of an interview with both husband and wife (if married). A full statement of outstanding obligations is taken and a budget of current living costs is set up. After this is determined, all other remaining funds are turned over to our office for the purpose of liquidating the accounts outstanding. It must be realized that if the family does not have sufficient funds to maintain their current living costs we are defeating the purpose of our plan. Having determined the amount of income available for distribution, each creditor is then contacted, advised of the amount of money that can be applied against the balance due him, and is asked for his cooperation. We realize that each creditor is eager to eliminate his account as rapidly as possible. However, we must bear in mind, in allocating our client's funds, that some creditors have secured claims, which prevents an actual equitable distribution. Similar accounts are handled as equitably as possible. We accept no fee from creditors, neither do we ask for settlements other than time envolved. An open invitation is made to all creditors to check our records any time they choose. A progress report is available to any creditor or employer at any time on any of our clients. We carry a perpetual reporting system to creditors, keeping them informed as to any change in our client's status or paying habits. Our full charge is based at $15.00 per each $100.00 of indebtedness listed, plus a $5.00 set-up fee at the time the contract is set up. This charge is not a yearly charge but a lump fee for the duration of the contract. Our average case is running approximately 26 months. These charges include all investigations, services, interviews, check costs, etc. These items are stipulated in our contract and each client receives a full complete copy. Contracts are available to anyone interested. The above charge is amortized over the duration of the contract, and this item is set out in bold type in our contract. We are sincere when we say that we do not want creditors to receive their money in any other manner than we ourselves receive our charge for services. Financial Adjustment Co. is operated on strictly referral basis, and we wish to thank the many Credit Managers, Personnel Men, Members of the Clergy, Social Workers and others who have referred families with financial problems to us. The sudden rise in Bankruptcies and Chapter XIII of the Bankruptcy Act is indicative of the need to solve the famly debt problem. It is also worth noting, that the cost of our services is about one-half the total cost including legal and filing fees of the Chapter XIII Plans. Our payout on cases completed is 40% higher, but above all, monies collected are immediately disbursed to creditors. Our client is not just a number. He is a human being seeking help to solve his Debt Problem. We contend that the rapidly growing problem of Families who become casualties of our system of credit must be solved, and this must be done within the framework of free enterprise, without resort to the courts or charities, otherwise in the eyes of the world, our economy will have failed. Financial Adjustment Co. is owned and operated by C. T. Genosky, who has been in Credit Counseling in Minneapolis, Minn. since 1936. We are members of the Credit Bureau of Minneapolis. We are in no way connected with any other Debt Liquidation Co., Loan Co., Wage Earner Plan, Credit or Finance Co. Neither do we wish to have our operation or manner of disbursement identified with any other type of operation, other than our own. We are member of the American Association of Credit Counselors and adhere strictly to their Code of Ethics, Constitution and ByLaws. A copy of this Code of Ethics is on the reverse side of this folder. We feel that our services are most helpful to an individual who has a Financial problem, because 1. We set up his accounts and his current living costs on a business-like manner. 2. Start disbursing to his creditors immediately out of the first monies we receive from him. 3. Due to the amortization of our charges, we are able to release more money to his creditors. The elimination of other check charges and carrying charges enables us to do a better job at less cost to the individual. 4. Through our constant reporting system, creditors are kept advised at all times of the status of our client. Our years of experience in this field eliminates the thought of inferring that every creditor sees eye to eye with us on every proposition, but we know that all things can be worked out by compromise, and the value of our plan is not questioned. We are most anxious to explain our services and welcome and encourage any inquiries regarding the help we are able to give an individual who is having a Financial Problem. FINANCIAL ADJUSTMENT Co. Mr. SISK. The Committee will stand in adjournment until 10 o'clock in the morning, when we will proceed with this hearing. (Thereupon, at 12:15 p.m. on Thursday, September 14, 1967, the Subcommittee adjourned until Friday, September 15, 1967, at 10 o'clock a.m.) DEBT ADJUSTING BUSINESS FRIDAY, SEPTEMBER 15, 1967 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE DISTRICT OF COLUMBIA, SUBCOMMITTEE No. 5, The Subcommittee met, pursuant to adjournment, at 10:10 a.m., in Room 1310, Longworth House Office Building, Hon. B. F. Sisk, Chairman of the Subcommittee, presiding. Present: Representatives Sisk (Chairman of the Subcommittee), Jacobs and Walker. Also present: James T. Clark, Clerk; Hayden S. Garber, Counsel; Donald Tubridy, Minority Clerk and Leonard O. Hilder, Investigator. Mr. Sisk. Subcommittee No. 5 will come to order. We will continue our hearings this morning on the matter of the debt adjustment business. I want the record to show that our colleague from Michigan, Mr. Diggs, has permission to insert a statement on the matter under discussion. It may be impossible for him to appear in person, but without objection his statement will be incorporated in the record. Mr. SISK. The first witness this morning will be the Barden Investment Management Corporation. Mr. Holland. STATEMENT OF ELLIOTT HOLLAND, GENERAL MANAGER, BARDEN INVESTMENT MANAGEMENT CORPORATION Mr. HOLLAND. Mr. Scalise had to return to Iowa on a criminal matter. Mr. SISK. Without objection, the statement by Mr. Scalise will be made a part of the record. (The statement referred to follows:) STATEMENT OF LAWRENCE F. SCALISE, ATTORNEY, BARDEN INVESTMENT My name is Lawrence F. Scalise. I am an attorney practicing in Des Moines, Iowa. I am here at the request of Barden Investment Management Corporation of Detroit. I was Attorney General of Iowa in 1965 and 1966. I was very much interested in consumer protection and sought-successfully-the enactment of a bill in 1965 to provide it. Included in the bill as originally introduced were provisions for the regulation of debt management companies. Creditor interests opposed these provisions, and they were struck from the bill. The consumer protection law, however, vested in the Attorney General broad powers of investigation and inquiry into practices suspected of violating that 84-181-67-7 law. The law proscribes misrepresentations by omission as well as commission in the sale of merchandise, and merchandise is defined as including services. The misrepresentations are made unlawful even though not relied on by the consumer who purchases the good or services. We received a number of complaints and inquiries about debt management companies and their practices. The advertising done by some of them was shrill, misleading, and irresponsible. Fees were questioned. The social utility of the service itself was in doubt. In conformance with what the new consumer protection law permitted. my office conducted public hearings into the practices of debt management companies. We subpoenaed company representatives and their records. Abuses were exposed. These included unjustifiable fees, misrepresentations in advertising, and charges for the service itself that ultimately added up to more than twice the percentage quoted to prospective clients. The hearings focused on the practices of several companies. Since the hearings focused on abuses, not much attention was paid to companies in Iowa which charged reasonable fees and rendered services praised by people in the consumer credit field. One such company, in Iowa, had been in operation for a number of years and had won the confidence and cooperation of small loan companies, retail stores, banks and employee credit unions, and had an unblemished record for integrity. The credit manager of a large public utility wrote legislators to this effect: "This company has salvaged a great many potential candidates for bankruptcy from the courts, and guided them on a path of sound financial management. The need for debt management companies is as great as for any of the state, county, or local relief or welfare organzations; the one great distinction is that the money doesn't come out of the taxpayers' pocket." Earlier this year the Iowa legislature enacted a bill to license and regulate debt management companies. Implicit in the decision to regulate was recognition of the social utility of the service provided. Had the legislature not been convinced that debt management fulfilled, or could fulfill if properly policed, a legitimate need, its action of course would have been to forbid it entirely. I supported and worked for passage of this bill. The root question, of course, is whether the service offered by debt management companies is in itself evil. This Subcommittee is aware of the distinction in law between acts deemed malum in se and those that are malum prohibitum. Debt management, I submit, is not intrinsically evil. I don't suppose there is any pretense that it is: there are only strong reactions to abuses. Properly regulated, debt management companies must represent and serve the interests of the debtor. Almost without exception every other segment of private enterprise is creditor-oriented. That includes not only retailers and other commercial enterprises which extend credit, but banks and loan companies. All of them prosper as more people contract to buy what they can't pay cash for. They want what all creditors want: they want to get paid-now, if possible; soon, if not now; later, if not sooner; and, in the last resort, sometime or anytime rather than never. Yet, as you gentlemen are fully aware, our Bankruptcy Act permits a debtor never to pay his debts. It is an unusually ignorant debtor today who doesn't know that when up against it he can go into court and beg out of his obligations. In our court news publication I noted the other day one filing in bankruptcy by an individual whose debts exceeded his assets by only $400. The contempt that attaches to this kind of behavior has lessened considerably since our grandfather's day. Ulysses S. Grant wrote his memoirs on his death bed to pay his debts. I submit, however, that in this never-never land there are still thousands of debtors who consider themselves morally committed to pay their debts even if they are bankrupt in a bankruptcy act sense. Where is the evil in permitting private enterprise to assist them in doing so? It is other types of private enterprise which have televised them into believing they have an inalienable right to spend money they don't have. Unquestionably private-enterprise debt management companies can offer an alternative to bankruptcy or Chapter 13 proceedings under the Bankruptcy Act. Under reasonable regulation, it is very probably that the cost of the debtor will be considerably less, for example, than submitting to Chapter 13 proceedings. And I believe statistics will prove that debtors who seek extraction from difficulties in bankruptcy court seek discharge from their debts rather than an extension |