Credit-Counseling Agencies Scramble to Deal With Own Financial Crunch

Facing multimillion-dollar losses, the CredAbility credit-counseling agency pared its Orlando, Fla., staff and laid off its top local executive last fall, as part of a companywide downsizing. In early January, Atlanta-based CredAbility was absorbed in a merger with a large Virginia agency called ClearPoint.

Another big name in credit counseling – InCharge Debt Solutions of Orlando – has cut its workforce nearly in half in recent years, as net revenues have plummeted amid an industrywide decline in the number of people seeking help.

Overall, nonprofit consumer-credit counseling – long seen as an affordable recourse for cash-strapped people in trouble with debt – has itself hit a financial crunch since the Great Recession ended and the fortunes of many Americans have improved with the recovery.

Fewer than 2 million people sought credit-counseling services in 2012, down 50 percent from 4 million in 2009 at the height of the recession, according to the National Foundation for Credit Counseling, an industry advocacy group based in Washington, D.C.

That huge dropoff has set off a “re-sizing” of the industry, as hundreds of agencies have disappeared through mergers, acquisitions or shutdowns, agency officials said.

“Clearly, the industry is consolidating,” said George J. Janas, president of Winter Park, Fla.-based Consumer Debt Counselors Inc. “And everybody knows there are more mergers and acquisitions on the horizon.”

The CredAbility group had grown rapidly during the recession, and also became well known for its Consumer Distress Index research, which identified financially distressed regions. The ranking was based on high unemployment, foreclosure and consumer debt delinquency rates.

Like many other agencies, however, CredAbility’s business took a hit on every front – credit, housing and pre-bankruptcy counseling – as credit-card and mortgage delinquencies, unemployment filings and personal bankruptcies fell during the economic recovery.

From 2010 to 2012, its gross revenues fell more than 35 percent to $29.4 million, according to documents filed with the Internal Revenue Service. More notably, CredAbility absorbed consecutive annual losses of more than $2.5 million in 2011 and 2012, records show.

ClearPoint Credit Counseling, however, has fared better, posting annual revenues of nearly $20 million each year from 2009 to 2012, according to IRS records. The Richmond, Va.-based agency posted net gains of $1.1 million and $2.1 million in 2010 and 2011; and losses of $860,000 in 2009 and $136,000 in 2012.

Former CredAbility officials said the merger was a timely one for CredAbility, given ClearPoint’s stronger financial position.

“Yes, that is fair to say,” said Scott Scredon, a spokesman for ClearPoint and former media relations director for CredAbility. “But this merger is a good fit for a number of reasons. ClearPoint has a strong business in debt-management work, while CredAbility was one of the largest housing and pre-bankruptcy counseling agencies in the country. Together, we are stronger financially and as an organization in general.”

The drop-off in business has been dramatic at InCharge Debt Solutions, a long-running credit-counseling agency that has operated under several names since the late ’90s. From 2008 to 2011, InCharge’s gross revenues fell 20 percent to less than $22 million, and its net revenue plummeted 87 percent to less than $1 million, according to its latest IRS filings. Its work force has shrunk from 255 to 144 during that period.

“For the most part, across the entire credit-counseling industry, volumes are down for credit counseling; and as agencies are impacted by this, some have had no choice but to merge,” InCharge president Etta Money said. “InCharge has experienced these declines as well, and has been forced to reduce staff to coincide with the lower overall requests for service.”

While the industry is regrouping to handle the reduced demand, credit-counseling officials say there are still far more people out there who need help than have sought it. In November, for example, consumer credit rose 4.75 percent on an annual basis to nearly $3.1 trillion, according to the Federal Reserve’s latest data.

“There’s still a lot of people who are struggling with debt, who are just fatigued and wearing out,” said Janas of Consumer Debt Counselors, whose revenues have remained stable during the downturn. “But they still resist seeking help until their head is completely underwater. That’s an audience we can still appeal to and reach.”

Many agencies also have developed counseling programs for what they see as other fertile areas of need, such as student-loan debt and financial-advisory services for moderate-income people.

“We have a pilot program now to provide financial-advisory services to the Hispanic community, focusing on saving for retirement and college education for their children,” Scredon said. “So we are exploring a number of new lines of service.”