So here I stand before you today, conflicted. I could take the safe route and give you a presentation that was full of puff and fill or I can be totally honest about the insolvency landscape from my vantage point as the leader of a global social enterprise that assists consumers. I've decided that

The Myvesta Foundation is a US based think tank of sorts that creates and guides assistance programs in the US, UK, and Netherlands. Because of that perch I am fortunate enough to see how consumers in debt are treated differently in different parts of the world.

The common factor that each part of the world that we operate in has is that nobody does a really good job of allowing consumers to do what they want to do, repay debt.

An ideal debt repayment approach involves the fair, reasonable and sustainable participation of three parties; the consumer debtor, the independent adviser or Insolvency Practitioner and the creditor.

If any of the parties tries to exert undue influence, unreasonable behaviour, or intense self-interest then the entire process can become unbalanced and thus unfair to the other parties.

Throughout my presentation you will hear me use the phrase fair, reasonable and sustainable a lot. This is because a fair, reasonable and sustainable mutually beneficial arrangement for all parties is the best we can hope for. This approach gives the consumers reasonable options they can avail themselves of to overcome their financial misfortune. It allows the adviser to have tools at their disposal that they can implement when necessary to find a balanced solution for both the debtor and creditor. And it allows the creditor to achieve a much higher level of eventual repayment when the solutions are actually achievable.

Let me give you three examples where unfair behaviour has lead to a less than optimum balance of power and end result.

In the US, creditors have managed to obtain a gross imbalance of power over credit counseling advice agencies and consumers by choking the funding of the consumer credit counseling agencies. Since the creditors control the purse strings of funding for these agencies and little government support or consumer funding exists, creditors provide the bulk of funding as a direct result of the return of funds from debtors to creditors through a consumer credit counseling network.

These golden handcuffs on the credit counseling agencies limit the services offered to consumers by supposedly independent non-profit credit counseling agencies through strict creditor control of the funding creditors will give and the boundaries for which they will give funding.

It is my personal experience in the US that when an organization attempts to offer new types of assistance for consumers in trouble that creditors are quick to threaten or remove funding because they want the funding to be used primarily for debt management plan collection purposes.

Additionally, spoken about openly or not, credit counseling agencies in the United States, self-censor their messages against unfair creditor practices for fear of losing their largest source of funding, from the creditors.

This situation has created a terrible imbalance that ironically winds up hurting creditors more in the long run than it helps. By limiting the scope and breadth of the services that a credit counseling agency can offer the assistance given consumers is insufficient to provide real and meaningful assistance as evidenced by the failure rates of debt management plans. Over 80% of debtors on debt management plans fail to complete the full repayment arrangement. The primary reason for the failure of debt management plans in the United States is the fact that they are not binding, not sustainable and not reasonable.

Debt management plans in the US are calculated backwards. Creditors control the formulas that are used by credit counseling agencies to accept a debtor into a debt management plan. The credit counseling agencies tend to set payment levels at creditor dictated levels rather than at a fair pro-rata distribution with all unsecured creditors receiving a fair share based on the percentage of debt from the available funds.

Unless the credit counseling agency meets the creditor mandated repayment levels then the collection pressure and fees will not stop and the debtor will be driven to bankruptcy. Collection pressure remains one of the primary reasons why debtors seek bankruptcy. In a previous study 6 out of 10 people cited collection pressure as the number one reason why they elected to go bankrupt.

The credit counseling industry in the US has also been their own worst enemy. They have encouraged state legislatures, and continue to do so, to prohibit the ability for for-profit entities to provide debt assistance. This has driven the not-for-profit credit counseling agencies further under the creditor control, has left consumers less represented and has provided for less effective repayment arrangements resulting in massive payment promise failures.

Additionally, as long as CCCS and consumers credit counseling agencies are compensated for collection performance in the US or via the sham of supposedly "black box" funding then the very non-profit, supposedly benevolent consumer advocate organizations are acting as no more than pay-for-performance debt collectors.

The Internal Revenue Service in the US has picked up on this and is in the process of revoking the charitable status of the majority of the consumer credit counseling offices by market share. Additionally, the passage of the Pension Protection Act of 2006 included strict limits on the amount of collection compensation a credit counseling office can receive in upcoming years.

The new legislation states that a credit counseling agency may not solicit contributions from consumers either before or during the time that a consumer is receiving services from the organization. It also states that revenue from the credit counseling debt management plan services, where creditors are repaid, may not exceed 50% of the total agency funding. This limit on funding creates a severe hardship on credit counseling agencies that lobbied so hard to prevent or limit fee charging.

Using this new legislation it is the intention of the Internal Revenue Service to make it unlawful for agencies to exist primarily on a pay-for-performance model. There is an unwritten expectation that creditors or other funders will provide assistance based upon the overall good work that the agencies do rather than primarily on collection efforts.

The end result of this fee fiasco is that not only are the charities effectively a pay-for-performance debt collector but they are also having to limit the assistance they are providing to consumers today due to uncertain funding now and in the near future.

Our experience on the front lines of assistance in the US is that debtors want to pay but creditors put almost every roadblock and hurdle in the way to allow consumers to be able to repay their debt in a fair, reasonable and sustainable way.

I know my statement that creditors in the US do almost everything they can to not get paid sounds illogical, but it is true. The reasoning behind this becomes apparent if you stop thinking like an individual.

If you owed me money I would sit down with you, understand your situation and reach a solution with you that allowed you to meet as much of the obligation as possible, rather than tell you I'll take nothing rather than something.

But when you look at creditors as compartmentalized large corporations you realize that the front-end interface with debtors is the collection department that is under pressure to perform and have policies and procedures dictated from on high that tie their hands. Whether it is a debt collector under the clock for a certain number of promises to pay per hour or a collection department trying to hit some artificial target to look good to the guys upstairs, the end result is the same, some consumers will promise to pay, some will pay and some won't. As long as creditors refuse to see that there are better, fair, reasonable and sustainable ways to allow consumers to meet their obligations, then the performance of people in Chapter 13 bankruptcy and consumer credit counseling programs is going to be nothing but disappointing.

The creditor side-effect from this approach is also that good and loyal customers for the future are being chased away into hating the brand and hurried to bankruptcy court, where they live through the bankruptcy process which helps to reduce the social stigma of bankruptcy. The irony is that the current approach creditors in the US take is almost a textbook action plan on how to not get paid, dilute the brand and ruin the very credit counseling industry that appreciate acting as collectors.

In the Netherlands there is a large legal system of legislation protecting the consumer with problem debt.

During the early ‘90’s bankruptcy reached higher levels than had been seen in the years before banks and other financial service providers promoted high risk, open end financial products. All of the sudden it became clear that a minor dip in the economy could cause tremendous problems for private debtors.

Therefore a legal system was designed and implemented to solve existing problems. Unfortunately today we must conclude that having a legal system in place does not automatically means that the specific parties addressed in this legislation (municipalities, debtors, creditors, Courts) do function and operate correctly, especially as there is not a controlling entity monitoring and securing the rights of debtors. As a result debtors can not execute their rights effectively.

Legal terms and specific regulatory periods of time for protection are 9 out 10 time never met. This lack of action on behalf of the debtor leaves the debtor with an unresolved growing debt situation. Debtors often need to wait often more the 12 months before receiving the necessary support of municipal debt advisers.

While the legislations in the Netherlands provide for free debt help it appears to be delivered in such a way that rather than debtors and creditors being able to seek quick relief and a fair, reasonable and sustainable solution, the debtor and creditor are left for long periods of time waiting for some type of resolution. The lack of a prompt resolution leaves debtors and creditors both stranded in continuing to pursue the same unhealthy circle of demanding payments and promising payments that eventually cannot be met. It is a very expensive and inefficient waste of time for creditors and emotionally punishes debtors that need to see a light at the end of the tunnel so they can work hard to eliminate their debt in a mutually agreed way.

If we look at debt repayment performance in the Netherlands, only 9% of the agreed informal debt payment programmes and only 17% of the Court’s Rulings to solve a debt situation are successful at the end of the Day. The performance is much worse than that achieved in the UK.

In the last couple of years we have seen a rapid increase of debtors not being able to meet their financial responsibilities. Every quarter, an increase of 25% of debt help seekers is reported.

The situation in the Netherlands could be improved for creditors, debtors and advisers if the legislation was changed to encourage more of an open market approach to debt resolution.  Debt advisers need a mechanism to provide fair market cost, professional services in an environment where creditors will accept fair, reasonable and sustainable repayment plans in a rapid and efficient manner. If this could happen then debtors would receive rapid professional intervention when they need it and be able to enter into sustainable repayment plans while avoiding bankruptcy. Creditors would enjoy repayment plans that would begin as much as a year earlier and a majority of these repayment plans would last until successful completion.

The UK is light years ahead of the United States and the Netherlands when it comes to debt repayment solutions. Not only do they permit for-profit enterprises to assist consumers but they also have embraced good solutions like the Individual Voluntary Arrangement, otherwise known as an IVA.

The IVA creates, with proper creditor voting, a highly effective, binding repayment plan that allows consumers to have a definitive agreement with their creditors and allow them to repay their debt in a mutually negotiated manner through a third party Insolvency Practitioner debt adviser. The good news is that about 80% of these repayment plans end in successful completion.

The basis of the IVA is that the Insolvency Practitioner prepares a fair, reasonable and sustainable repayment plan to help the creditor to get a return, rather than nothing in bankruptcy. In the past a return of 25% has been an accepted minimum and in rare cases, plans of as little a 2% of the value have been accepted.

Today certain creditors in the UK are doing their very best to break this process by setting artificial thresholds of 40% repayment over five years, failing to vote or refusing to accept these fair proposals.

It could be argued that if a creditor, unilaterally and arbitrarily refuses to accept a fair and reasonable repayment proposal, that other creditors are willing to accept, and this pushes the debtor into a needless bankruptcy that the debtor has been damaged by the actions of a callous creditor. A class action lawsuit regarding these activities is in the works.

Creditors operating in the UK are also crying out for more leverage and control over Insolvency Practitioners through demands for more regulation even though IPs are already amongst the most heavily regulated professionals. And yet banks and creditors already covered by the British Banking code fail to honour their own code to treat consumers fairly and individually in the face of financial problems.

Creditors are also tightening the purse strings of IPs and IPs have yet to really take a stand and fight for their role as independent debt advisers. Instead they are falling victim to the same logic that eroded good assistance solutions in the US.

If IPs refuse to take a stand than they will find themselves in a situation where they will be either paid primarily based on collection performance over providing a good and valuable service to consumers or that they will allow their income to be controlled by creditors who will only see it driven down to the lowest levels possible to maximize the creditor return. This is just exactly what the creditors did in the US when they drove down income nearly 80% when they reduced credit counseling funding from 15% of disbursements to now around 4%. 

Is it right that a debtor that owes less and would earn an IP less in a pay-for-performance model? Does the debtor with less debt deserve less help and assistance? Should we be faced with the situation of the suicidal debtor on the verge of the loss of shelter and family to be rationed assistance simply because they don't owe enough to return a high enough income to provide more intensive assistance?

Probably the most unusual aspect of debt assistance that exists in the UK today is the fact that some companies that specialise in IVA solutions are stock market floated organizations. Rather than be nimble or always appropriate, these companies have to satisfy shareholders and potential investors with continued upbeat returns. It is often with this mass market of marketing for IVAs or the publishing of profitable returns that creditors object to and cause discord among the professional IVA participants.

At this time the banks want the IPs to earn less and return more. The IPs want to protect current earnings and get creditors to vote and accept fair and reasonable proposals and the independent advisers just want good solutions for consumers to be able to use to overcome their difficult emotional and financial situation.

The UK IVA model is the most effective repayment vehicle out there but with the current creditor tinkering with it I am confident that the effectiveness of the IVA will be eroded.

It is interesting to see how differently consumers and business are treated by creditors. There exists a general assumption that companies in trouble have more value as an ongoing enterprise than being forced out of business. It is accepted logic that if a business owing secured and unsecured creditors was allowed to continue operations that the secured creditors would be paid and unsecured creditors would receive a much greater return than if the company had simply been liquidated.

It is my experience in assisting troubled companies that it is significantly easier to negotiate a fair, reasonable and sustainable repayment plan than it is for a consumer debtor. Now you might say that businesses are much more complicated to deal with and consumers aren't worth the time, but I did have one consumer with 78 credit cards and 1.4 million of credit card debt.

Yet with consumers, creditors take the exact opposite approach and instead of allowing or encouraging consumers to repay their debt, creditors instead force consumers that could perform and enhance returns, into liquidation.

The missing link in debt assistance is that financial problems are not about the money. If the adviser only focuses only on a return for the creditor rather than the help that the debtor needs then a less than optimum win-win solution will be achieved.

In closing, let me share with you this quote from the 19th century English artist Benjamin Haydon, who was a friend to Keats and Wordsworth, and struggled with financial problems. A letter he sent to his creditors included the following paragraph.

"If I am kept locked up with no power of putting my art into practice what will be the result? - depression, disquiet and ruin. I shall infallibly be destroyed, and how can you be benefited by my death?"

Times have not changed much since 1823.