National Foundation for Credit Counseling Announces Study Results on the Impact of Credit Counseling on Consumer Credit and Debt Payment Behavior<

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National Foundation for Credit Counseling Announces Study Results on the Impact of Credit Counseling on Consumer Credit and Debt Payment Behavior, March 21, 2002. National Foundation for Credit Counseling

(Silver Spring, MD/Washington, DC) The National Foundation for Credit Counseling (NFCC)T and Georgetown University Credit Research Center announced today during a press briefing at the National Press Club, the results of a three-year study on the change in consumer financial behavior after receiving credit counseling services. The study, "The Impact of Credit Counseling on Subsequent Borrower Credit Usage and Payment Behavior," was encouraged by NFCC and conducted by Georgetown University Credit Research Center and Lundquist Consulting. The report concluded:

Strong evidence exists that credit counseling, using the method administered by Members of the National Foundation for Credit Counseling, affects consumer credit usage and payment behavior in a positive way. Borrowers who received this form of budget/financial counseling reduced their debt and improved their credit profile over three subsequent years, compared to similar borrowers who did not receive counseling.

This study validates the support NFCC member agencies provide to consumers seeking counseling through their offices. At the conclusion of the analysis, the value directly attributable to counseling is demonstrated through significant improvements in credit scores, fewer late payments, lower credit card balances, and less frequent use of credit lines. Most credit professionals would agree: these are positive signs from a credit perspective, which can affect the amount consumers pay to borrow money in the form of loans and credit cards.

Clients counseled by NFCC agencies received a comprehensive budget review and written action plan. The clients included in the study were not on Debt Management Plans, where agencies actively intervene with creditors to negotiate client payment plans that can include reduced minimum payments, reduced interest rates and lower fees. While agencies and creditors closely track the progress of individuals on DMPs, no known information heretofore has existed on the impact of clients who receive budget/financial management counseling only.

"NFCC member agencies were contacted by more than 1.5 million American families under financial pressure in the year 2000," said NFCC Interim President/CEO Bill Cullinan. "It's important that consumers who are overextended financially understand that the right kind of help is available through legitimate organizations such as the National Foundation for Credit Counseling member network."

The National Foundation for Credit Counseling, Inc., founded in 1951, is the nation's largest and longest- serving national nonprofit network providing premier consumer budget counseling, credit education, and debt reduction services. NFCC's 155 members are located in more than 1,300 communities nationwide and are mostly known as Consumer Credit Counseling Services (CCCS)T, although some members are known by other names. NFCC members are committed to providing low cost or no-cost services to all consumers, and are committed to maintaining quality standards, agency accreditation (third party validation of services), trained and certified counselors, and community education programs (financial literacy, housing counseling, and employee assistance programs).

Counseling services are offered through in-person meetings, by phone, mail, and the Internet. Member offices can be reached through NFCC's toll-free hotline (800-388-2227) or online through the Member Locator Service at: www.nfcc.org. On average, one-third of NFCC agencies' clients counseled are recommended for Debt Management Plans. The other two-thirds typically need a budget review and an understanding of options available, financial education, and possibly referral to other social service organizations to address other specific underlying problems affecting families' financial well-being.

According to the Federal Reserve, outstanding non-secured consumer debt rose from $355 billion* in 1980 to $805 billion* in 1990; and from $1.2 trillion in 1996 to $1.65 trillion in 2001. Consumer bankruptcy filings increased from 1.2 million in 2000 to 1.5 million in 2001. Credit card debt now averages $8,562 per household. These statistics point to a need to ensure consumers have the tools and information necessary to make better money decisions. (*confirmed correction from previous numbers indicated)

While millions of Americans are working their way through the recent recession, government officials are increasingly using mandatory financial education as a policy tool for remedying perceived problems in the credit markets (the Bankruptcy bill before the US Congress includes a new mandatory provision that requires consumers to seek credit counseling before filing for bankruptcy). Several government-sponsored organizations also require homeownership counseling to qualify for their affordable-lending programs, further increasing the need for credit counseling services.

Other consumer credit and financial services organizations agree that credit counseling by trained professional credit counselors is very beneficial to consumers seeking help when in financial difficulty.

"This is good news for both consumers and creditors," says Georgetown University Credit Research Center Director, Professor Michael Staten. "It makes the case that financial counseling helps consumers help themselves, and enables them to sustain long-standing relationships with their creditors."

Without compromising consumer confidentiality, the study looked at numerous credit attributes in the timeframe consumers received counseling. The study also scientifically selected from anonymous credit data provided by TransUnion, a leading global information solutions company. A comparison pool with similar credit characteristics and geography was created in order to establish a viable control group. The next major step in the study was to look at the test group and the comparison group three years later.

Ten different measures of borrower behavior subsequent to counseling were examined, including summary measures of creditworthiness, such as credit bureau scores; specific dimensions of credit usage, such as number of accounts with balances and total amount of debt; and payment performance. TransUnion Credit data provided an objective measure of credit performance for 14,000 clients over a three-year period from June 1997 to June 2000, following their initial counseling sessions. The one-on-one counseling sessions were performed by certified agency counselors at five NFCC member agencies: CCCS of Greater Atlanta (GA), GreenPath Debt Solutions, Farmington Hills (IL), CCCS of San Francisco (CA), CCCS of Southwest (Phoenix), and CCCS of Dallas (TX).

Representatives from VISA, NFCC member agencies, the American Bankruptcy Institute, State of Maryland Consumer Advocate, and other consumer financial industry organizations also attended the press briefing. See the Executive Summary and Report for more information on this study on the value of credit counseling services.

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Lydia Sermons-Ward VP, Chief Communications Officer Phone: (301) 589-5600 ext. 37

Brandie Riddick Communications Manager Phone: (301) 589-5600 ext. 13