Saving the debt-strapped motivates founder of credit counseling agency.
Corporate Report
August, 1999
By John Rosengren

Financial debt had driven Susan, 49, into despair. Unemployed at the time of her divorce, she'd been charging her living expenses on credit cards and using cash advances to help pay for her sister's cancer treatments.

Almost $32,000 in debt, Susan sank into a paralyzing depression. Then she spotted an ad in TV Guide for Metropolitan Financial Management (MFM) credit counseling agency. A year later, well on her way to paying off her debt on MFM's four year plan, she once again feels hope.

"Helping people put things in perspective - helping them understand the resources available to them - makes a big difference. "says Tiff Worley, MFM founder. "Those people have had their life given back to them".

Helping Susan, who asked that her last name not be used, and thousands of other clients like her, was Worley's inspiration for starting MFM in 1991. He wanted to help people out of debt in a dignified way, and he didn't find any other credit counseling agencies that lived up to his vision. So he started his own.

Worley's strategy is simple: win clients over on the first contact.

Some agencies, such as Action Credit Advisors in Omaha, Nebraska, will not quote a startup fee unless callers give a 10-minute interview about their debts. Some counselors taking calls at other agencies read scripts. Other agencies answer calls with phone prompts or voice mail. Each call to MFM is answered by a person who reviews options and even suggests questions to ask of the competition.

Worley himself makes a good first impression. He's friendly, personable and laughs easily. He expects MFM credit counselors to meet clients as humans, not as counselors, and to demonstrate proficiency and professionalism in the initial contact.

That's the effect Worley's aiming for, not what he experienced at other agencies when he posed as a prospective client before opening MFM. He was put off by their appearance and approach. "The offices felt medieval - like dungeons - and this young person believes, the debt will recur.

"We're not here to respond to what the client thinks they want, we're here to respond to the problem the client presents," he says. " So many clients not only don't have a clue how to get out of their situation, they don't have a clue how they got into it."

Many who come to MFM have not yet gotten realistic about paying off their debts. Part of the problem often is that they're still able to get credit, which tempts then to borrow more money to pay off what they owe. People may be adept at juggling debt but inept at escaping it. "People with $20,000 to $30,000 in debt are thinking well past reasonable alternatives," Worley says.

There's irony in the location of the agency's headquarters in the Rosedale Towers, across the street from the Rosedale shopping center. While people pile up debts in any number of ways - unexpected medical bills, being laid off, emergency expenses - often their debt is simply the result of overspending with credit cards, driven by some deeper force. "It isn't simply spending too much," Worley says. "It's a sense of powerlessness, low self-esteem or keeping up the Joneses."

That's the cause MFM counselors seek to uncover. Once they do, they prescribe a cure that involves a lifestyle change. Clients are put on a monthly payment plan, encouraged to stick with a budget and asked to surrender their credit cards. They are also taught to live on a cash basis. "Using credit instead of cash isn't a rational process," Worley says.

MFM has found its niche in helping middle-class people who have trouble budgeting. The typical client is female, age 18-35 and $15,000-18,000 in debt, although Worley emphasizes that MFM's 12,000 clients are men and women ranging from teenagers to retirees with debt loads as low as $800 to over half a million dollars.

About 20 percent of those seeking credit counseling fro MFM go onto a debt repayment plan. Client make a single monthly payment to MFM, which distributes funds to individual creditors, who, in turn, generally lower interest rates, waive late fees and reduce monthly payments. As a result, when a client starts a debt repayment plan, debt and monthly payments are reduced significantly.

MFM, required by state law as a credit counseling agency to operate as a nonprofit, makes its money mostly from the startup and monthly fees it charges clients and the "fair share" percentage that creditors reimburse for debts paid off. Where other agencies might vary their startup fees, MFM charges clients a fixed fee of $25. MFM's monthly fees for clients average $11 and range from zero to $35, based on the client's ability to pay.

In cases like Susan's, where she is making a monthly payment of $670 that stretches her budget, MFM waives its fee. The majority of MFM's revenues - 85 percent - comes from the creditors' fair share payments.

Most MFM clients are put on a four-year program but pay off their debt in an average of 2 ¸ years, able to make larger monthly payments as they regain control of their financial situation. Worley says that 65 percent of those who enter MFM's repayment program successfully pay off their debts. He also claims MFM has the industry's lowest dropout rate of less than 2 percent.

Some clients are able to purchase cars or houses within their budget while on the repayment program. Susan secured a capital loan to start a fish market in southwest Minneapolis. Had she filed for bankruptcy, she would not have qualified for the loan. " I went home and called Tara and said, 'Thank you, you saved my business,'" Susan says, referring to her MFM account manager. "Besides, I never could have lived with myself if I had filed to bankruptcy."

Americans are almost eight times more likely to declare bankruptcy than seek the services of a credit counseling agency. Last year, about 1.5 million Americans filed for personal bankruptcy while only 200,000 turned to credit counseling agencies. MFM recommends bankruptcy only as a last resort when clients don't have to worry about consequences because there's no way to avoid them.

Congress is considering legislation that would require people to seek the services of a credit counseling agency before filing for bankruptcy. "That would bring in more business, but it would also give visibility and credibility to credit counseling that it lacks," Worley says.

MFM's serves its clients in ways other agencies won't. MFM is the only credit counseling agency in the state of take personal checks. While it might appear unnecessarily risky to take personal checks as payment for helping one out of debt, the agency lost only $1,200 in bad checks last year. Clients bounced checks in excess of that amount but made good on most of them.

Keeping clients happy has had a direct payoff in increased business: about a quarter of MFM's new business comes from client referrals. Those referrals serve as a benchmark for the company to gauge customer satisfaction. Word of mouth has also helped the agency attract employees. With potential employees lining up to work at MFM, the agency has yet to advertise an opening. Currently, 70 employees staff its 10 offices.

Debt proration used to be considered a sleazy industry, but the Minnesota Department of Commerce cleaned up that image when it started licensing and overseeing the industry in 1970. According to Terry Meyer, chief examiner at the Department of Commerce, the debt proration companies operating in Minnesota today are legitimate players. In the nearly 10 years MFM has been in business, the department has received only on complaint against MFM.

But MFM does draw criticism from its competitors. Wayne Wensley, Coon Rapids-based Consumer Credit Counseling Service of Minnesota, MFM's largest locally based competition with almost 2,000 clients and 1998 revenue of $1.3 million, challenges MFM's claim of a 65 percent completion rate. He contends his agency's completion rate is higher than MFM's.

The two agencies use different methods to compute their successful completion rates, but Wensley does not agree with Worley's equation. "I think we're a much better organization," Wensley says. "People who go into our repayment plans successfully complete them at twice the rate they completed Metropolitan's plans in 1997."

MFM and other credit counseling agencies are providing services to meet a growing demand in a day when credit - and the debt that often follows - is becoming increasingly easy to obtain. Worley's motivation remains simple: to keep people like Susan from despair.