THE COLOR OF MONEY
Greenspan to the contrary, consumer debt is overwhelming Americans

By Michelle Singletary

Despite what Federal Reserve Chairman Alan Greenspan says, there is a credit crisis in this country. But by that, I don't mean people can't get credit.

The opposite is true, and that's the problem. The consumer debt level is at an all-time high, notes Susan C. Keating, the newly appointed president and chief executive officer of the Maryland-based National Foundation for Credit Counseling, the nation's largest organization of nonprofit credit counseling agencies.

Keating is in a better position than Greenspan to know how bad off many consumers are. After all, the credit agencies that are a part of Keating's group are on the front lines, working with people overwhelmed with debt.

Oh, but Greenspan says everything is just peachy. "Overall, the household sector seems to be in good shape," he said in a recent speech to credit union leaders.

Good shape?

Only if you think the debt-related obesity that consumers are suffering from is just baby fat.

Consider these facts:

• According to the Federal Reserve, America's consumer debt topped $2 trillion last year.
• The number of consumer bankruptcies continues to rise. Personal bankruptcies for all of 2003 rose to 1.63 million, up 5.6 percent from a year earlier. And, according to bankruptcy researchers Elizabeth Warren and Amelia Warren Tyagi, authors of "The Two-Income Trap," for every family that officially declares bankruptcy, there are seven more with debt loads that suggest they ought to.
• The average household credit-card debt is $9,200, according to CardWeb.com
• Each year, almost 9 million consumers seek help from debt counseling services.
• The average client seeking help from a credit-counseling agency belonging to Keating's group has more than $15,700 in unsecured consumer debt and $30,000 in gross income. It means some people are carrying consumer debt (mostly credit-card debt) that's just a little more than half of their gross pay. Not net, but gross.

So where are folks turning when their good shape goes to pot?

They go looking for help from credit counseling agencies, many of which have come under scrutiny for deceptive practices, dishonest and poor advice, excessive fees and abuse of nonprofit status.

In fact, the Internal Revenue Service, the Federal Trade Commission and state regulators have teamed up to warn people about the problems that can occur when using an unscrupulous credit-counseling organization.

A report last year by the National Consumer Law Center and the Consumer Federation of America found that many debtors pay high fees to set up a debt-repayment plan. Others end up with worse credit records than before they sought help because the credit-counseling agencies don't pay their clients' bills on time — or at all.

Keating, who comes to the National Foundation for Credit Counseling after 29 years in consumer banking, admits the credit counseling industry is in "transition."

"I believe there are agencies out there that are not doing the right thing morally and ethically on the part of consumers and are taking advantage of individuals when they are vulnerable," she said.

Still, Keating maintains there are a lot of good nonprofit credit-counseling agencies. The question for consumers is how to find one.

The foundation does provide free or low-cost credit counseling in more than 1,000 locations through its 129 member agencies. Keating said she plans to work with Congress to push for federal legislation to weed out bad agencies.

Keating may be just the person to help the foundation lead the charge to clean up the industry. She isn't new to a crisis situation.

Her last top banking position was as president and chief executive officer of Allfirst Financial Inc., a bank holding company that became mired in a major $691 million currency trading scandal.

Keating wasn't one of the executives forced out at the height of the scandal, although she did resign in 2002 shortly after the trading fraud was revealed. She left before the banking company, owned by Allied Irish Banks PLC of Dublin, was sold to M&T Bank Corp.

"I've had a very interesting journey that led me to this position," she said of her new job.

It's a position, Keating said, she wants to use to get rid of the quick-fix debt operations that do little if any worthwhile credit counseling. She favors an industry that doesn't push cookie-cutter debt repayment plans for one that puts more emphasis on financial education and counseling.

Considering the credit crisis so many families find themselves in, I, too, hope the industry that is supposed to help them recover financially can be shaped up.