spurring innovations in credit counseling · or less. the agency works with creditors to lower...

SPURRING INNOVATIONS IN CREDIT COUNSELINGSPURRING INNOVATIONS IN CREDIT COUNSELING

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Spurring Innovations in Credit Counseling

July 2017

SPURRING INNOVATIONS IN CREDIT COUNSELING

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About Prosperity Now

Prosperity Now (formerly CFED) believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most.

About Capital One

Capital One Financial Corporation, headquartered in McLean, Virginia, is a Fortune 500 company with branch locations primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia, and the District of Columbia. Its subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One applies the same principles of innovation, collaboration and empowerment in its commitment to its communities across the country that it does in its business. Capital One recognizes that helping to build strong and healthy communities -- good places to work, good places to do business and good places to raise families -- benefits us all, and Capital One is proud to support this and other community initiatives.


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Debt is a problem for many consumers in America, hindering their financial stability and wealth-building potential. Reputable nonprofit credit counseling agencies are available around the country to help consumers who are worried about unsecured debt. They offer budget and financial counseling, debt management plans, referrals to social and legal organizations, and a host of other debt counseling and financial capability services.1

Unfortunately, the nonprofit credit counseling industry is under pressure. Over the past 30 years, regulatory changes, reduced consumer demand and increased market competition brought on a wave of angency consolidations and closures.2 Today, agencies are struggling to serve clients coming to them in financial crisis or with types of debt the traditional credit counseling model and product typically do not address. Experts recognize that the nonprofit credit counseling industry is in a difficult period and must find ways to innovate in order to sustain itself and grow in the future.3

¹ Robert M. Hunt, Whither Consumer Credit Counseling (Rochester, NY: Social Science Research Network, 2005), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=905263. ² For more on the evolution of credit counseling, see Michael E. Staten, “The Evolution of the Credit Counseling Industry in the United States,” in Giuseppe Bertola, et al., The Economics of Consumer Credit (Cambridge, MA: MIT Press, 2006), pp. 275-300; and Richard Burnett, “Credit-Counseling Agencies Scramble to Deal with Own Financial Crunch,” Orlando Sentinel (Orlando, FL), Jan. 12, 2014, http://articles.orlandosentinel.com/2014-01-12/business/os-cfb-cover-credit-counseling-crunch-0113-20140112_1_credit-counseling-agencies-credability-consumer-distress-index. ³ Rick Bugado of the Financial Counseling Association of America (formerly, Association of Independent Consumer Credit Counseling Agencies), in-person interview, February 20, 2015; and Ann Estes, Helene Raynaud, and Susan Keating of the National Foundation for Credit Counseling, in-person interview, February 6, 2015. ⁴ Quarterly Report on Household Debt and Credit (New York: Federal Reserve Bank of New York, 2017), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q1.pdf. ⁵ Caroline Ratcliffe, Signe-Mary McKernan, Brett Theodos, Emma Kalish, John Chalekian, Peifang Guo and Christopher Trepel, Delinquent Debt in America (Washington, DC: The Urban Institute, 2014), http://www.urban.org/research/publication/delinquent-debt-america/view/full_report.⁶ Caroline Ratcliffe, Signe-Mary McKernan, Brett Theodos, Emma Kalish, John Chalekian, Peifang Guo and Christopher Trepel, Delinquent Debt in America (Washington, DC: The Urban Institute, 2014), http://www.urban.org/research/publication/delinquent-debt-america/view/full_report.

INTRODUCTION TO THE SMART GROWTH INNOVATION PROGRAM

AMERICANS IN DEBT

U.S households currently hold over

$3.6 TRILLION in non-housing debt.

ONE IN FOUR AMERICANS(77 million people) had debt in collections in 2013.5

12 MILLION had non-mortgage debt past due.6

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=905263

http://articles.orlandosentinel.com/2014-01-12/business/os-cfb-cover-credit-counseling-crunch-0113-20140112_1_credit-counseling-agencies-credability-consumer-distress-index

http://articles.orlandosentinel.com/2014-01-12/business/os-cfb-cover-credit-counseling-crunch-0113-20140112_1_credit-counseling-agencies-credability-consumer-distress-index

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q1.pdf

https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q1.pdf

http://www.urban.org/research/publication/delinquent-debt-america/view/full_report

http://www.urban.org/research/publication/delinquent-debt-america/view/full_report


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Location Baltimore, MD Minneapolis/St. Paul, MN Philadelphia, PA

Discovered Challenge

How might we help more eligible clients enroll in a Debt Management Plan?

How might we help clients weather financial volatility?

How might we help clients not on a Debt Management Plan manage their debt?

Designed Solutions New client-centered counseling approach: n “Overcoming Credit Card

Debt” fact sheetn Debt management plan

payout forecastn Redesigned case action

plann Call-flow guidance for

counselors n Screen sharing option for

clients

New resources to engage clients around potential volatility:

n Revised webpages with rebranded client service team

n Debt Management Plan Roadmap infographic

n Individualized web portal for clients

n Back-up planning tool to help with financial emergencies.

Improved client entry process and new bill payment program:

n Bill payment program that will allow Clarifi to pay clients’ fixed monthly bills each month

n Revised initial counseling session to gain more holistic understanding of clients’ finances

n New intake process to assess and engage clients

Testing Results n Elicits same level of appeal with consumers as original approach

n Implementation issues revealed opportunity for training and refinements

n Generally appealing to consumers

n More research needed to understand managing volatility and ensure effectiveness

n Generally appealing to consumers

n Flaws in current design limit potential appeal if implemented as is

Recommendation

Capital One launched the Smart Growth Innovation Program in April 2015. The program brought together a cohort of six credit counseling agencies with Prosperity Now (formerly CFED) to discover challenges facing clients, design a set of solutions that might address these challenges and test the solutions to assess their viability.7 The program supported three projects in 2015 and 2016.

⁷ The six organizations that participated in Smart Growth in 2015-2016 were: Apprisen, Clarifi, Financial Guidance Center, Guidewell Financial Solutions, Lutheran Social Services of Minnesota, and Navicore Solutions. Three organizations served as project hosts for testing and organizations served as advisors.

SUMMARY OF PROJECTS IN THE 2015-2016 SMART GROWTH INNOVATION PROGRAM


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CREDIT COUNSELING

Nonprofit credit counseling agencies provide financial reviews and education to consumers in person, over the phone or online. Typical credit counseling agency services include:

n Budget and/or financial counseling

n Debt Management Plans (DMPs)

n Referrals to other organizations for applicable relief services

n Consumer financial education and debt-specific services (e.g., services specific to student loans, mortgages, etc.)

n Bankruptcy services

n Financial capability services

WHAT IS A DMP?

A Debt Management Plan (DMP) is a structured monthly payment plan with reduced interest rates. Clients make one payment to the agency, and then the agency distributes the appropriate payments to creditors. DMPs are usually offered by nonprofit credit counseling agencies. A DMP allows clients to pay off debts included in the plan in five years or less. The agency works with creditors to lower interest rates and create a consolidated payment plan.

Only certain kinds of debt can be included in a DMP, including unsecured debt such as credit cards, collections accounts, personal loans, medical bills, telephone and utility bills, and similar.

HOW CREDIT COUNSELING WORKS

She discusses her financial situation with a counselor and they determine she’s a good

candidate for a DMP.

Anna makes her payments to the CCA every month and the CCA sends the agreed-upon

amounts to her creditors.

After 5 years Anna has paid off all of her creditors and is

now debt-free!

a DMP?

DEBT

NONPROFITCREDIT COUNSELING AGENCY

Anna goes to a nonprofit Credit Counseling Agency (CAA)

looking for help handling her debt.

CREDITOR #1CREDITOR #2

CREDITOR #3

SUCCESS I AM DEBT-FREE

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OUR APPROACH IN THE SMART GROWTH INNOVATION PROGRAM

The human insights approach used in the Smart Growth Innovation Program involved three iterative phases.

DISCOVER

DESIGN

TEST

We discovered the challenge by identifying a real, addressable problem facing an organization’s clients, along with the behavioral or environmental barriers that helped create that problem.

n Determined the challenge—the problem that needs to be addressedn Developed a logic model to ensure the challenge meaningfully connected to important program outcomesn Created a customer journey map, visualizing the steps clients take and the barriers they encounter as they

use the program’s services to diagnose the challenge and its causesn Interviewed and observed clients and staff to gather information that informed the design challenge and

customer journey map

We designed potential solutions to the problem identified as the design challenge by developing, iteratively prototyping and revising the ideas generated in the Discovery phase into potential solutions.

n Brainstormed to generate ideas that could eventually become a solution to the challengen Developed prototypes or early drafts of materials that were used to test the solutionsn Summarized the solution(s) in a concept board describing the program or productn Returned to the logic model and customer journey map and made any necessary revisions to incorporate

the solutionn Conducted feedback interviews on the different prototypes to confirm they addressed the challenge

We tested our potential solutions by examining their effects on the outcomes of interest.

n Evaluated the user experience using a user/usability test, in which representative users completed a series of tasks with a high-functioning prototype

n Examined a solution’s breadth of appeal using a concept test, i.e., a survey that showed respondents a description of the solution and asked them about their likelihood of using it

n Assessed a solution’s potential for meeting its expected outputs and outcomes with a mini-pilot, in which the solution was used and evaluated over a short period of time (3-6 months)


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Repeat...sometimes over and over

Engage clients and stakeholders throughout

DISCOVER DESIGN TESTApril ‘15 - Aug. ‘15

Define the ChallengesSept. ‘15 - Feb. ‘16

Create the Solution(s)March ‘16 - Dec. ‘16

Assess Viability

SMART GROWTH INNOVATION PROCESS


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Check assumptions formed through your own experience, but also seek clients’ perspectives. Prior to participating in Smart Growth, partner credit counseling agencies utilized program data, satisfaction surveys, counselor experiences and client testimonials to help inform program design. These sources of information were helpful to identify potential challenges, but didn’t go far enough to fully uncover what was going on from the clients’ perspective. Conducting activities like client journey mapping, discovery interviews and feedback interviews helped to fill in knowledge gaps about what’s going on from the clients’ perspective and helped the agencies see their work in a different light.

Continually check for consistency in implementation. One thing we noticed across all of the projects was that making even small program changes was hard on frontline staff, who were often already struggling under time and resource constraints. This was especially the case for changes to program features like client intake and initial counseling appointments that staff had gotten in the habit of doing a certain way over time. It is important to keep in mind that implementing change in these kinds of situations takes time, and it’s particularly necessary to make sure everyone is on the same page in their understanding of why change is needed. Also of import is the ongoing support needed to consistently implement changes to ensure they have their intended outcomes.

Make sure resources offered in counseling facilitate action and not just aspirations or advice. Many of the people we talked to—both staff and clients—highlighted the importance of making tools and resources meant for clients focused on guiding their actions. Recent research suggests that increasing financial knowledge alone does not significantly improve financial behavior, and our client interviews also suggested a noticeable lack of interest in knowledge-based financial education resources.8 Rather, what people want are interactive tools and action plans with specific concrete steps they could take to improve their financial situations and plan for emergencies.

Draw on peers for resources to help solve tough consumer problems. Though there is some

variation among credit counseling agencies in terms of geography, size and, to some extent, counseling approach, there are also many similarities. Credit counseling agencies struggle with similar issues, and solutions developed by one organization can often prove helpful for others. In the Smart Growth Innovation Program, participants shared some of the resources they used to help other sites. For example, developing the payout forecast used by Guidewell was simpler than expected because Clarifi had already created—and shared—something similar during their previous work with the software company that provides back-end support to both organizations.

Despite the evolving regulatory and funding landscapes, there are simple ways for nonprofit credit counseling agencies to improve services for clients that do not require huge investments of time or resources. Our experiences working with partner credit counseling agencies in the Smart Growth Innovation Program yielded a number of tips for other credit counseling agencies’ program design.

PROGRAM DESIGN TIPS FOR CREDIT COUNSELING AGENCIES

⁸ Daniel Fernandes, John G. Lynch, Jr. and Richard G. Netemeyer, Financial Literacy, Financial Education and Downstream Financial Behaviors (Catonsville, MD: Management Science, 2014), http://pubsonline.informs.org/doi/abs/10.1287/mnsc.2013.1849.

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http://pubsonline.informs.org/doi/abs/10.1287/mnsc.2013.1849


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DISCOVER

The discovery methods helped Guidewell finalize their design challenge as: How might we help more eligible clients enroll in the DMP?

Guidewell determined that the major obstacles preventing their clients from enrolling in the DMP were:

n Not understanding the next steps to take after the credit counseling calln Not receiving holistic follow-up that could help clients improve their financial situationsn Not understanding the benefits of a DMP program over other options available for managing debt

DESIGN

TEST

To address these obstacles and help more eligible clients enroll, Guidewell developed a new client-centered counseling approach with the following features:

n An “Overcoming Credit Card Debt” fact sheet that details the benefits of the DMP compared to alternatives, including bankruptcy or plans offered by debt settlement companies

n A screen-sharing function made available during credit counseling calls to improve client engagement and understanding

n A payout forecast customized with the client’s estimated DMP payoff daten A case action plan developed during the counseling call with clear actions to be completed

afterwardsn A short credit counseling call flow for counselors to follow as an outline or checklist for credit

counseling appointments

Our testing strategy to evaluate the proposed solution used two approaches:9

1. Mini-pilot of new features implemented by two counselors from Guidewell Financial over the course of three months

2. Concept test to understand overall appeal of new counseling approach compared to original approach

9 Over the course of three months, 79 clients participated in the mini-pilot of the new counseling approach. Of these, 38 (48%) had started a DMP. The concept test of the new counseling approach surveyed a total of 756 individuals, while the concept test of the original counseling approach surveyed 718 individuals.

GUIDEWELL FINANCIAL SOLUTIONS (GUIDEWELL)


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KEY FINDINGSThe new credit counseling approach elicits similar levels of appeal among consumers as Guidewell’s original credit counseling approach. However, implementation issues revealed in the mini-pilot highlight opportunities for additional counselor training and refinements to the content and procedures utilized in the new approach.

n Concept testing demonstrated the appeal of the new counseling approach among a general target audience of consumers with outstanding credit card debt compared to the original approach.

n Implementation of the new counseling in the mini-pilot was inconsistent, which limited our ability to assess the new approach’s potential impact.

n Clients who experienced elements of the solution generally found them helpful in improving their understanding of the process or deepening their engagement in their session.

n One participating counselor noted positive changes in engagement due to the new counseling approach, but the other counselor did not see any difference.

Due to inconsistencies with implementation and a short piloting period, it’s not clear if the new approach yielded higher enrollment into DMPs.

RECOMMENDATIONSBased on the results of the testing, Prosperity Now offered the following overall recommendations to Guidewell:

n Continue with the new client-centered approach, but focus on improving implementation. n Prioritize and invest in counselor training to increase consistency in the content and procedures used in

the new client-centered approach.n Rework the credit counseling call flow to make key learning points and actions steps crystal clear to

clients. n Consider alternatives to the follow-up call in order to encourage clients to take action on their case

action plan (i.e. automated reminders or other alternative methods).

“Participating in the Smart Growth Innovation Program was a unique opportunity because we were able to work collaboratively with other credit

counseling agencies. The research helped us overcome assumptions we had about why eligible clients were not enrolling in the Debt Management Program. The insights we gained will change the way we do business. We

are moving forward with implementing some of our piloted solutions.”

Devon Hyde, Director of Business Development, Guidewell Financial Solutions


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OVERCOMING CREDIT CARD DEBT When debt starts piling up, it’s important to know the options available to help you get it under control. You might be able to call your creditors to negotiate your monthly payments, but to take care of multiple debts in one place, there are three common options: debt management plans, debt settlement companies, and bankruptcy.

Guidewell Financial Solutions | For more information, visit http://www.guidewellfs.org

Based on their features, a DMP typically provides a safe way out of debt. Unlike DMPs, debt settlement companies often make people’s debt situation worse. Bankruptcy could be an option for some people that do not have enough money to make monthly payments, but it is not ideal as it requires formal court proceedings that can have long term consequences.

HOW A DEBT MANAGEMENT PLAN (DMP) WORKS If you are interested in a debt management plan (DMP), Guidewell Financial Solutions can help. Here’s how it works. 1. Call a certified credit counselor at Guidewell Financial Solutions to review your financial situation and determine

if a DMP is right for you.

2. If a DMP is recommended, read the customized agreement that explains your plan and its requirements.

3. Send back the required documents and start making payments to complete enrollment.

4. Make your payment each month so Guidewell Financial Solutions can distribute the appropriate amounts to your creditors.

5. Contact Guidewell Financial Solutions as needed to inform us of any changes you may have that are critical to your continued progress.

Debt management plans (DMPs) provide a safe way out of debt. Deb t Sett le men t Ban kru pt cy

Wha t i s the serv ice?

A DMP is a structured monthly payment plan with reduced interest rates. You make one payment to the agency, which they distribute to your creditors. They are usually offered by nonprofit, credit counseling agencies.

Debt settlement is the attempt to negotiate settlement of your debts with a lump sum payment. They are offered by for-profit companies or law firms.

Bankruptcy is the discharge of some or all of your debt through a federal court filing. Most people file with the help of an attorney.

Ho w d oes i t he lp me ?

A DMP allows you to pay off debts included in the plan in 5 years or less. The agency works with creditors to lower interest rates and create a consolidated payment plan. This allows you to avoid unnecessary interest and fees over time and reduces the hassle of making multiple payments each month.

Debt settlement companies say that they will negotiate with creditors so you pay less than the full balance. This method seems good at first, but it also increases your risk of default, judgments, and garnishments because they often ask you to stop paying your creditors.

There are several different types of bankruptcies. Depending on the type you file, you may repay a portion of your debt or eliminate all debt.

Wha t’ s the c ost ?

DMPs include a free initial financial assessment and low monthly maintenance fees built into the payment. Fees are clearly disclosed in the offer and include free ongoing budget counseling.

Debt settlement services typically have large up-front and/or monthly fees and offer no budget counseling. Additionally, because you are asked to stop paying your creditors, the creditors may start charging more penalty fees and interest.

Bankruptcy court filing fees are several hundred dollars. Attorney fees vary.

Ho w is my cre d it af fec ted?

Depending on your situation, there may be an initial drop in credit score, followed by an increase as consistent payments are made and debt is paid off.

Debt settlement will have a negative impact on your credit score because you stop paying your creditors.

Bankruptcy remains on your credit report for 10 years and makes it difficult to get future credit.


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LUTHERAN SOCIAL SERVICES FINANCIAL COUNSELING (LSS)

DISCOVER

Using the discovery methods helped LSS finalize their design challenge as: How might we help DMP clients weather financial volatility?

LSS determined that the major obstacles preventing their clients from weathering financial volatility were:

n Not knowing where to go for help or what help was availablen Not fully understanding the DMP process and timelinen Lacking a concrete, detailed back-up plan to turn to in case of financial emergencies

DESIGN

TEST

To address these obstacles and help their clients weather financial volatility, during the Design Phase, LSS:

n Revised their website to include pictures and biographies of team members and more information about the help they can provide in case of a financial emergency

n Created a DMP Roadmap infographic to reduce confusion about the steps in the DMP processn Designed a web portal to provide each client with an individualized dashboard that included a

checklist and progress tracker to help them stay on track and motivated while on the DMP n Outlined the components of a back-up planning tool that could help clients prepare for a future

financial emergency

For LSS, the testing strategy utilized two approaches:10

1. User tests to gather more information from clients about the proposed web portal and back-up planning tool

2. A concept test to explore the appeal of the back-up planning tool

10 The web portal was user tested with 19 clients and the back-up planning tool with 12 clients. The concept test of the back-up planning tool surveyed a total of 756 individuals. LSS will test the new webpages and the DMP Roadmap on their own.


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KEY FINDINGSBoth the individualized web portal and back-up planning tool were very appealing to consumers. For the back-up planning tool, more research and development are needed to gain a better understanding of the complexity of managing volatility to ensure effectiveness.

Client Web Portaln Clients found the portal dashboard easy to navigate and the majority said they would definitely use it.n Most clients had positive reactions to the specific dashboard elements, especially the checklist and

progress tracker.o Clients preferred checklist items to be short, specific and actionable. o Clients indicated they want the portal calendar to sync with their personal calendars so they can

more easily receive reminders about items that need to be completed.

Back-up Planning Tool and Back-up Plann Concept testing demonstrated the appeal of the back-up planning tool, particularly to those with

outstanding credit card debt. n Clients liked the idea of the back-up planning tool as long as it is simple to use with clear steps and

specific recommendations for what they should do and when.

RECOMMENDATIONSBased on the results of the testing, Prosperity Now offered the following overall recommendations to LSS:

n Move forward with the client web portal so that current and future DMP clients will have an easier time staying on track and motivated.

n Move forward with additional research and development of the back-up planning tool to improve the content and format of the tool and to better understand of the complexity of managing volatility.

“We’ve determined that a user-friendly and motivational web portal would be beneficial for our Debt Management clients and we plan to implement

a portal when feasible. [We also believe] that a back-up planning tool could help all consumers, not just DMP clients. Without consumer feedback

gathered by Prosperity Now, we likely would not have thought of this option to help people weather financial volatility.”

Elaina Johannessen, Program Director, LSS Financial Counseling


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CLARIFI

DISCOVER

Working through the discovery methods led to Clarifi’s finalized design challenge: How might we help clients not on a DMP manage their debt?

The major obstacles preventing Clarifi’s non-DMP clients from dealing with their debt were:

n Feeling overwhelmed by the stress and complexity of their financial livesn Having immediate money management needs that have to be addressed before they can focus

on long-term goalsn Not having access to long-term debt reduction support

DESIGN

TEST

To address these obstacles and better help non-DMP clients with their debt, Clarifi began to develop:

n A bill payment program that will allow Clarifi to withdraw, on a fixed schedule, the amount necessary to cover a client’s predetermined, high-priority expenses so that Clarifi can manage the payments on behalf of the client in full and on time

n A revised initial counseling session that will help the counselor gain a holistic understanding of the client’s financial situation, goals and needs

n A new intake process that will explore the client’s financial situation in more detail in order to better determine a client’s needs and increase their engagement and trust before the first full session

For Clarifi, the testing strategy entailed three approaches:

1.. Preliminary user tests to gather more information from clients about the proposed bill payment program

2. Focus groups with current clients to explore what messages about the bill payment program most resonated

3. A concept test to explore the overall appeal of the bill payment program

Of note, while the testing completed with Prosperity Now focused on the bill payment program, Clarifi also independently piloted the new intake sessions.12

11 The bill payment program was user tested with 14 clients over three rounds and the comparison “bill management” program with four clients. Eight Clarifi clients participated in the two focus groups. The concept test of the bill payment program surveyed a total of 750 individuals, while the “bill management” program surveyed 753 individuals. 12 The mini-pilot was ongoing at the completion of the testing phase but preliminary results were positive. Clarifi planned to continue piloting the new intake sessions and work out how to evaluate success.


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KEY FINDINGSAlthough the idea of a bill payment program is generally appealing to consumers, there are flaws in the current design that limit the potential appeal (and likely uptake) if implemented as is.

n Concept testing demonstrated that a bill payment program was somewhat appealing, but that a similar program with features to help clients manage instability would be more appealing.

n Clarifi’s bill payment program concept was generally interesting to a portion of interviewed clients—especially those with outstanding credit card debt—but has two key flaws that likely limit its potential appeal:

o The concept, as currently conceived, fails to help customers solve two prominent problems in their financial lives: income instability and variations in bills.

o The potential cost of the bill payment program was a major concern, making it difficult to imagine that there is a viable, revenue-generating business model for it.

n Clients expressed a desire to see messaging for the program centered on immediate benefits; access to personalized counseling is the program’s most appealing feature.

n Testing of an alternative “bill management” program suggested that incorporating features that could help clients manage instability while reducing the cost could help bolster the program’s appeal.

RECOMMENDATIONSBased on the results of the testing phase, Prosperity Now offered the following overall recommendations for Clarifi:

n If moving forward with the bill payment program without any refinements, focus marketing on the following attributes and proceed with caution, given potential flaws:

o The structure of the program and the sense of control it gives clients.o The support and partnership Clarifi provides to clients.

n Focus on finding ways to create more flexibility in the program design so that features that would help meet clients’ needs may be added.

“The design thinking process allowed us to sharpen our focus on the clients’ needs and illustrated an array of products and services that

financially insecure families need to help secure their financial health.”

Scott Karol, VP of Innovation, Clarifi


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OPPORTUNITIES FOR FUTURE INNOVATION IN CREDIT COUNSELING AND DEBT MANAGEMENT

From various engagements with clients, internal stakeholders at credit counseling agencies and testing, the Smart Growth Innovation Project enabled us to generate several insights about the debt-management challenges facing people with low and moderate incomes. We see these challenges as opportunities—framed as open questions—for further innovation within the credit counseling and debt management field.

n How might we help people who experience chronic financial instability manage existing debt? Many clients experienced income or expense volatility, occurring not just sporadically, but in a recurring cycle without time for recovery. This made it difficult for them to qualify for or stay on a DMP, or be able to otherwise make payments on incurred debt. As learned from testing with Clarifi, failing to include features that address or account for financial volatility might limit appeal of a bill payment product for a number of potential clients.

n How might we help people avoid paralysis in taking effective action to manage debt? With Guidewell, we observed that clients often failed to follow through on recommendations counselors provided to change their budgets. With LSS, we observed that clients ignored calls from counselors when they missed DMP payments. These findings suggest that avoidance is a barrier to effectively managing debt for a number of clients, potentially because of negative emotions associated with debt. This behavioral barrier is called the “ostrich problem.”13

n How might we help people manage highly complex debt portfolios? The complexity of clients’ debt portfolios often came up through interviews with counselors and clients, as well as in case reviews. The inadequacy of existing solutions also came up because most existing solutions—like DMPs—are only effective at dealing with certain types of unsecured credit.

n How might we help people know who and what to trust for help in managing debt? Many counselors observed significant confusion among clients about what is a safe way to manage debt. Many clients were unsure which of the myriad financial products and services they saw advertised on television and the internet were legitimate and safe. For some, going through credit counseling provided a trusted source of information and help, but how to bring greater clarity earlier—even before the first session—remains an unanswered question.

n How might we provide more specific guidance on managing debt? The Discovery phase in all three projects suggested that clients are seeking specific and actionable guidance on managing debt. But testing at LSS and Guidewell helped us see how difficult providing actionable guidance can be. While both solutions made inroads into providing specific guidance, testing insights from clients in both projects revealed that clients needed even more clarity and specific instruction than anticipated.

n How might we increase engagement with clients on managing debt? Many counselors talked about how hard it is to engage clients, and all three programs experience significant drop-off at every phase of the credit counseling process. We also observed that clients who had more engagement with counselors often talked about how they trusted the agency, and we theorize that sustaining support and engagement over time might lead to stronger debt-management outcomes.

¹³ Thomas L. Webb, Betty Chang and Yael Benn, “‘The Ostrich Problem’: Motivated Avoidance or Rejection of Information about Goal Progress,” Social and Personality Psychology Compass 7, no. 11 (2013): 794-807, http://onlinelibrary.wiley.com/doi/10.1111/spc3.12071/full.

http://onlinelibrary.wiley.com/doi/10.1111/spc3.12071/full


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ACKNOWLEDGEMENTSThe authors of this report would like to acknowledge the Prosperity Now team that worked on the Smart Growth Innovation Program over the course of the project: Felipe Barroso, Madison Matthews, Nick Canfield, Lebaron Sims, Parker Cohen, Alicia Hadley, Fran Rosebush Baylor, Carmen Shorter, Kate Griffin, Kasey Wiedrich, Sam Weinstock and Sean Luechtefeld. The authors also thank Roberto Arjona for his creativity in designing this report.

We would also like to thank all of the project partners and advisors from credit counseling agencies in the Smart Growth Innovation Program for all of their help over the three years of the project’s lifespan: Johnny Cantrell and Lisa Piercefield, Apprisen; Megan Kiesel, Scott Karol, Chelsea Barrish, Natalie Short and Anita Brown, Clarifi; Michele Johnson, Christie O’Melia and Paul Weiss, Financial Guidance Center; Devon Hyde, Tiffany Scalzo, Helene Raynaud, Nina Heck and Lori Jankolwski, Guidewell; Cate Rysavy, Elaina Johannessen and Kate Swenson, Lutheran Social Serivces; and Don Hicks, Cynthia Ferraro, Diane Grey, Joe Gustus and Kim Cole, Navicore.

Finally, we extend our deepest gratitude to Kimberly Allman and Jamie Lutton of Capital One for their generous support of the Smart Growth Innovation Program.

Pamela Chan, Emily Hoagland & Spectra Myers

Spurring Innovations in Credit Counseling


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July 2017

spurring innovations in credit counseling · or less. the agency works with creditors to lower...

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