Is Cheaper Better?

As part of the 2005 amendments, consumer bankruptcy debtors must complete a financial education course to receive a bankruptcy discharge. The requirement was controversial among law professors, with some seeing the requirement as one of very few reforms that could help consumers and others viewing it primarily as a cumbersome obstacle designed to deter filings or increase the hassle and expense of bankruptcy.  As John Rao noted in his excellent post on the topic, the quality of this education left a lot to be desired. Specifically, he noted that the courses were not tailored to the particular educational needs of bankrupt families. Guestblogger Nathalie Martin shared her experiences as a financial educator on just why tailored education is vitally important.

I have no evidence that these problems have been remedied, but I can report that at least bankrupt families won't have to pay as much for their under-education in the future. I've recently gotten notices from two financial education providers, both of whom are approved nationwide by the United States Trustee. The respective costs of the services are $25 and $15. This is a dramatic drop in price from the $50 that most providers initially charged. Do you get what you pay for? Or is this a good cost-savings for consumers? The most interesting thing about both advertisements was that neither of them contained ANY mention of the quality of their course--no mention of curricular content; quality of intructors; or pedagogical methods. Instead, the programs emphasized their low cost--and non-educational features such as their acceptance of credit cards, and their immediate certificate delivery. If even the financial educators aren't competing on quality--or perceive that doing so is of no use--I think we should be pessimistic that bankruptcy financial education is going to delivery on its promise at any price. 

Comments

[Joe S.]

"Instead, the programs emphasized their low cost--and non-educational features such as their acceptance of credit cards, and their immediate certificate delivery."

Gee! Sounds just like mandatory continuing legal education!

[lmclark]

In the WD Tex, the debtor education program is offered through the ch 13 trustees, via the TEN network. It's free to the debtors (though I suspect the cost is packaged into the ch 13 T's allowed commission).

[Steve Rhode]

Let's not kind ourselves, it's a drunk driving class. Unless you are going to tailor education to each persons specific issue it will be marginally effective at best. All most people want at that point is to jump through the hoop and get the certificate. It's not really the "teachable moment."

Isn't it funny that credit counseling groups looked at the pre and post counseling as a "cash cow" and windfall and are now being undercut by free or $15 providers.

[Doug]

The reduction in price is entirely reflective of the idiocy of the original amendments. Drunk driving is a crime. So, in addition to the before the fact advertising/educaton a la designated drivers, it's appropriate to have some punitive aspect that links to education in the hopes of avoiding repetition.

But, misuse of credit is not a crime. It's more like smoking (also not a crime). For too many decades, the economic gains of the tobacco industry prevailed in warding off the information sharing and education needed to help folks make wise choices about smoking.

With bankruptcy, we now see the economic power and incentives of financial and other industries expressed through this 'after the fact', punitive and, based on price movement, useless 'education'.

We might as well require smoking-induced cancer patients to mandatory courses as a requirement of getting medical care.

Misuse of credit is a kind of disease. Our appraoch: punish those with the disease instead of investing in prevention through education.

Value to consumers: zero.

Value to credit providers: priceless.

[Patches]

Don't agree with everything Doug was saying. The line between misuse and abuse is a very fine one. ie. Interviewed a potential 13 client the other day who is and was a Mortgage broker. In 05, 06 and first part of 07 this guy made $150k per year min. All of a sudden New Century files Chapter 11, he gets laid off, some 60k of wages are tied into the New Century 11. He has to start from scratch with new Mortgage lender. Starting off he is grossing $1,500.00 per month! He had supper credit, he was using it right, he has a home worth 300K he only owes approx. 125k; has a rental home he owes 150k on worth 250k. He had the rug cut out from under him and now is in danger of losing both! The man did nothing wrong other than not having reserves. The domino effect that ensued was due to our "Mortgage" mess. The vast majority of the consumer BKs I see have had similar domino effects, either medical, being laid off, or the like. The consumers that have misused credit are in the minority. It seems Dougs view is a bit distant and doesn’t really reflect what is actually happening on the front lines of the Bankruptcy front. Professors and Economists’ can theorize all they want but what I deal with on a daily basis is what is actually happening and NOT theory. What is happing in the real world you cannot possibly get solely from a line graph or stats.

Oh the subject matter: Classes! Our 13 Trustee offers classes for free but 7 Debtors are paying up to $50.00 for online classes or phone classes. I feel that the classes should be tailored to the type of BK the debtor has filed. If it is a 7 I do believe that some of the info they are giving in the classes would be helpful. But in the case of a 13 debtors, they should be shown the pitfalls that are unique to 13's. "How to thrive in Bankruptcy" We try the best we can to inform the debtors of what to look out for, but there is no general information that you can give that will cover all of the situations possible. Bankruptcies’ are like snowflakes every single one is different. There is though a ton of info that can be imparted in a 2hr class that would help both the debtors in chapter 13 that would in turn cut down on work by the Attorney. The goal is to tailor the individual BKs 13s and 7s.