NFCC/FCAA – Extended Modification Solution – EMS

A new debt repayment option for consumers who can no longer afford their debt management plan

March, 2020

• Extended Modification Solution (EMS) Explained

• Qualification for Client Participation in EMS

• EMS Benefits

• EMS Process

• Q & A

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Agenda

A New Solution:

Extended Modification Solution (EMS)

• EMS gives consumer an additional bridge to repay their debt in full and avoid bankruptcy, debt settlement services, or non-payment

• The EMS is a short-term solution to assist clients who are experiencing an additional financial hardship.

• Client will be set up with a payment they can afford due to their new hardship. This payment will not meet the current minimum DMP payment, but will cover finance charges so the balance continues to amortize.

• The lower monthly payments will be made until the client can afford to reinstate their original agreed upon DMP payment. Client will be advised to make extra payments to bring their account back to a current status if a re-age is not available.

• Clients who cannot afford to reinstate their original DMP payment may charge off. If that occurs a new proposal will be sent to enroll the account in the creditor’s charge-off program.

• Clients will make payments until the account is paid in full.

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Extended Modification Solution Explained

• Clients who indicate they can no longer afford the DMP payment

• Clients must have been on a DMP for at least 4 months before an EMS will be considered (Due to the state of COVID-19, EMS may be offered to clients who enrolled before 3/1/20 once DMP benefits have been established)

• Clients who are not eligible for standard payment renegotiation with creditors

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Who Qualifies for EMS?

• Payments will be reduced to an affordable amount.

• New lower payments will be setup to ensure account does not negatively amortize.

• Clients will be provided a temporary bridge until they can resume full DMP payments.

• Clients who cannot afford to resume full DMP payments may charge off, and be able to repay their debt in full at 0% interest.

• Clients will be more likely to avoid debt settlement services, non-payment, or bankruptcy.

• Client can successfully repay their debt with the support of their creditors and counseling agency.

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What are the client benefits of EMS?

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Sample EMS Payment Structure

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Sample EMS Payment Explained

Consumer enrolls on the DMP with a balance of $10,000. Agency proposes $200 per month at 7% interest. After the consumer’s 9th payment, they can no longer afford the DMP and request to cancel. Agency would offer the EMS plan and reduce the payment to an affordable amount that does not negatively amortize the account.

Agency will contact the consumer before they are scheduled to charge off to request they reinstate the $200 monthly payment. We will also setup a plan with the client to bring their account current when they are able to. In the event the consumer cannot reinstate their original monthly payment and the account charges off, we will submit a new proposal (when appropriate) to the creditor to re-enroll the account in the DMP under the creditor's charge-off plan..

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EMS Policy

• Client must be enrolled at least four months. (Exception for COVID-19)

• Both a short term and a long term EMS plan are available base on client need.

• Once client agrees to EMS, a disclosure is provided and signed.

• Payment amount is reduced.

• Once the short term hardship is resolved, the client reinstates their original payment amount and works to bring the account back to a current status.

• Clients who cannot reinstate their payment will charges off. At that point a new proposal is sent to the creditor if required.

For clients experiencing increased hardships during the course of a DMP. EMS provides additional relief via an option allowing them to remain in credit counseling with a decrease in their standard DMP payment amount.

• Please use prudence when converting accounts to EMS, particularly where the client’s situation may be long term and the reduction would be small. EMS will have a negative impact on the client’s credit rating, even on an account by account basis.

• As a best practice, try not to convert accounts to EMS where the reduction would be not be meaningful to the client. To restate this, don’t risk an additional charge off for a few dollars per month savings if you can avoid it.

• EMS accounts that result in charge off are likely to exceed some states’ maximum DMP repayment term. If the client lives in Alabama, Indiana, Iowa, Michigan, Nebraska, New Hampshire, or New York, please consult with your compliance department. You may need to have the client enter into a second Debt Management Service Agreement at some point. Some states may require fee waivers beyond a certain number of months.

• Pay careful attention to MasterCard RPPS CDT records (drop notices) on EMS accounts, particularly CDT-MP and CDT-CO notifications. Both indicate the account has charged off, which may require additional processing.

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Important EMS Considerations

EMS Process

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• If a client expresses an additional financial hardship (loss of job, etc.) that is causing difficulty maintaining the standard DMP payments, show empathy and express that you would like to see if you can help.

• Determine if the client is dealing with a temporary setback or if it’s more of a long-term situation.

• Agency should determine first if normal reduction efforts will be sufficient to keep client on DMP.

• If payment is still too high for client, offer EMS if they have EMS participating creditors.

• If enrolling in EMS, contact creditors for updated balances, account statuses, and to confirm due dates as opposed to relying on credit bureau reports.

• Calculate new EMS payment and determine estimated charge-off date.

• Explain potential EMS consequences and provide EMS disclosure for client to sign, update and properly status client account.

Additional detail on the EMS process can be found in the full processes and best practices document

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EMS Process Detail

EMS Follow up

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Appropriate follow up should be performed to support the client and determine when they can afford to reinstate their original DMP payments.

• Contact the client to see if their hardship has resolved, enough to increase payment to accounts at risk of imminent charge off.

• If the client can afford the increase, update the accounts back to the original DMP terms they were enrolled on before EMS was initiated.

• Determine how far behind the reinstated accounts are. Assist the client in making a plan to pay the amount past due over time to bring their accounts back to a current status.

• If the client cannot afford to reinstate their original DMP monthly payments, restate that the accounts will charge off and what that means.

• Explain that from the point of charge off we can repay the accounts at a 0% APR so the balance will start coming down again even at the reduced EMS payment amount.

Additional detail on the EMS follow up process can be found in the full processes and best practices document

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EMS Process Follow-Up

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EMS Performance Data

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Questions?

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Thank you for allowing us to present the Extended Modification Solution (EMS). We are excited to expand the menu of services to include EMS as an option to help struggling clients stay committed to their debt repayment.

For further questions on the EMS program contact:

Christopher Viale: cviale@cambridgecredit.orgBrian Vosburgh: bvosburgh@cambridgecredit.orgJohn Henle: jhenle@cambridgecredit.org