TCAI Working Paper Applying the Theory of Planned Behavior to Retain Credit Counseling Clients

This study applied the theory of planned behavior to examine factors associated with the intention and behavior of staying in debt management plans (DMP) using data collected from a sample of clients of a national credit counseling agency. The findings of this study suggest that the behavioral intention is positively associated with the attitude toward the behavior, perceived control, satisfaction with the service, and debt-reducing behavior; at the same time, behavioral intention is negatively associated with other financial behaviors. The behavior of staying in a DMP is positively associated with the behavioral intention and perceived control. The traditional nonprofit credit counseling industry emerged in the 1950s and 1960s in response to rapid growth in unsecured consumer debt during that time (Schiller 1976). The credit counseling industry took about three decades to reach 200 agencies; growth peaked in the mid1990s with at least 1,200 agencies established, and currently there are about 870 active agencies (Hunt 2005). According to a comprehensive review of the credit counseling industry, these credit counseling organizations typically provide four types of services to consumers: financial education, budget counseling, debt management plans (DMP), and bankruptcy referrals (Hunt 2005). In recent years, debt management plans have become more critical for credit counseling organizations compared to other services provided by these organizations. One reason is that newcomers in the industry are competing for lower proportions of “fair shares” support for credit counseling organizations provided by creditors. Thus, revenue-generating approaches such as DMPs are more important for these organizations than ever before. In a DMP, a consumer pays a credit counseling organization a set amount each month. The organization uses these deposits to pay the debtor’s credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule worked out between the consumer and her/his creditors. Creditors may agree to lower interest rates or waive certain fees if the consumer is repaying debt through a DMP (Federal Trade Commission 2005). A DMP could be beneficial for three directly-involved parties: the consumer, the creditor, and the credit counseling organization. The consumer could avoid creditors or collection agencies and legal actions, receive lower interest rates and fees, and improve his or her credit history if bankruptcy is avoided. For the creditor, the principal would be repaid in full or in part. A DMP 1 TCA Professor and Director, Take Charge America Institute for Consumer Financial Education and Research, University of Arizona, PO Box 210033, Tucson, AZ 85750; Phone: 520-621-5948; E-Mail: [email protected]. 2 Research Associate, Take Charge America Institute for Consumer Financial Education and Research, University of Arizona, PO Box 210033, Tucson, AZ 85750; Phone: 520-621-1834; E-Mail: [email protected].