The Dangers of Consumer Credit Counselors and Credit Counseling Agencies
Some debtors have great experiences with consumer credit counseling. Many credit counseling agencies are legitimate, professional and successful and can help their clients organize and repay their debts in an agreeable timeframe and with a reduced interest rate. Unfortunately, this does not describe every credit counseling company. There are some companies that are not looking out for their clients’ interests. The more you know about their tactics, the more success you will have in avoiding them.
Tips for Choosing a Consumer Credit Counseling Service (CCCS)
Here are some of the things you need to look out for when considering consumer credit counseling services:
- Although credit counseling agencies claim to be non-profit, some ask for high “voluntary” fees to enter the program and stay with it each month. They can be very insistent, using guilt and pressure to get you to pay. Ask about fees, voluntary and hidden, before committing.
- Some creditors will not negotiate with credit counselors, and if that is the case there may be little that credit counseling can do to help you. Ask the agency if they have an existing relationship with your specific creditors.
- If you are already keeping good track of your finances, their services may be a waste of time and effort. Make sure they can offer you something you need before you sign on.
- Some agencies fail to deliver the promised credit or debt counseling or even attempt to educate their clients on basic financial issues, such as budgeting. Ask specific questions about how they educate their clients.
- Receiving help from a credit counseling program will show up on your credit report and could stay there for up to seven years. It may still be worth it, especially if your credit is already damaged, but be ready to make this sacrifice.
On the federal and state level, the government has shut down illegitimate credit counseling agencies. Both the Federal Trade Commission and the IRS have recently taken steps to break up some of the worst of these scams. But the government moves slowly and doesn’t have the resources to take on all the small companies at once.
In 2003, the director of the Bureau of Consumer Protection of the FTC testified to congress, “In the last decade, the credit counseling industry has experienced dramatic growth…. The nature of the industry has also changed. Whereas it was once composed mainly of small, local credit counselors, the last decade has seen the rise of large, high-tech organizations that aggressively market their services to consumers… Many appear to offer little or no individualized credit counseling, but rather urge all of their clients to enroll in a debt management plan without consideration of their particular financial situation.”*
If you are referred to a consumer credit counseling agency by a friend or relative, ask that friend or relative how much credit or debt counseling he or she received while in the program. The answer “very little” or “none” should cause some concern. A non-profit consumer credit counseling agency is supposed to provide credit or debt management plan counseling to its clients as part of its tax-exempt status.
Prepared Statement of the Federal Trade Commission before the Subcommittee on Oversight House Committee on Ways and Means on Consumer Protection Issues in the Credit Counseling Industry www.ftc.gov/os/2003/11/031120testimony.shtm
