Credit Counseling Ripoffs
September 1st, 2010 | 
Author: An established credit guidance agency can assist you create a repayment program using your creditors and show you better money management methods to avoid debt later on. But some consumer credit counseling services take advantage of people who tend to be financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act discourages “unfair or deceptive acts or practices” of credit repair, debt negotiation or counseling agencies. Some states have laws that make it illegal for credit service organizations to say to be able to improve credit scores.
And in some states, credit advice services must register with the state Attorney General’s office and obtain a surety bond to do business.
Voluntary Certification and Accreditation
The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that creates voluntary standards for credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 consumer credit counseling plans that meet NFCC standards.
To become accredited by the NFCC, a credit counseling agency must be recognized as non-profit by the IRS and have the proper local business licenses. To earn NFCC certification, a credit advice program must use adequate constraints to guard consumers, including:
- Auditing operating and trust accounts every year
- Offering consumer education programs
- Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt
- Disbursing funds to creditors at least twice a month, or sooner in emergencies
- Giving clients a financial statement at least once every three months
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is the one other national organization with similar standards.
You will want to consider before joining a credit guidance agency that does not fit in with either of these voluntary organizations.
Warning Signs
What should tip you off that you may be dealing with a less-than-reputable program?
Watch out for illegal fees, sometimes disguised as contributions. If the setup fees or monthly charges have become high, they can get rid of any gain you could have made against reduced finance charges, and you’d bebetter off negotiating directly with the creditors.
Another danger sign is usually outrageous claims to instantly repair your credit ratings. Credit rebuilding is a gradual process, and it’s illegal to try to make positive changes to credit rating by constructing a fresh, false identity.
You should also stay away from advance fee loan scams, where you’re asked to fork over money to get a promised loan. Under the FTC’s Telemarketing Sales Rule, no-one can legitimately ask that you pay before you actually obtain a loan or credit. So be skeptical of any consolidation loan, get all the details in writing, and don’t give your credit card, banking account or Social Security information over the telephone or online.
Educate Yourself
The ultimate way to protect yourself against unscrupulous credit counselors is to:
- Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business
- Confirm with your creditors ahead of time that they will work with that particular company
- Understand exactly what services are offered, and whether those services address all of your debts
- Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program
- Get all promises in writing
- Read your written agreement carefully
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Posted in Debt Solutions