When you're up to your limit with bills, debt and people calling you for money where do you turn? Once place to start is a debt or credit counselor who can help you set up a repayment program and teach you better money management techniques to avoid debt in the future.
There can be hundreds of credit counseling services in your area so how do you pick the right one and avoid credit repair scams?
Voluntary Certification and Accreditation
It's sad that the very people who are trying to help you also have a bad reputation of taking advantage of people who are actually trying fix their financial situation.
The Federal Trade Commission (FTC) Act prohibits "unfair or deceptive acts or practices" of credit repair, debt settlement or counseling agencies. Some states also have laws that make it illegal for credit service organizations to claim to be able to improve credit ratings. And in some states, credit counseling services must register with the state Attorney General's office and get a surety bond to do business.
The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that sets voluntary standards for credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit counseling programs that meet NFCC standards.
A credit counseling agency accredited by the NFCC must be recognized as non-profit by the IRS and have the proper local business licenses. To earn NFCC certification, a credit counseling program must also use adequate checks and balances to protect 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 another national organization with similar standards.
Think twice before signing up with a credit counseling agency that doesn't belong to either of these voluntary organizations.
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 are very high, they can wipe out any gain you may have made against reduced finance charges, and you'd be better off negotiating directly with your creditors
- Outrageous claims to instantly repair your credit rating. Credit rebuilding is a gradual process, and it's illegal to attempt to change your credit history by constructing a new, false identity
You should also beware of advance fee loan scams, where you're asked to hand over money to get a promised loan. Under the FTC Telemarketing Sales Rule, no one can legitimately ask you to pay until you actually receive a loan or credit. So be skeptical of any debt consolidation loan, get all the details in writing, and don't give your credit card, bank account or Social Security information over the phone or on the Internet.
The best 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
It's a good idea to report unscrupulous tactics of any credit counseling services to the consumer protection division of your state Attorney General. You can also file a complaint by calling the FTC Consumer Response Center toll-free at 1-877-FTC-HELP (382-4357) or filling out the FTC Consumer Complaint Form.
Once you've signed on with a credit counseling agency, it's important to check regularly with your creditors to make sure your payments are reaching them.
And taking advantage of the educational programs offered by credit counseling agencies can keep you from backsliding once you've begun working your way out of debt.
Questions for Your Attorney
- Can you recommend a reputable credit counseling agency other clients have used?
- At what point should I contact a credit counselor?
- Is it possible to get my money back if I realize the credit counselor is trying to scam me?