A reputable credit guidance agency will help you set up a repayment program along with your creditors and teach you better money management techniques to avoid debt in the future. But some consumer credit counseling services take advantage of people who are usually financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act prohibits “unfair or deceptive acts or practices” of credit restoration, debt settlement or counseling agencies. Some states have laws that make it illegal for credit service organizations to claim to be able to improve credit scoring.
Plus, in some states, consumer credit counseling services must register with the state Attorney General’s office and get a surety bond to work.
Voluntary Certification and Accreditation
The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that creates voluntary standards for credit guidance agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit counseling programs that meet NFCC standards.
For being accredited by the NFCC, a consumer credit counseling agency must be acknowledged as non-profit by the IRS and possess the proper local business licenses. To earn NFCC certification, a credit guidance program must use adequate checks and balances to shield 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 an additional national organization with similar standards.
You need to think hard before joining a consumer credit counseling agency that does not participate in either of these voluntary organizations.
Warning Signs
What should tip you off that you may be dealing with a less-than-reputable program?
Look for illegal fees, sometimes disguised as contributions. In the event the setup fees or monthly charges have become high, they will get rid of any gain you could have made against reduced finance charges, and you’d bemore well off negotiating directly with your creditors.
Another danger signal is usually outrageous claims to instantly repair your consumer credit rating. Credit rebuilding is a gradual process, and it’s illegal to try and change your credit ratings by constructing a new, 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, there’s no-one to legitimately ask you to pay until you actually get a loan or credit. So be skeptical of any consolidation loan, get all the details on paper, and do not give your bank card, banking account or Social Security information over the phone or on the internet.
Educate Yourself
The simplest 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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