FTC Testimony about Credit Counseling Abuses

Paying bills is never an easy task. It becomes even more difficult when a person finds himself in unfavorable situations due to illness, loss of the job, failure of business etc. Credit counseling agencies are meant to assist consumers who are facing problem with that by providing them with better education and assistance in financial management. The FTC has testified that although some credit counseling services do their job as they should, many use unfair practices to mislead the consumer as to who they are, what they do and how much their services are going to cost. Not only do they charge high fees as hidden charges and the so-called mandatory voluntary donations, they also misused the non-profit status in order to win over the trust of the consumer as well as to take advantage of tax exemptions. It is suspected that many non-profit agencies are many fronts used to funnel finances to their several for profit affiliates.

Instead of considering all possible methods in order to help the customer deal this debt such as credit education, financial advice and budgeting many credit counseling services indiscriminately into the consumer in debt management plan in order to fund their own requirements in the form of the commission is that they receive from the creditors on the money recovered which is commonly known as fair share.

There have also been complaints of deception, unfair practices about the services offered, poor implementation and management of debt management plans and undisclosed charges associated with debt management plans.

It is believed that the FTC’s greatest concern about the unfair practices being conducted by certain credit counseling agencies is about the true nature of the costs involved in providing the service to other consumer.

It is possible that the credit counseling agency made deliberately delay the payments to a creditor or not payment all causing severe damage to the credit report of the consumer. The first few initial payments that the consumer assumes is going to as the creditor when he has enrolled himself in a debt management plan may go solely into the pockets of the credit counseling agency.

For consumers who are facing a dire situation a credit counseling service may also make tall promises of performing recovery tactics that under the umbrella of the law will be illegal. Promising to remove negative information from the credit report and consequently charging a higher fee for performing such a service is also a feature of one of the deceptive practices used by an ethical credit counseling agencies.

The credit counseling agencies that enjoys the status of a non-profit organization is also meant to comply with the FTC is Telemarketing Sales Rule which includes the National Do Not Call Registry.

“The commission has pursued a rigorous programme to halt fraud and deception by those who purport to be able to solve consumers financial difficulties”. According to FTC commissioner Thomas Leary (2006). The testimony listed several commission actions including a November 2003 lawsuit against a AmeriDebt a large Maryland-based credit counseling agency. It was alleged that while this credit counseling organization promotes itself as a non-profit and a completely free service they in fact regained the first payment is that the consumer makes towards a debt management plan as a fee for their own service without due notification and clarity of this system being presented before the consumer. In addition to AmeriDebt litigation Leary explains that the FTC is law enforcement efforts currently include several non-public investigations of credit counseling agencies. The commission’s testimony also mentions of February 2004 lawsuit against two debt negotiation companies (Innovative Systems Technology, Inc, and Debt Resolutions Specialists, Inc), September 2002 lawsuit against another debt negotiation company, Jubilee Financial Services Inc,.

 

The Federal Trade Commission and the internal revenue service have joined hands in combating fraudulent and scams or credit counseling services. They have also issued certain joint guidelines for consumers who were looking for a credit counseling agency to assist them with a debt situation.

The consumer should pay careful attention to the fee structure of the services being provided. Terms and conditions including the payment and the charges should be put down in a written contract which should be read carefully before signing.

The credit counseling agency should be willing to work with all your creditors and not just the one with which they have a fair share of treatment. Conversely, the credit counseling service should be of enough reliability and repute so that all your creditors are also willing to work with them.

Avoid the credit counseling agencies that offer one solution fits all in the form of debt management plans. It is a fact that many consumers can manage their debt just by the help of ample credit education and financial management. The legitimate credit counseling services provide both financial education and budgeting helped to the consumer.