Swindles Concerning Credit Counseling
A respected credit guidance agency will let you set up a repayment program in your creditors and coach you on better money management techniques to avoid debt later on. However, many credit guidance services exploit people who tend to be financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act prohibits “unfair or deceptive acts or practices” of fixing credit, debt consolidation or counseling agencies. Some states have laws that make it illegal for credit service organizations to claim to be able to improve credit ratings.
And in some states, credit guidance 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 specifications for consumer credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 consumer credit counseling programs that meet NFCC standards.
To become 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 advice program must also use adequate constraints to defend 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 might want to think hard before signing up with a credit counseling agency that doesn’t belong to either of these voluntary organizations.
Warning Signs
What should tip you off that you might be handling a less-than-reputable program?
Be cautious about illegal fees, sometimes disguised as contributions. When the setup fees or monthly charges are incredibly high, they will eliminate any gain you might have made against reduced finance charges, and you’d bebetter off negotiating directly with your creditors.
Another danger signal might be outrageous statements to instantly repair your credit ratings. Credit rebuilding is a gradual process, and it’s illegal to attempt to make positive changes to credit ranking by constructing a brand new, false identity.
It’s also advisable to watch out for advance fee loan scams, where you’re asked to fork over money to obtain a promised loan. Under the FTC’s Telemarketing Sales Rule, there is no-one to legitimately ask you to pay until you actually get a loan or credit. So be skeptical of any debt consolidation reduction loan, get all the details in writing, and do not give your bank card, banking account or Social Security information on the phone or on the web.
Educate Yourself
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
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