The way to Spot a Phony Credit Counseling Program
A good credit guidance agency will assist you to create a repayment program using your creditors and educate you on better money management strategies to avoid debt down the road. But some credit advice services exploit people who are usually financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act discourages “unfair or deceptive acts or practices” of fixing credit, debt consolidation or counseling agencies. Some states have got laws that make it illegal for credit service organizations to say to be able to improve credit scoring.
And in some states, credit counseling services must register with the state Attorney General’s office and have 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 sets voluntary standards for consumer credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit advice packages that meet NFCC standards.
To be accredited by the NFCC, a credit guidance agency must be acknowledged as non-profit by the IRS and also have the proper local business licenses. To earn NFCC certification, a consumer credit counseling program must also use adequate constraints 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 the one other national organization with similar standards.
You have to think one more time before signing up with a credit advice agency that does not participate in either of these voluntary organizations.
Warning Signs
What should tip you off that you could be dealing with a less-than-reputable program?
Watch out for illegal fees, sometimes disguised as contributions. If your setup fees or monthly charges are incredibly high, they might obliterate any gain you may have made against reduced finance charges, and you’d bemore well off negotiating directly with the creditors.
Another warning sign is often outrageous claims to instantly repair your consumer credit rating. Credit rebuilding is really a gradual process, and it is illegal to try to make positive changes to credit rating 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 acquire a promised loan. Underneath the FTC’s Telemarketing Sales Rule, no one can legitimately ask that you pay before you actually receive a loan or credit. So be skeptical of any debt consolidation loan, get all the details on paper, and don’t give your credit card, bank-account or Social Security information on the telephone or online.
Educate Yourself
The most effective 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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