Not all non-profit credit counselors are out to help you

[MORTARDUDE]

Not all non-profit credit counselors are out to help you
USA TODAY

October 21, 2003,


Sandra Block


Some of history's greatest scams have been perpetrated by con artists masquerading as philanthropists. So it should come as no great surprise that some of these sweet-talking rascals have infiltrated the credit-counseling industry, a business that attracts people who desperately need help.

Many credit-counseling agencies promote themselves as "non-profit organizations," a fuzzy-sounding term that evokes images of soup kitchens and animal rescue shelters. But in an advisory last week, federal and state regulators warned that some of these agencies aren't as benevolent as they seem. Instead, they may be using non-profit status to evade consumer protection laws and take advantage of trusting consumers.

To qualify for non-profit status, agencies are supposed to offer education and counseling services. But some agencies are more interested in hustling clients into debt-management plans, which are more lucrative, regulators say.

In a typical debt-management plan, the client agrees to pay the agency a certain amount of money every month, which it uses to pay bills. In return, credit card companies may waive late fees or lower the client's interest rate. Credit card companies typically give the agency a percentage of the amount repaid.

Critics of these so-called debt mills say they pressure clients to sign up for plans, even if they don't need them. Worse, some fail to pay bills on time, triggering penalties.

The IRS has launched an audit of some credit-counseling agencies to determine whether they're legitimate non-profits, and it says new agencies seeking non-profit status will undergo a tougher review.

Legitimate credit-counseling agencies hope the scrutiny will weed out bad actors that have tarnished their business. But they also worry that the attention will dissuade people with serious debt problems from getting the help they need.

Protecting yourself

Many credit-counseling agencies provide a valuable service. If you're struggling with debt, a reputable agency can help you get your life back. But because the industry is largely unregulated, you need to watch your back. Talk with several agencies before selecting one, suggests Lydia Sermons-Ward of the National Foundation for Credit Counseling, a trade group. Other safeguards:

* Don't let your guard down just because an agency says it's a non-profit organization.

While non-profit status suggests a credit counselor has your best interest at heart, "That's not always true," says Travis Plunkett, legislative director for the Consumer Federation of America. "There are some very good credit-counseling agencies, and some very bad ones, and non-profit status has nothing to do with it."

* Be wary of "voluntary" contributions and high monthly service charges that can inflate your debt.

High fees will reduce the amount available to pay your bills. Before signing up for a debt-management plan, ask for a written statement describing all fees.

* Avoid agencies that claim they can get you out of debt quickly, or say they can slash the interest rate on your credit cards.

Credit card companies, not counseling agencies, determine the interest rate, and many creditors don't lower rates as much as they did in the past, Plunkett says.

* Before signing with an agency, make sure your creditors are willing to work with that organization.

Once you start a payment plan, check with your creditors to make sure the counseling agency is paying your bills on time. Otherwise, you could get smacked with late fees and penalties.

* Contact the Better Business Bureau to see if the agency has been the target of complaints.

You may also want to ask the agency if it belongs to the Association of Independent Consumer Credit Counseling Agencies, www.aiccca.org, or the National Foundation for Credit Counseling, www.nfcc.org.

Both groups require members to abide by specific standards and limit the amount of fees they can charge.