What to Check for When Looking at Credit CounselingDecember 20th, 2010 | Posted by in Uncategorized
An established credit counseling agency can assist you set up a repayment program with your creditors and show you better money management procedures to avoid debt in the foreseeable future. But some credit counseling services exploit people who are financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act prohibits “unfair or deceptive acts or practices” of credit improvement, debt negotiation or counseling agencies. Some states have got laws that make it illegal for credit service organizations to claim to be able to improve credit ratings.
And in some states, consumer credit counseling services must register with the state Attorney General’s office and acquire 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 principles for consumer credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit guidance programs that meet NFCC standards.
For being accredited by the NFCC, a consumer credit counseling agency should be recognized as non-profit by the IRS and have the proper local business licenses. To earn NFCC certification, a consumer credit counseling program should also use adequate controls to safeguard 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 another national organization with similar standards.
You should think twice before signing up with a credit guidance agency that doesn’t belong to either of these voluntary organizations.
What should tip you off that you may be handling a less-than-reputable program?
Look out for illegal fees, sometimes disguised as contributions. In the event the setup fees or monthly charges are very high, they will obliterate any gain you may have made against reduced finance charges, and you’d bebetter off negotiating directly with your creditors.
Another danger sign might be outrageous claims to instantly repair your consumer credit rating. Credit rebuilding is a gradual process, and it’s illegal to try and make positive changes to history of credit by constructing a brand new, false identity.
You should also stay away from advance fee loan scams, where you’re asked to fork over money to secure a promised loan. Underneath the FTC’s Telemarketing Sales Rule, there’s no-one to legitimately ask you to pay until you actually receive a loan or credit. So be skeptical of any debt consolidation loan, get every detail on paper, and don’t give your bank card, bank-account or Social Security information over the phone or online.
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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