Consumer Credit Counseling is a debt advice “charity”, and is funded entirely by the credit industry.
The stated purpose of the organization is to assist people who are in financial difficulty by providing a free consultation (sales pitch) and debt management plans to assist individuals with managing unsecured debts.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer.
A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor.
DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client.
Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
The “non-profit” company receives around 10% voluntary monthly contributions from creditors for the debt recovery services provided.
Does this sound like a program that has your best interests in mind? After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges.
The most comment “benefit” of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer.
This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own.
Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is the actual reality.
The second feature of a DMP is a reduction in interest rates charged by creditors.
A customer with a defaulted credit card account will often be paying an interest rate approaching 30%.
Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether.
This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.
A third “benefit” offered by credit counseling agencies is the process of bringing delinquent accounts current.
This is often called "reaging" an account.
This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program.
After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status.
Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus.
It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports.
It should also be considered that an enrollment into a CCC program appears as a managed account on a consumers credit report, having the negative impact of financial irresponsibility.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly.
This sharp increase of credit counseling activity created serious issues in the industry.
By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed.
This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors.
This fee income, known as “Fair Share” are contributions from the creditors that earn the agency up to 15% of the amount recovered.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency.
The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions.
The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies.
Those 30 credit counseling agencies account for more than half of the industry's revenue.
Audits of non-profit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them.
The IRS apparently agrees.
The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
Check out these links for further details about fraudulent CCC practices: http://www.
ftc.
gov/opa/2004/03/credittestimony.
htm http://www.
consumeraffairs.
com/debt_counsel/ http://www.
cbsnews.
com/stories/2002/12/19/eveningnews/main533702.
shtml [http://www.
consumerfed.
org/releases2.
cfm?filename=040903ccreport.
txt] In closing, I would like to say: BUYER BEWARE! When seeking a company for debt relief, find one that is going to fight for you and have your best interests at heart.
NOT a company whose roots come from the people you’re in debt to.
The stated purpose of the organization is to assist people who are in financial difficulty by providing a free consultation (sales pitch) and debt management plans to assist individuals with managing unsecured debts.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer.
A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor.
DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client.
Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
The “non-profit” company receives around 10% voluntary monthly contributions from creditors for the debt recovery services provided.
Does this sound like a program that has your best interests in mind? After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges.
The most comment “benefit” of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer.
This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own.
Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is the actual reality.
The second feature of a DMP is a reduction in interest rates charged by creditors.
A customer with a defaulted credit card account will often be paying an interest rate approaching 30%.
Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether.
This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.
A third “benefit” offered by credit counseling agencies is the process of bringing delinquent accounts current.
This is often called "reaging" an account.
This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program.
After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status.
Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus.
It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports.
It should also be considered that an enrollment into a CCC program appears as a managed account on a consumers credit report, having the negative impact of financial irresponsibility.
In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly.
This sharp increase of credit counseling activity created serious issues in the industry.
By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry.
A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed.
This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors.
This fee income, known as “Fair Share” are contributions from the creditors that earn the agency up to 15% of the amount recovered.
The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency.
The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions.
The Better Business Bureau also reports high complaint levels about credit counseling.
The IRS also has weighed in on the subject of credit counseling, and has denied nonprofit 501(c)(3) tax-exempt status to around 30 of the nation's 1000 credit counseling agencies.
Those 30 credit counseling agencies account for more than half of the industry's revenue.
Audits of non-profit credit counseling agencies by the IRS are ongoing.
The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them.
The IRS apparently agrees.
The tax exempt revocations seem to be centered around whether a tax exempt credit counselor actually performed their mandated mission by assisting the community at large, other than their whole attention to their own DMP customers in a "collection practice" (no one knows for sure however).
Congress has also investigated the credit counseling industry, and issued a report that said while some agencies are ethical, others charge excessive fees and provide poor service to consumers.
Check out these links for further details about fraudulent CCC practices: http://www.
ftc.
gov/opa/2004/03/credittestimony.
htm http://www.
consumeraffairs.
com/debt_counsel/ http://www.
cbsnews.
com/stories/2002/12/19/eveningnews/main533702.
shtml [http://www.
consumerfed.
org/releases2.
cfm?filename=040903ccreport.
txt] In closing, I would like to say: BUYER BEWARE! When seeking a company for debt relief, find one that is going to fight for you and have your best interests at heart.
NOT a company whose roots come from the people you’re in debt to.
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