|
By Richard Burnett, The Orlando
Sentinel, Fla. Knight Ridder/Tribune Business News
Apr. 9 - Credit counseling, once the domain of charitable nonprofits,
has been enveloped in controversy in recent years as big business
has come to dominate the landscape.
Some major players have been accused of bilking
clients. Others have been accused of masquerading as nonprofits
while amassing treasure troves of cash for investors. Litigation
has ensued. Congress has investigated.
In Florida, complaints about credit counseling
are now the third-largest category of consumer grievances, state
officials say. Some cases turn out to be actual rip-offs; others
are more the result of apparent mistakes by the company or the
consumer involved.
Now the Florida Legislature is considering a law
that would: place caps on counseling service fees; require annual
audits that would be available to the public; and require prompt
payment -- within 30 days -- of clients' bills.
If the law passes, Florida would join more than
two dozen other states that have enacted similar measures. It
has gained support from traditional credit-counseling agencies
and some influential Republican leaders, including Rep. Adam Hasner,
R-Delray Beach, a co-sponsor and candidate for House speaker.
"We're hearing far too many stories of people
being thrown further into financial disarray by some of these
services' unscrupulous practices," said Rep.
Bob Allen, R-Merritt Island, a co-sponsor of the
House bill. "We're trying to put enough restrictions in place
to assure people that they are dealing with reputable, nonprofit
firms."
Traditional credit-counseling agencies still tout
themselves as the most affordable assistance. But a host of new
firms, both nonprofit and for-profit, has appeared in recent years,
claiming to offer better service and easier relief from debt.
As a result, it is tougher than ever for people facing debt problems
to wade through the barrage of options available these days.
Wayne Watt of Apopka thought he had found a good
deal when he signed up with a company called Express Consolidation
Inc. of Delray Beach.
Wrestling with $30,000 in debt, Watt said he hired
Express almost two years ago to help manage his payments. The
company advertises throughout Florida and has a positive track
record with the Better Business Bureau of Southeast Florida.
Watt said the company did, in fact, negotiate lower
interest rates with his creditors, and he eventually was able
to cut his debt in half.
Months after hiring the company, however, Watt
was dumbfounded when late notices started arriving in the mail
from his credit-card companies.
Watt said he was surprised to learn Express had
kept his first payment and didn't even send it to his creditors.
Also, he said they apparently bungled some of his subsequent payments,
making him delinquent on his accounts.
"Bank of America had me as late seven times,
and Discover Card, about the same number," he said. "I
think the credit-counseling company knows they screwed up and
they said they'll help me. But I'm between a rock and hard place
now, and my credit is ruined."
Express Consolidation said it had processed all
of Watt's money on time, within days after receiving his payments.
They also said Watt was told in the initial agreement he signed
that his first payment of about $630 would be held as a deposit.
"Our records show his payments were disbursed
on average at least four days after we received the cleared funds,"
said Randall Leshin, president of Express Consolidation. "The
fact is we have no control over how the creditors post the payments
or how they report them to the credit-reporting agencies."
Such conflicts have often marred the credit-counseling
business in recent years, said Sean C. Stafford, a Tallahassee
lobbyist working in support of the reforms.
In too many cases, profit-minded players have led
consumers into deals that include huge up-front fees, he said.
"If this law passes, it would set some strict
standards and help clean up the industry by giving the state authority
to take action against unscrupulous individuals," said Stafford,
who represents Consumer Credit Counseling Services Inc., a statewide
group of affiliated nonprofit agencies, supported by United Way
funds. "We think you'd see a mass exodus of the unsavory,
predatory services."
But not everyone is so enamored with the proposed
law. Some consumer advocates said the fee caps could still allow
companies to gouge their cash-strapped customers.
Specifically, they oppose the provision that would
cap monthly debt-processing fees at $25 or 7.5 percent of what
a consumer owes, whichever is greater. If, for example, a person
owed a total of $500 a month, the firm could charge an additional
$37.50, or $450 a year. The deeper the debt, the higher the cost.
"We have a real problem with that," said
Deanne Loonin, a staff lawyer with the National Consumer Law Center,
a consumer-advocacy group based in Boston. "Fees are one
of the biggest problems in this business, and this version does
little about that. Most state laws have stronger limits."
Others opposed the fee caps for a different reason.
The measure would provide an unfair advantage for
those agencies that get financial support from charities, such
as the United Way, or the government, said Russell H. Klenet,
a Tallahassee lobbyist for the Association of Independent Credit
Counseling Agencies, based in Fairfax, Va.
"The nonprofits I represent do not have access
to those outside funds to help offset operating costs. Essentially,
we would be put at unfair disadvantage," said Klenet, who
has tried unsuccessfully to get the cap raised.
The United Way-supported agencies argue that Klenet's
group distorts the facts.
They say they receive only about 20 percent of
total budget revenues from charitable and government sources,
and that money is dedicated to specific services.
And they say traditional nonprofit agencies sometimes
work for free, or charge minimal fees -- practices seldom seen
in the credit-counseling firms that have proliferated in recent
years.
"There is a difference," said Ed Rawa,
chief executive officer of Orlando-based Consumer Credit Counseling
Services of Central Florida Inc. "We don't have sales quotas
or investors who reap dividends from sales growth."
More
Debt News
|
