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Agricultural Communications
Texas A&M University
Writer: Linda Anderson, (979) 862-1460,lw-anderson@tamu.edu
Contact: Nancy Granovsky, (979) 845-3850,n-granovsky@tamu.edu
COLLEGE STATION – Despite all the money problems
solved on all those television commercials, some credit counseling
services don't always deliver, said Nancy Granovsky, Texas Cooperative
Extension family economics specialist.
"In an unusual joint advisory, the Federal
Trade Commission, the Internal Revenue Service and state regulators
have issued a consumer alert to those seeking assistance from
tax-exempt credit counseling organizations," Granovsky said.
"They advise consumers to be cautions when choosing a credit
counseling organization."
A new study conducted by the National Consumer
Law Center and the Consumer Federation of America has shown that
although many reputable credit counseling services are available,
some less-reliable credit counseling services do more harm than
good, she said.
"Many credit counseling organizations provide
valuable service, but state and federal agencies are receiving
an increasing number of complaints, suggesting that some organizations
are engaging in questionable activities."
According to the study, titled Credit Counseling
in Crisis, "the newest generation of credit-counseling agencies,
unlike the previous generation of creditor-funded counseling services,
often harm debtors with improper advice, deceptive and misleading
practices, excessive fees and abuse of their non-profit status,"
Granovsky said.
The report found:
- About 9 million Americans each year have some
kind of contact with credit counseling agencies;
- Better Business Bureau data shows complaints
about these agencies increased from 261 in 1998 to 1,480 in 2002;
- About 1.6 million Americans declared personal
bankruptcy in 2003;
- Credit card debt is approaching $700 billion.
Lower- and moderate-income people – including
the elderly, students, unemployed and disabled workers, new immigrants
and others on the economic edge – are more likely to be adversely
affected by economic hard times than those with higher incomes,
Granovsky said. In fact, during the early and mid-1990s, people
with below poverty-level incomes more than doubled their credit
card debt, she added.
Because so many people have been affected by the
current economic downturn, advertisements from credit counseling
agencies can sound hopeful, Granovsky said. But unfortunately,
these agencies have faced some changes too.
The study found that many of these credit counseling
agencies – including traditional agencies – have cut
back on their educational services, she said. These included financial
and budget counseling, community education and debt management
plans.
This decrease means more consumers, who are no
longer receiving information as to their financial options, are
dropping out of counseling and declaring bankruptcy.
But as the old saying goes, drastic times –
and that includes hard economic times – call for drastic
measures. Consumer counseling from reputable agencies can sometimes
provide the way out of a bad financial situation.
However, Granovsky advised consumers who are thinking
about contacting a credit counseling agency to watch carefully
for these "red flags," as listed in the report:
- High fees: As a general rule, set-up fees for
debt management plans should be no more than $50 and monthly fees
should be no more than $25. And if agency representatives insist
on giving vague answers to questions about fees, use another agency.
- "Voluntary" fees that are mandatory:
If fees aren't affordable – and aren't as voluntary as they
are claimed to be – go somewhere else.
- Hard sell: If the telephone salesman reads from
a script and pushes debt "savings" or possible future
"consolidation" loans, hang up.
- Commission sales: Credit counseling agencies
should be non-profit agencies working for their clients' best
interests. Sales personnel who are working on commission often
have their own paychecks in mind, rather than the clients'.
- The "20 minute" test: To be effective,
counseling sessions usually take between 30 and 90 minutes. A
debt management plan offered in less than 20 minutes means the
agency's representative hasn't spent enough time with the client
– or his/her finances.
- One size fits all: Some clients need debt management
plans; some don't. Some clients need financial classes or budget
counseling; some don't. But one plan never fits everyone's needs.
If an agency only offers one service, go elsewhere.
- Work together: Make sure the credit counseling
agency chosen is the one the affected creditors will work with.
- Aggressive advertising: When choosing a credit
counseling agency, don't go by advertising alone. Talk to family
and friends, and find out which agencies have complaints filed
against them. Above all, shop around. Visit several agencies before
making a decision.
Always carefully read through any written agreement
from a credit counseling agency before signing on the dotted line.
These agreements "should describe in detail the services
to be performed, the payment terms for these services – including
their total cost – how long it will take to achieve results,
any guarantees offered and the organization's business name and
address," Granovsky said.
Also, make sure creditors are willing to work with
the chosen credit counseling agency and check with the appropriate
state agencies and the local Better Business Bureau to learn about
specific agencies' records.
For more information, Granovsky recommended visiting
the Web sites:
- www.ftc.gov - Federal Trade Commission; link
to www.ftc.gov/bcp/conline/pubs/credit/kneedeep.htm for a publication
called "Knee Deep in Debt," and www.ftc.gov/bcp/conline/pubs/credit/fiscal.htm
for publication on "Fiscal Fitness: Choosing a Credit Counselor";
- www.irs.gov/charities for information from the
IRS on which organizations are tax-exempt;
- www.nasconet.org for a list of state charity
official offices.
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