Abuses of Non-Profit Debt Relief Companies

With medical and credit card debt reaching an all-time high, the importance of debt relief solutions for consumers has come to a critical juncture. With Americans increasing need for debt relief, it has become important that quality services are readily available for consumers to turn to. As the credit counseling industry has grown, so too has the number of agencies that lack the credentials or the good intentions to offer quality programs that actually help consumers. Cuts in creditor funding has only exacerbated this trend, as many agencies either lack the funds necessary to offer adequate services or turn to charging consumers high fees to help cover their expenses. In other instances, the growing need for credit counseling services has attracted new entrants that intentionally abuse their position to turn a hefty profit. The purpose of this article is to address the tactics of the “bad actors” in the debt relief industry, so consumers are aware of what to watch out for prior to enrolling in their programs.

The four most common abuses by credit counseling agencies are the following: deceptive and misleading practices, excessive costs, exploitation of non-profit status, and a lack of educational resources to help prevent consumers from becoming overextended in the first place.

Deceptive and Misleading Practices: Some credit counseling agencies, despite what they lead consumers to believe, fail to make timely payments, or worse yet, do not pay the creditor at all. In other situations, some credit counseling agencies have deliberately mislead consumers about the degree to which credit card companies are willing to lower their interest rates. Once enrolled, a consumer for the first time may learn that the zero percent interest they were promised is actually going to be 9 percent.

Excessive Fees: Some less scrupulous credit counseling agencies will keep the entire first payment for themselves. On top of this, many charge monthly maintenance fees based on the number of accounts in enrolled in the program.

Exploiting Non-Profit Status: Some agencies have manipulated their non-profit status to avoid taxes even though they charged mandatory fees beyond what is necessary to cover their expenses. Others have used their non-profit status to avoid regulatory issues with telemarketing. Many of these agencies aggressively marketed and solicited their debt management services without providing financial educational resources, which is required of all non-profit debt relief organizations.

Lack of Educational Resources: One of the most critical aspects that many legitimate credit counseling agencies focus on is providing educational resources to help consumers learn about the proper way to manage debt and credit issues. Today some rogue credit counseling agencies are charging fees for these hitherto free resources.