Some critics claim that credit counseling is biased toward creditors. Even the Internal Revenue Service has claimed that credit counseling provides private benefit to creditors.
Some credit counseling agencies are more concerned with their own bottom line than yours. With all of these revelations, how do you decide which agency to contact? Also, how can you trust them to represent you?
The Internal Revenue Service has long battled nonprofit organizations that it says aren’t doing enough to help educate consumers. Sometimes it has been successful, while other times losing challenges.
Indeed, creditors once held board positions at CCCS agencies (members of National Foundation for Consumer Credit), thereby exerting influence and control. However, these practices were changed following an antitrust lawsuit in which creditors agreed to fund non-NFCC agencies. Their employees also resigned from these nonprofit boards.
Who Benefits?
The purpose of credit counseling is to provide a neutral, third-party counselor to represent both you the debtor and the creditor. Their role is to be a liaison as you try to repay your debt.
You agree to make a scheduled monthly payment and to receive educational counseling from the agency. Your participating creditors agree to provide benefits to ease repayment of the debt, including reduced finance charges, eliminated late fees and lower minimum payments. Benefits depend on the creditor and are extended at each creditor’s sole discretion.
An agency that truly maintains neutral status and serves to educate you on all of your options will have a good reputation in the community it serves. Its current clients will recommend it to friends who are in debt. They will not necessarily need to rely on extensive paid marketing to get the word out.
A reputable agency will likely maintain a satisfactory or highest rating with the Better Business Bureau. Check to ensure that the agency is a BBB Accredited Business. This means that they are free from an unusual pattern of complaints.
The easiest sign is the counselor’s experience and demeanor. Are they knowledgeable? Are they pressuring you to choose a specific outcome, such as a debt management plan? Are they really a debt settlement company or bankruptcy attorney trying to sell debt relief?
One of the best ways to tell if a credit counseling organization is there for your benefit is to find out what is the background and training that your credit counselor received. They should have a college degree from an accredited university or college. They should be certified or accredited as a credit counselor and possibly even as a financial counselor.
Most credit counseling agencies hire inferior personnel that receive sales training rather than complex counseling training. If you don’t feel confident in your counselor’s abilities or motivation, then the agency is likely a bad apple. Remember that each employee is a representation of what that agency believes in.
Do credit counseling agencies receive payments from creditors? Yes they do. For true nonprofit organizations, this “fair share” revenue allows them to offset agency expenses, provide additional out of the box programs (such as volunteer income tax assistance) and minimize the fees they charge you. Higher fee agencies often do not receive substantial creditors assistance, and most are actually for-profit.
When choosing a credit counseling agency,
- make sure the agency is reputable, and
- make sure the counselor is experienced and neutral.
Vision Credit Education, Inc. is one of only a handful of credit counseling agencies that recently received Internal Revenue Service approval for tax-exempt nonprofit status as a credit counseling organization using the new stricter guidelines. Make sure that the agency you select has been given this seal of approval as a 501(c)(3) nonprofit agency.
