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The Current State of the Credit Counseling Industry, a message from our President, Joanne Budde |
As you may be aware, the credit counseling industry has recently come under much scrutiny. The Federal Trade Commission, the IRS, and a Senate Subcommittee are conducting investigations into debt management business practices. Several states have filed lawsuits or issued cease and desist orders against a number of debt consolidation organizations and debt settlement firms. Most recently, Consumer Credit Counseling Service of Utah closed its doors, after the state Division of Consumer Protection received complaints that payments were not being sent to creditors in a timely manner.
BALANCE has been supporting the goals of credit unions and their members since 1995. Through our partnerships with credit unions, we provide free comprehensive financial education and counseling to thousands of individuals and families each month. Our counseling is outcome-oriented, focused on providing options to members for reaching their financial goals. While a debt repayment plan may be an option, we offer it only when appropriate, and as only one of several available choices for getting out of debt. If a member chooses to participate in the debt management plan, all services are provided at no charge - thanks to the sponsorship and support of our credit union partners.
Our debt management plan is administered by our parent organization, Consumer Credit Counseling Service of San Francisco, a 501 (c)3 public benefit organization. CCCS-SF has been providing education and counseling services to the community as well as administering debt repayment plans for 35 years. We are accredited by the Council on Accreditation of Services for Families and Children, Inc., a member in good standing of the National Foundation for Credit Counseling (NFCC), and ascribe to quality standards including counselor certification, quality assurance, and an annual independent audits.
These other organizations are under investigation because they do not provide real counseling- instead, they promise "debt relief in 20 minutes or less". Frequently, they keep the first month's payment - that should be going to the creditors - as their fee. Not only is this fee exorbitant to a financially struggling member, but it also causes him to become one more month delinquent on all his obligations. Many states have laws that regulate how much can be charged for debt management services, and these high fees violate those laws. These companies get around state law by calling the fee a "contribution," but not disclosing to the consumer that this "contribution" is voluntary.
Many of the newer debt consolidation firms sell their clients' names to sub-prime lenders for marketing expensive loan products. Others provide debt settlement services that cause the consumer to fall delinquent- often without his knowledge- in an effort to persuade creditors to accept a 50% settlement. Collection activity during this time frequently pushes the member to bankruptcy. Many engage in high- pressure sales tactics, cold calling with "pre-approved" offers, or daily email spam. Because their counselors are paid a commission for every debt management plan started, as many as 90% of all callers are enrolled, whether it's in their best interest or not. Frequently these companies force their clients to buy other products - credit reports, credit monitoring services, books, education kits on money management- that may cost as much as $500.
We applaud the investigations and legislation enacted to regulate these activities. BALANCE has been the trusted financial advisor to credit union members for nearly ten years. We don't- and won't- charge your members for any service (with the exception of an optional credit report provided at (or below) our cost). We guard the privacy of your members closely and will never sell or share their names or personal information with another source. If you have any questions or concerns about the state of the financial counseling industry and the role BALANCE plays in it, please do not hesitate to contact me.
Sincerely,
Joanne Budde
President
800-808-4327, Ext 107
jbudde@balancepro.org