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Seven Shocking Facts about Consumer
Credit
Counseling
By
Attorney Joe Volin
1. They
work for your creditors, not for you. A former Assistant Attorney
General for the state of Texas had this to say about Consumer Credit
Counseling Services:
“I think that consumer credit counseling service
is intrinsically deceptive. They're funded or incorporated by the
very people they are truly representing… not the consumer/debtor but
the creditors trying to collect the money. I think they're a con;
they pitch themselves as serving the consumer's best interest but they
don't. Their promotions practices are deceptive and the consumers are
being grossly misled. If they were lawyers, they'd get disbarred!
Representing one-party and acting for the other? Come on! Think
about it! If lawyers won't get involved in an enterprise like
Consumer Credit Counseling, you know it must be bad.”
2. They are paid by the credit
industry to “help” you pay creditors. Your creditor counselor is
being paid by the credit card companies. Interestingly enough, this
is not a well kept secret. Information from the National Foundation
for Credit Counselors reveals that up to 15 percent of each payment
collected is paid to the Consumer Credit Counseling Services office.
Although they describe this payment as a contribution from the
creditor, in reality, it is a commission. The National Foundation for
Credit Counselors materials state: “The
majority of our funding comes from voluntary contributions from
creditors who participate in our Debt Management Plans.”
3. Their nonprofit status does not
mean they are not making money at your expense. Consumer Credit
Counseling Services makes a point of describing themselves as a
nonprofit organization. Most consumers probably don't realize that
nonprofit businesses operate to make a profit. Rather than
distributing earnings to stockholders as dividends, the profits are
paid out to the employees and officers as salary or bonuses. They
make money, and a lot of it! For example, Consumer Credit Counseling
Services in the Greater Dallas area reportedly collected $103 million
dollars in one year alone. Most hospitals are nonprofit organizations
also. A company's nonprofit status has nothing to do with whether or
not they are motivated to make money. As reported in the Washington
Post, of the Office of the Corporation Counsel said: “Consumers should
not let down their guard just because a credit-counseling agency calls
itself nonprofit. It is easy to set up a nonprofit counseling agency
and use the counselors to sell the services of a related for-profit
company.”
4. They often cannot reduce interest
charges on credit accounts. Many people are convinced that the
organization also has the ability to have finance charges reduced or
waived. Information from a Consumer Credit Counseling Service web
site makes it clear that they cannot always do this. In fact, the
majority of creditors will not waive finance charges.
5. Consumer Credit Counseling will
ruin your credit. What about your credit? The credit industry
wants you to know that filing a bankruptcy can adversely affect your
credit. The fact is, participating in their program can be just as
bad, or even worse, then a bankruptcy. An important overlooked fact
is that you would not file a bankruptcy or participate in a Consumer
Credit Counseling Services program unless you already had serious
credit problems. Anyone who participates in a repayment plan through
CCCS will have that fact reported on their credit. You can expect all
of your credit accounts to be closed, and you can expect to have a
very difficult time opening any new accounts. The result is pretty
much the same as a bankruptcy, except a bankruptcy doesn’t cost as
much or last as long. Joining one of the CCCS repayment programs
often results in lower credit scores than if you filed a bankruptcy.
Here is what David Butler, in his article The Complete Guide to
Understanding Credit Ratings & Credit Reports, says about
Consumer Credit Counseling:
"If you ever want to get a mortgage again in
the next 7 years, avoid turning your debts over to Consumer Credit
Counseling Services or any other debt management service. There used
to be a time when this program really made sense, and it still ought
to - but now most lenders won't touch you until the CCCS is off of
your credit report. You're almost better off doing a Chapter 13
bankruptcy, if you want to start getting credit reestablished anytime
in the next 7 years."
6. Your credit rating is most likely BETTER 2 years
after discharging your debts than 3 years after entering a payment
plan with Consumer Credit Counseling Services. The reason is
simple. Immediately after a bankruptcy, which typically only takes a
few months, you can start rebuilding your credit. When you are in a
repayment plan with CCCS you won’t be able to do much of anything to
reestablish your credit until the typical four to five year payment
plan is completed. Even worse, the derogatory information that CCCS
will cause to your credit report will haunt you for seven years after
you complete the CCCS program. CCCS likes to call bankruptcy the “10
year mistake.” Maybe they should call their own program the “twelve
year mistake.”
7. Their stated goal is to help your
creditors. The National Foundation for Credit Counselors, the
organization that most Consumer Credit Counseling Services locations
belong to makes their mission clear. Their literature states: “NFCC
is committed to developing, promoting and maintaining successful
relationships with creditors. At NFCC we work with creditors - one by
one - to develop policies to make your customer plans successful. Our
nonprofit network of more than 1,300 locations returns close to $5
billion to creditors every year. NFCC member agencies help your
customers avoid bankruptcy.” The bottom line is simple. The more you
pay … the more Consumer Credit Counseling Services makes. Whose side
do you think they are on?
Joe Volin
Attorney at Law
480-820-0800
or 1-800-750-0200
joe@volinlaw.com
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