Seven Shocking Facts about Consumer Credit Counseling

By

Joe Volin

Arizona Bankruptcy Attorney

As an Arizona Bankruptcy Attorney, I meet many people overwhelmed with consumer debt who desperately want to pay their bills.  The problem is: they don't have enough money to make the regular payments.  The cause is almost always something that they did not, and probably could not, plan for.  The typical causes of the financial problems are job lost, medical problems, and divorce.  It is not unusual for the person I am meeting with to have attempted paying their bills through a credit counselor.  It is safe to say they would not be meeting with an Arizona Bankruptcy Attorney if the payment plan set up by the Consumer Credit Counseling organization was working successfully.  Many of the payment plans are unrealistic and unworkable.  The payment plans also ruin credit. My clients wonder why a non-profit organization would advise them to attempt such an unrealistic program.  In this article I discuss some of the shocking facts about credit counseling.  Learn the facts before you accept a creditor counselor's assumption that bankruptcy is not a good option. 

1.         Consumer Credit Counseling works 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.         Consumer Credit Counseling is 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.”  Can you expect to get impartial advice about filing bankruptcy from a collection agency?

 3.         Consumer Credit Counseling's 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.         Consumer Credit Counseling 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, than filing bankruptcy in Arizona.  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 this 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 Consumer Credit Counseling Services 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 filing bankruptcy in Arizona than 3 years after entering a payment plan with Consumer Credit Counseling Services.  The reason is simple.  Immediately after an Arizona bankruptcy filing, which typically only takes a few months, you can start rebuilding your credit.  When you are in a repayment plan with Consumer Credit Counseling Services 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 Consumer Credit Counseling Services will cause to your credit report will haunt you for seven years after you complete the Consumer Credit Counseling Services program.  Consumer Credit Counseling Services likes to call filing bankruptcy the “10 year mistake.”  Maybe Consumer Credit Counseling Services should call their own program the “twelve year mistake.”

 7.         Consumer Credit Counseling's 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?

You’re Invited to Call or E-mail Arizona Bankruptcy Attorney Joe Volin!

If you have questions about Arizona bankruptcy -- and whether it’s the right choice for you -- you’re invited to call me.  I’ll gladly speak with you on the telephone without cost or obligation.

Important Note:  Congress could enact the new bankruptcy law any day.  And if lawmakers attach an emergency provision, the new bankruptcy law could go into effect immediately.  So please don’t delay. 

John Joseph Volin, P.C.
 Arizona Bankruptcy Attorneys