Credit Counseling Business Making Headlines

Consumer advocacy groups are facing off with credit counseling agencies as a result of a Utah case in which at least $60,000 allegedly went missing from a trust fund set up to pay participating consumers' debts.

In late March, the Consumer Credit Counseling Service of Utah was shut down temporarily by the Utah Division of Consumer Protection. Checks written on the trust account had been bouncing since January and many clients' bills went unpaid. The president of the service claimed that the money was not missing and that the mix-up was a result of changing banks. Weeks before the shutdown, however, the agency had its certification from the National Foundation for Credit Counseling (NFCC) pulled after it failed to answer audit questions.

The investigation is ongoing. But in the meantime, the scandal has touched off conversations about reform of the industry. The national consumer advocacy group Consumers for Responsible Credit Solutions issued a warning to consumers that advice commonly given to debtors to seek organizations with nonprofit status or NFCC certification - may not be valid advice since Utah fit both those requirements. The group suggested consumers ask whether a counseling service is funded by consumers or creditors.

From the creditor's point of view, the Coalition for Responsible Credit Practices, an organization made up of counseling organizations, says it would like to see two things happen to solve possible scandals like what happened in Utah. The coalition wants national standards to replace the 50 state laws it says are wasteful and ineffective. It says a national law would allow agencies to spend more time on counseling and less on sorting through 50 different laws. The coalition also called for more involvement by businesses. It says many of the state laws restrict credit counseling to tax-exempt status and that opening it up to competition would allow consumers more choices.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 4, 7/05