By Michael Scher
April 23, 2008
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|Counseling: Non-Profit Credit Counseling Services; Friend or Foe?|
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Debt management, credit counseling, financial education and debt reduction are all terms used by good, bad, for-profit and non-profit credit counseling services.
For-profit credit counseling services typically target consumers with debt problems through an onslaught of late night TV ads promising to negotiate with creditors and slash their monthly payments by large percentages.
By comparison, non-profit credit counseling services do offer debt repayment plans and negotiations with creditors, but also offer a wide variety of financial education classes for consumers. The classes on offer are a condition of maintaining a tax-exempt status for many non-profits.
Non-Profit Credit Counseling Standards
The National Foundation for Credit Counseling is a non-profit foundation located in Silver Spring, Md. According to Senior Public Relations Director Gail Cunningham, the foundation accredits its member agencies through a third-party accreditation service in order to insure its members maintain the highest standards.
Image courtesy of Money Management International.
According to Cunningham the foundation, which has about 100 nationwide member agencies, recommends that beyond the foundation’s seal-of-approval consumers educate themselves as much as possible about credit counseling services.
“It’s incumbent on the consumer to do his homework,” Cunningham said. “They should check with the Better Business Bureau and their states Attorney Generals Office before using a credit counseling service.”
Cunningham said the Foundation has its members reevaluated every four years by the Council on Accreditation, which also accredits other types of non-for-profits like hospitals.
Cunningham said part of the accreditation and membership process requires member agencies, all of which are non-profits, to provide customers with financial education services.
“If the service doesn’t have an education program I would advise the consumer to keep shopping,” she said.
According to the foundation’s Web site, the only company that is an accredited member in the Washington, D.C. area is Consumer Credit Counseling Services of Greater Washington. According to Greater Washington CEO, Joanne Kerstetter, the company operates about a dozen satellite offices that provide walk-in counseling and financial education programs in the D.C. metropolitan area.
Kerstetter has been at the helm of the company for almost 30 years and said that right now consumers are in the midst of the “perfect storm” in terms of their financial situation. In the past six months her company has seen a rise in delinquencies, bankruptcies and mortgage foreclosures for many of its customers because of the current economic downturn and credit crisis in the U.S.
Kerstetter said one of the most difficult situations that came through her door in recent memory was a family that had a child diagnosed with Leukemia and almost ended up in financial ruin. She said that when the family found out about their daughter, they shut down their home business for almost 60 days out of fear and exasperation.
“They let bills stack up and credit cards go unpaid,” Kerstetter said.
Greater Washington was able to help the family turn their financial situation around, Kerstetter said, by providing them with debt management and budgeting help.
Kerstetter said she often sees situations like this where a consumer encounters a big problem and ends up with financial hardships because of it. Ultimately, she said these consumers end up with debt problems because they don’t pay bills, mortgages and credit cards because they can’t see past what has happened.
“What bothers me is that most consumers will do this,” she said. “They’ll worry day and night for 60 days and let their financial health slip.”
Overall, Kerstetter said she wishes people don’t think about turning to someone for help at day 60, but at day one. The earlier a consumer comes for help the easier it is to fix the problem she said.
Are the NFCC and CCCS as good as they seem?
Non-profits, like the NFCC and Greater Washington, are regulated by the government. The Federal Trade Commission is responsible for bringing legal action against any credit counseling service that violates federal laws.
Non profits, because of their tax exempt status, are also regulated by the Internal Revenue Service. Every year non profits like the NFCC and Greater Washington, which are considered educational non-profits, are required to file a form with the IRS known as a 990. The 990 contains information ranging from yearly revenue and expenses, to executive compensation.
Data collected from the 2006 form 990 of the NFCC revealed that the Foundation paid out grants ranging from about $10 to about $350,000 to 80 of its member agencies. According to the 990, these grants were for the purpose of supporting educational programs given to the public that in most cases were free of charge.
Additionally, independent analysis of these 80 company’s Better Business Bureau files showed that nearly all had a satisfactory standing with the BBB. A satisfactory standing with the Bureau means a company complied with BBB charity guidelines and consumer interaction guidelines. The few NFCC members that didn’t have a satisfactory standing were because their files were incomplete, meaning the Bureau needed more information from the company before it would rate them.
An examination of Greater Washington’s 990 showed that prior to 2005 it was part of a merged entity which consisted of two other non-profits in different states. These other non-profits were Consumer Credit Counseling Service of Greater Fort Worth, headquartered in Fort Worth, Texas and Consumer Credit Counseling Service of Inland Northwest, located in Spokane, Wash.
Kerstetter said that the number one issue confronting non profits is getting funding for their operations. By merging, she said, they are able to share revenues, technology and the strategies that work best. Kerstetter said the synergy that came from the merger enabled Greater Washington to help more people. The next year Greater Washington’s consumer base rose by 12 percent.
This success was part of the reason for Greater Washington, along with Greater Fort Worth and Inland Northwest to merge in 2005 with Money Management International Kerstetter said.
According to Money Management’s 2006 form 990 and website it is the largest non-profit credit counseling service in the United States. Money Management operates nationwide telephone and internet hotlines as well as traditional offices, usually under the Consumer Credit Counseling Service name.
According to its 2005 form 990 the company had revenues of about $67 million. The 2006 filing revealed that after its merger with Greater Washington, Fort Worth and Inland Northwest, revenue rose to nearly $80 million.
According to the 2005 990s form for Greater Washington, Fort Worth and Inland Northwest, prior to merging with Money Management, paid their CEOs between $160,000 and $52,000. Kerstetter said that over the past couple of years her compensation has remained pretty constant.
Kerstetter also said that because of the merger, Greater Washington no longer files its own 990. Instead they file as part of Money Management’s 990. As part of its 990 filing Money Management is only required to report the pay of its five highest paid employees in addition to its CEO and of its board of directors. These additional five people may or may not include the pay of managers at its regional affiliates in 2007 and beyond.
Money Management International has Trouble in California
In 2007 the state of California won an injunction against Money Management for operating in the state without a valid license. According to documents obtained from the California Corporations Commission, Money Management could not obtain a California license because it violated California non profit law which requires non profit credit counseling agencies that have debt management plans to not charge user fees above $35. Money Management also failed to file its financial data on time with California.
According to its 2006 form 990, Money Management charged a $75 set up fee and a monthly administration fee of $40. However the company does waive these fees for consumers who cannot afford them, a fact which Kerstetter confirmed and said happens in many cases when the consumer asks.
Money Managements 990 also confirms this, “Fees are reduced or waived in cases of an individual’s inability to pay based upon their annual income in relation to the Federal Poverty Guidelines.”
California’s legal action against Money Management led the Better Business Bureau to revoke Money Managements membership, along with Greater Washington’s as well as other Money Management affiliates because the failure to file financial statements with California violated Bureau charity accountability guidelines.
Despite this Money Management’s website said it is “qualified to do business in all 50 states.”
Does this Mean don’t Trust Non-Profit Credit Counseling Services?
In 2003 the FTC settled out of court with AmeriDebt for $35 million. According to Frank Dorman, a spokesman for the FTC, AmeriDebt deceived consumers by telling them it was a non-profit corporation that provided real credit counseling education, when in fact it did not.
“AmeriDebt funneled profits to affiliated for-profit entities and individuals,” Dorman said.
Dorman also said the commission has prosecuted more than a dozen similar companies, none of which were non-profit corporations. Additionally the FTC, banks and credit score agencies, like Transunion, don’t recommend using companies that make outlandish promises.
Stephen Katz, a spokesman for Transunion said that while Transunion does not directly advise consumers on selecting a credit counseling service, it does recognize that there are many scrupulous firms in existence.
“Less scrupulous organizations…may attempt to present falsified documentation or try to flood the credit reporting companies with correspondence in an attempt to improperly force removal of items from a consumer report,” Katz said.
According to Cunningham and the published guidelines for NFCC membership, NFCC members do not offer any services like those described by Katz or make any promises for such things.
Ronald Campbell, of the Orange County Register, contributed to the 990 reporting in this article.
Things to Know When Using a Credit Counseling Service
Having your debts settled or reduced does not effect your credit score directly, however credit card companies, banks and other creditors will often have a consumers credit report marked as having settled an account for less than what was owed. This does effect whether or not you can open new lines of credit.
The FTC maintains a list of guidelines at its website for selecting a service
Its always a good idea to check with your local Better Business Bureau and States Attorney Generals office before using any credit counseling service
If you are feel you have been deceived by any credit counseling service, for-profit or non-profit file you can file a complaint with the FTC or your local Better Business Bureau
A non-profit credit counseling service by law cannot refuse you counseling services as long as you can demonstrate financial hardship in accordance with the Federal Poverty Guidelines.