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A respected credit counseling agency will help you setup a repayment program in your creditors and coach you on better money management strategies to avoid debt in the foreseeable future. But some consumer credit counseling services exploit people who are financially vulnerable, so proceed cautiously.

The Federal Trade Commission Act discourages “unfair or deceptive acts or practices” of credit restoration, debt settlement or counseling agencies. Some states have laws that make it illegal for credit service organizations to assert to be able to improve credit scoring.

And in some states, credit counseling services must register with the state Attorney General’s office and acquire a surety bond to do business.

Voluntary Certification and Accreditation

The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that creates voluntary requirements for credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit advice programs that meet NFCC standards.

To become accredited by the NFCC, a credit guidance agency should be accepted as non-profit by the IRS and possess the proper local business licenses. To earn NFCC certification, a credit counseling program must also use adequate checks and balances to defend consumers, including:

• Auditing operating and trust accounts every year
• Offering consumer education programs
• Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt
• Disbursing funds to creditors at least twice a month, or sooner in emergencies
• Giving clients a financial statement at least once every three months

The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is the one other national organization with similar standards.

You might want to think twice before joining a consumer credit counseling agency that doesn’t participate in either of these voluntary organizations.

Warning Signs

What should tip you off that you might be handling a less-than-reputable program?

Be cautious about illegal fees, sometimes disguised as contributions. In the event the setup fees or monthly charges have become high, they might eliminate any gain you might have made against reduced finance charges, and you would bemore well off negotiating directly with the creditors.

Another danger signal might be outrageous statements to instantly repair your consumer credit rating. Credit rebuilding is really a gradual process, and it’s illegal to try to improve your credit rating by constructing a brand new, false identity.

It’s also wise to beware of advance fee loan scams, where you’re asked to fork over money to secure a promised loan. Underneath the FTC’s Telemarketing Sales Rule, no one can legitimately ask that you pay before you actually obtain a loan or credit. So be skeptical of any debt consolidation reduction loan, get everything in writing, and don’t give your card, bank-account or Social Security information on the telephone or on the net.

Educate Yourself

The simplest way to protect yourself against unscrupulous credit counselors is to:

• Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business
• Confirm with your creditors ahead of time that they will work with that particular company
• Understand exactly what services are offered, and whether those services address all of your debts
• Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program
• Get all promises in writing
• Read your written agreement carefully

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