X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON-The majority of Americans admit they know little about credit counseling, particularly those who are most vulnerable to abuse. According to a new survey, commissioned by Consumer Federation of America and InCharge Institute of Americar, less than one-quarter (24%) know a “great deal” or “something” about credit counseling agencies. Consumers of low- to moderate-income, who tend to pay the most for credit and are most vulnerable to abuses, are most ignorant about credit counseling services. Of those with incomes under $25,000, just 18% said they knew a great deal or something about the agencies. “The potential vulnerability of these uninformed consumers to fraud and abuse is a serious concern because credit counseling is the major institutional alternative to bankruptcy,” said CFA Legislative Director Travis Plunkett. “It is also a concern because pending legislation in Congress would mandate that consumers receive a credit counseling consultation before they are allowed to file for bankruptcy.” CFA’s news release asserted that some of the nation’s largest credit counseling agencies have come under scrutiny for deceptive practices, improper advice, excessive fees and abuse of non-profit status, as more Americans are seeking their assistance. “Despite the fact that consumer demand for counseling and other forms of debt assistance appears to be growing, a strikingly high percentage of Americans say that they know very little or nothing about credit counseling agencies,” CFA Executive Director Stephen Brobeck said. “Given the recent problems that we’ve seen with some players in the industry, this lack of awareness leaves many consumers vulnerable to abuse.” InCharge Institute President and CEO Robert Barrett added, “This lack of consumer knowledge reinforces the continued need for educational outreach to all consumers, especially those who are unaware of an alternative to bankruptcy. Advertising the availability of these services is essential to inform consumers of choices in the market.” Additionally, those who were knowledgeable about these services said that they were useful in helping people pay off large credit card debts (86%), providing information on credit and debt management (86%), and teaching effective money management (84%). Most respondents who had used consumer credit counseling services, or whose family had, found the services useful: 77% for paying down consumer debts, 65% for increasing knowledge about credit and debt management, and 58% for effective financial management. In addition to providing fixed payment plans, consumers also want credit counselors to provide actual counseling and have less association with their for-profit firms, as well as charge modest fees. Fifty-eight percent said they opposed credit counseling agencies “being closely associated with a for-profit company,” and two-thirds complained of “little or no education and counseling, only fixed payment plans.” Regarding fees charged for the services, 84% said they favor fee caps and 93% said they support a requirement to clearly disclose all fees. Half favored a restriction on the agency keeping the first month’s payment as a fee. Sixty percent said they deemed a $25 monthly fee reasonable while 37% said they would consider a $50 fee reasonable. Eighty percent of consumers said lenders should not charge extra interest on the debts of consumers who enter credit counseling. CFA and InCharge stated that most credit card issuers continue to charge interest rates of 10-20% during counseling and some do not reduce the rate at all. According to InCharge Institute, their average voluntary contribution is $24 and 18% of customers don’t pay a dime. CFA and InCharge Institute offered sweeping recommendations for reform of the credit counseling industry. While there are many legitimate credit counseling agencies, the groups recognized, the abuses in the industry are so common that changes must be made to laws and their enforcement. CFA and InCharge recommended that: 1. The Internal Revenue Service should continue and broaden examination of non-profit credit counseling organizations and sanction agencies that are abusing their non-profit status. State charity regulators should consider similar investigations. 2. States and/or Congress should enact meaningful new laws to restrict credit counseling abuses. The laws should include prohibiting misleading advertising and fees, require better disclosures of fees, and give consumers three days to cancel an agreement, among other things, and be as uniform as possible to enable effective compliance by agencies that operate across state borders. 3. Credit counseling trade associations should set and enforce “best practices” to eliminate abuses and to encourage the provision of better education and counseling. 4. Creditors should increase financial support to legitimate credit counseling agencies, reverse the trend of reducing the concessions offered to consumers entering debt management plans, and reduce the interest rates to consumers in credit counseling. Additionally, creditors should halt doing business with agencies that charge high fees, operate as virtual for-profit organizations, and/or use deceptive or misleading practices, as well as those companies that function strictly as debt management service providers. “Improved operating procedures by organizations is essential; and there is a need for industry groups to set a high bar for standards and insist on enforcement among their members,” InCharge’s Barrett concluded. The Opinion Research Corporation International conducted the survey of 2,030 adult Americans from Nov. 13 to 17. InCharge is a national non-profit organization specializing in personal finance education and credit counseling and includes InCharger Institute Foundation for Personal Finance Education and Research, Inc. which publishes YOUNG MONEY r magazine and Military Money magazine and Profina Debt Solutions, a provider of credit counseling and education services. [email protected]

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?

 

Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times
Live Chat

Copyright © 2022 ALM Media Properties, LLC. All Rights Reserved.