For People on Debt Management Plans:
A Must-Do List
December 2005
Reputable credit counseling organizations employ
counselors who are certified and trained in
consumer credit, money and debt management, and
budgeting. Those organizations that are nonprofit
have a legal obligation to provide education and
counseling.
But not all credit counseling organizations
provide these services. Some charge high fees, not
all of which are disclosed, or urge you to make
“voluntary” contributions that can cause you to
fall deeper into debt. Many claim that a debt
management plan is your only option before they
spend time reviewing your financial situation,
and offer little or no consumer education and
counseling. Others misrepresent their nonprofit
status or fraudulently obtained nonprofit status by
misrepresenting their business practices to regulators.
The Federal Trade Commission (FTC), the
nation’s consumer protection agency, and some state
Attorneys General have sued several companies that
called themselves credit counseling organizations.
The FTC and the states said these companies
deceived consumers about the cost, nature, and
benefits of the services they offered; some companies
even lied about their nonprofit status. Several of
these companies are now going out of business.
Similar companies also may be shutting their doors,
even though they haven’t been sued by the FTC or
the states. That could be of special concern if you
have a debt management plan with one of these
companies.
Must-Dos for Anyone
With A DMP
Organizations that advertise credit counseling
often arrange for consumers to pay debts through
a debt management plan (DMP). In a DMP, you
deposit money each month with a credit counseling
organization. The organization uses these deposits
to pay your credit card bills, student loans, medical
bills, or other unsecured debts according to a
payment schedule they’ve worked out with you and
your creditors. Creditors may agree to lower interest
rates or waive certain fees if