Credit Repair: Self Help May Be Best

Non-Profits and So-Called Help

The “nonprofits” are the ones the FTC is currently targeting, since they obtained that status to avoid being bound by the Credit Repair Organizations Act. Such immunity precludes them from having to comply with certain disclosure and other consumer protection requirements. Not only is the FTC going after many nonprofits, but the IRS is also unlikely to grant 501(c)(3) (nonprofit) status to credit repair companies. In fact, it hasn’t granted the status to any credit repair organization since April 2003 and has actually revoked the status of four of them, with more being targeted for revocation. Debra J. Kawecki, an IRS attorney, told the Association of Independent Consumer Credit Counseling Agencies in July 2005 that the nonprofits are being shut down for deceptive and fraudulent practices, including high fees, high pressure tactics, and inadequate educational services.² Unfortunately, this hurts legitimate companies as well as consumers.

I’ve tested some of the nonprofits to see for myself what they’re hawking. On June 3, 2004, I contacted 1800creditcarddebt.com (aka 800creditcarddebt.com) as directed by a link on the AmeriDebt Web site, which says: “Unfortunately, AmeriDebt is no longer accepting new clients. However, if you are looking to get help with your debt, you may want to consider 800CreditCardDebt.com.”

The customer service rep I spoke with informed me that the company had two programs to choose from—debt consolidation and debt settlement. He explained that debt consolidation would roll all my debts into one and reduce my interest rate, not to exceed 9 percent, while debt settlement would permit the company to negotiate with creditors on my behalf, and I would end up paying 75 cents on the dollar. He said that the company would pay creditors whatever it could negotiate and then keep the rest of the money. (In other words, if the company negotiates 65 cents on the dollar, it keeps the 10 cents.) He said, “The debt settlement will hurt your credit, but don’t worry, because we’re going to set you up with a credit repair program afterward, and they’ll get all of that removed.” When I asked more about the credit repair program and how much it costs, he told me it’s out-sourced to a law firm. When I asked which law firm, he refused to answer and then was evasive, giving me a bunch of double talk.

But there was a lot of bunk in the whole conversation, especially when I asked him to provide a copy of the contract and he refused, saying that I had to fill out several forms and agree to go into the program before a contract would be provided. Then he actually claimed he didn’t have a copy of the contract! After a great deal of smooth talking, he realized that I wouldn’t join without seeing the contract, so he relented. The contract indicated the company’s true name: Debt Set, Inc. I get e-mails all the time from people who claim they’ve been hurt by this company.

As I’ve said, the “nonprofits” are often the worst—contrary to what some may tell you. But I’ve yet to discover one debt consolidation/credit counseling organization that’s on the level, nonprofit or otherwise. I can’t recommend them for any reason. Creditors often have their own credit counseling and debt repayment plans. Accounts are often reported to the bureaus as such and will likely cause you to be denied.

Recently a young lady who was attending a local college told me that her finance teacher was advising students who were in financial trouble to seek out nonprofit debt consolidation organizations. Unfortunately, this teacher is seriously misinformed, and it’s a shame that impressionable minds will soak up such dubious advice. [Also See FTC's charges and settlement against National Consumer Council, Debt Management Foundation Services, and Better Budget Financial Services.]

2. Caroline E. Mayer, “IRS Revokes Tax Exempt Status of 4 Credit Counseling Agencies,” Washington Post, July 17, 2005, A10.