Double Crossed By Debt Counselors

More Complaints Against Debt Counselors

The Federal Trade Commission has noticed a growing number of consumer complaints -- more than 8,000 -- against companies who bill themselves as credit counselors or debt managers but do little to improve their clients' situation and often even bilk them out of money.

"We have seen the number of complaints rise in the past few years, which is why we've taken a particular interest," said Jeanne-Marie Burke, staff attorney with the FTC.

The Better Business Bureau has noticed a similar trend. Complaints to the bureau about credit service companies grew more than 700 percent between 1999 and 2003, with a significant jump in complaints during the last two years. Some of this stems from consumers' own out-of-control spending habits.

"More people are using credit counselors," said Sheila Adkins of the BBB. "America has a lot of debt, and there's been a lot of unemployment and more people are looking for help."

But that doesn't excuse companies for taking advantage of their debt-ridden clients, Adkins said. Both the FTC and the Better Business Bureau have taken steps to remedy the problems surrounding credit counseling and debt management. Both have targeted offending organizations and begun educating consumers about the dangers of entrusting their finances to fraudulent organizations.

To qualify as a nonprofit credit counselor, an organization is required to teach customers about their finances and how to handle debt in the future. If necessary, a payment plan can be designed to help the client pay down debt, but not before the client undergoes the educational counseling.

Credit counselors are different from "debt management" or "debt settlement" companies, which are only obligated to help customers pay off their debt. This is usually accomplished with some variation of the plan Christina used -- customers send the debt management firm a monthly lump sum, and the firm distributes payments to various creditors.

Both credit counselors and debt managers have faced legal questions in recent years.

AmeriDebt Sued by FTC

In 2003, the FTC filed suit against AmeriDebt Inc., a Maryland-based organization that billed itself as a nonprofit credit counselor and had roughly 60,000 clients. The FTC charged that rather than operating a nonprofit charity, AmeriDebt shunned the educational counseling services and instead enrolled customers directly into a debt management plan.