Facts About Consumer Credit Counseling Services
Will a Debt Management Plan Get Me Out of Debt?
Nov 13, 2008
CCCS was Born of Good Intentions
The original intention of CCCS firms was simple and direct:
- Counsel the consumer about the dangers of too much debt and provide information to support the consumer in reducing or eliminating their debt.
- Work with creditors on a fair share fee basis in the creation and management of a Debt Management Plan organized to retire the debt in under three years, avoiding the long-term damage of bankruptcy. (Plans now run as long as six years.)
- Educate the consumer to prepare them to return to the credit market with a better understanding of how the system works.
- Advocate the importance of debt awareness or financial literacy in a preventative way to the general borrowing community.
How CCCS Works to Manage Your Debt
Historically, the banks provided a 15% fair share payment to the CCCS operators for handling the accounts of those debtors seeking a Debt Management Plan. You would pay minimal fees each month to service your account, something on the order of $5.00 per card per month. To you, the CCCS plan seemed nearly free. But, the fee was really hidden in the agreement between the CCCS provider and the bank, in much the same way an insurance agent is paid by the insurance company. The CCCS provider was given its fair share of the money they handled for the benefit of the bank. With those fair share fees, the CCCS operators were supposed to provide debt management services – the DMP – as well as financial literacy education. It was a noble idea, but it has turned out to be a costly plan for the bank – and for you, the consumer.
Bankruptcy Data Undermines the Value of CCCS
In the last seven years, despite admirable objectives, over 10 million people filed for bankruptcy. CCCS ultimately has not provided the kind of help millions needed. Currently there are over nine million people in various kinds of nonprofit and for-profit CCCS programs hoping not to meet a similar fate. The primary problem with CCCS methodology is ironically its primary asset; CCCS providers endeavor to help you pay back your full balance. With the de-regulation of banking in the late 1990’s and the wanton marketing of credit with very little underwriting, debt has ballooned to unmanageable levels for millions of Americans.
In May 2006, the Internal Revenue Service began revoking the licenses of dozens of nonprofit CCCS companies because they failed to meet the standards set by the federal government for tax-exempt status. Why? They were deemed to not be providing financial literacy education in the public interest. Simply put, they were judged to be profit-making businesses for the purpose of providing Debt Management Plans with little or no counseling.
As CCCS has migrated from debt management plans to debt relief services many consumers have become confused about debt settlement and other debt relief services. Consumer Credit Counseling should be considered if your good credit is an important asset and you have the financial strength left to pay 100 percent of your debt.
There are two major credit counseling associations that provide comprehensive information about the services of their members.
- National Foundation for Credit Counseling
- Association of Independent Consumer Credit Counseling Agencies
