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Credit counseling agencies have an incentive to get you to pay your debts
The recently passed Bankruptcy Abuse and Consumer Protection Act requires anyone who files for personal bankruptcy to first consult with a credit counseling agency. This law was intended to help people overcome their past financial problems and learn to be financially responsible. That’s a great idea, but so far there are a lot of problems with it. To date, the US Trustees department has approved very few agencies and consumers are required to meet with approved agencies only. Those agencies that have been approved don’t yet have enough staff to handle the large amount of business that will come their way. And worse, there may be a conflict of interest between your counselor and your creditors.
Some counseling agencies are for-profit and others are nonprofit. But both of them have to pay their employees, their rent and their utilities. For that, they need money. That money comes from you, in the form of monthly fees. What many people don’t know, and what has many politicians and lawyers concerned, is that the counseling agencies also get money from your creditors. When you negotiate to repay your debts through a credit counselor, your creditors, such as credit card companies, pay a portion of the repaid debt to the counseling agencies as a fee. This fee, which can amount to 12-15% of the amount you repay, gives the counselor an incentive to help you get out of debt and on the surface, that seems like a good idea. The problem with that, however, is that while it may not always be in your best interests to repay your debts, it is always in your counselors’ interest to have you repay.
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