Debt Collection and Non-Profit Credit Counseling Agencies

There are many people that are curious to know how credit counseling agencies earn their money. Well they make some of it by charging a fee to you for their services, and it is crucial for you to have all of that information in writing prior to signing anything. Although this is how credit counseling agencies earn their money, the fact is, that this fee is not generally sufficient to bring in a large revenue.

So the credit counseling agencies get most of their compensation from the creditors to whom the debt payments are administered. This financial support relationship has resulted in many people thinking that credit counseling companies are simply a collections wing of the creditors.

This fee profit, known as "Fair Share," consists of contributions from the creditors that in the beginning earned the agency 15% of the amount recovered. Nevertheless, in recent years, Fair Share shares have dwindled steadily, with contributions of 4-10% generally being the most common.

There is however, some criticism, when it comes to credit counseling companies and their effectiveness as well as legality. The Federal Trade Commission (FTC) has lodged lawsuits against various credit counseling companies, and they proceed to recommend caution to consumers when it comes to selecting a credit counseling company.

It may be hard to believe but the FTC has obtained over 8,000 complaints from consumers about suspicious credit counselors. Several of these complaints relate to either high or hidden fees. The BBB has also received numerous complaints.

And the IRS also has their view of credit agencies and has refused non-profit, tax-free status to approximately thirty of the nation's 1,000 credit counseling companies. Those thirty offices report for more than half of the industry's profit. Audits of non-profit credit counseling companies by the IRS are in progress.

The lobby against credit counselors developed from the opinion by the collection industry that the non-profit status of the credit agencies affords them an unfair financial advantage over them. The IRS evidently agrees.

U.S. Congress has as well looked into the credit counseling industry and has published a study that states that although a few agencies are ethical, others charge extravagant fees and offer second-rate service to customers. The study likewise says that NFCC member guidelines, if applied to the total industry, would continue towards eliminating the abuses they have exposed in additional sections of the industry.

So it is very important when you are looking for a credit counseling agency to be thorough in your research and find one that you are going to feel comfortable with and that you feel they will deal with you honestly and fairly.