‘Credit’ sharks want to take a bite of you

Saul Schwartz of the School of Public Policy and Administration comments on the credit-counselling industry.

Byline: Meredith Macleod
Publication: Hamilton Spectator
Date: Thursday November 19th, 2009

Buyer beware applies just as much to credit counselling as it does to all the purchases that landed you in financial trouble in the first place.

Henrietta Ross, executive director of Grimsby-based Ontario Association of Credit Counselling Services, says many organizations claiming to offer counselling are in fact debt consolidators or bankruptcy officers. She’s heard of for-profit credit agencies charging $1,500 for a consolidation or payment plan.

“Creditable organizations don’t charge exorbitant fees,” she says.
Ross, whose association certifies and accredits nonprofit credit counsellors and represents about 70 per cent of the sector, says there is no quick way to fix financial foul-ups. If an agency doesn’t examine a consumer’s habits, help with budgeting or offer long-term financial education, its mission isn’t counselling.

“They imply to the consumer that they can magically eliminate debt. Consumers … don’t know the mandate is do consumer proposals and bankruptcies.”

Another red flag: If someone tells you they can have negative information removed from your credit history, run. If the information is accurate, no one can wipe it out.

Ross says many consumers don’t know counselling is an option. A credit counsellor can negotiate with creditors, come up with a debt-management plan and pay lenders directly. The hit to a person’s credit rating isn’t as severe as bankruptcy, but equal to a consumer proposal.

Doug Welbanks, a 35-year veteran of nonprofit credit counselling, also worries about vulnerable people getting bad advice.

“Credit counselling has become an industry, and people struggling have become a meal ticket.”

Often, debt-consolidation or debt-management plans are unaffordable, and Welbanks, ex-director of British Columbia’s debtor assistance and debt collection, says credit counselling should not be based on profit, but be neutral, unbiased, honest and aimed at getting people immediate and long-term aid. “A lot of what’s out there is not getting at causes or roots.
But bad or indifferent advice can ruin these people’s lives.”

Saul Schwartz, a professor of public policy and administration at Carleton University, urges the federal government to regulate the credit-counselling industry.

“There is no oversight or regulation … anybody can hang out a shingle or take out an ad and call themselves a credit counsellor.”

Instead, Schwartz says there should be a government agency that consumers can call to get unbiased and independent advice.

“Right now, anyone in serious debt problems is on their own.”

While the bankruptcy system is overseen by a federal agency, and licensed trustees are required to give free advice and lay out options during an initial meeting, the fact is they have a vested interest in consumers declaring bankruptcy, says Schwartz. They are also obligated to maximize returns to creditors.

Credit counsellors get paid through debt-consolidation or  debt-management plans. They negotiate to lower interest and stretch out payment terms, collect monthly payments from consumers, and divide that among creditors.

They collect a chunk, too, says Schwartz. As much as 24 per cent.

Many for-profit agencies don’t offer even a pretense of education. Some do little (or nothing) a consumer couldn’t do for themselves, and charge huge fees for it. Cases have been prosecuted in the U.S. where no money went to creditors at all.

Even some nonprofits are questionable, he says. Some are affiliated with American companies that make tiny donations, and then call themselves nonprofits.

“The big ones spend a lot of money on advertising, promise to eliminate debt and don’t disclose their fees clearly. Many run 24/7 phone lines.

“The problem is people simply don’t shop around for these types of services. They are desperate and up against a wall.”

mmacleod@thespec.com