There are two camps on credit counselling. Those that trust in it, and the increasing movement that are critical of how it is structured. In this blog post we will look at what credit counselling is, and how it works.
I’m not opposed to credit counselling services but I tend to lean more towards the critical camp; the services a good debt settlement company offer will by far trump the debt help services of credit counseling.
The only time I would refer someone to a credit counselor, is if they had less than $7,500 in debt and needed a break on the interest.
Several studies and media reports have raised questions about the ethics of credit counselling. The recurring issue with credit counselors is the notion that they appear to be a kinder, and slightly more friendlier collection agency for the credit card companies.
Lets take a look at some recent media and studies on non-profit credit counselling.
- Business reporter Francine Kopun for the Toronto Star reported this story in February 2013 on the largest non-profit Canadian credit counseling company: Consolidated Credit Counseling Services of Canada operates without certified counsellors
- In a Consumers Affairs funded a 257 page report of the credit counselling industry they found concerns, for example: “poorly trained credit counsellors and the conflict of interest “non profit” credit counsellors have because they are funded by credit grantors.”
- In a 43 page study by the Public Interest Advocacy Centre the PIAC considers: “it of deep concern that none of the provincial legislation currently in place addresses the relationship between non-profit CCCAs and major creditors. Credit counsellors that operate as “non-profit” are funded by various credit grantors – such as banks, credit card companies and department stores; who also control their Boards of Directors. This relationship represents a clear conflict of interest. The creditor’s effective decision-making control over nonprofit CCCAs (who rely on them for funding), makes it unclear as to who’s interest the credit counsellor is truly representing. Consumers need to approach these non-profit CCCAs with a healthy dose of skepticism and an eye to ensuring that they are getting the best advice for their particular financial circumstances.”
- In another 37 page study by Osgoode Hall Law School, they also studied the role of the Canadian Credit Counselling Industry. On page 32 they concluded the following: they receive a percentage of whatever the debtors’ pay to the creditors, generally on the order of 20%. From the debtors, they ask for about 10% of the monthly payment made to the creditors. After reading this paper its clear the origins of credit counselling had good intentions, yet that seems to have changed: “Over time, the nature of the industry has changed dramatically. In its early years, the CCA were community-based, government-funded not-for-profits. In recent years, they have become freefloating enterprises, needing only a call center and a website to carry on their work with debtors. Competition has intensified, especially in the Greater Toronto Area, but also across Canada through the internet. The competition has led to advertising expenditures in the millions of dollars for the larger CCA.” Wow, so at one time credit counsellors were actually funded by the government, and not creditors. That seemed like a better idea. The conclusion goes on to state four ways that credit counsellors might be violating rules: “misrepresenting what they do, not complying with their fiduciary duties, not complying with the rules surrounding not-for-profit status, and acting as collection agencies without being licensed to do so. Ascertaining whether any CCA are in violation of existing rules would take some time and require action by a variety of regulatory agencies.”
Credit counselling services have a long history in Canada dating back to the 1930’s. In theory it was a good concept because government helped to pay for the service for those that needed it.
However when government cut back in the late 1980’s and early 1990’s on funding a void needed to be filled to pay the bills for the services.
Can you guess who stepped up to the plate?
If you guessed credit card companies, you are correct. Nearly 70% of funding for credit counselling comes from the credit card companies you owe.
So are there problems with non-profit credit counsellors and do they appear to have a conflict of interest? It would seem so.
Let me ask this question: How can a service provider claim that they are there to help you with your debt you when they are clearly in bed with the credit card companies you owe money to?
Let me provide this example here on a Canadian Bank website.
Laurie Campbell is the executive director of Credit Canada, a not for profit credit counselling agency. If you look at the “about us” page on their website and scroll down to the bottom, you can see that there are a number of directors influencing what they do.
The screen capture below discloses who their board of directors are.
I’m fortunate enough to have an employee here that worked at a non-profit credit counselling agency in Toronto for several years, he started as a credit counsellor then moved on to negotiating settlements for the credit counselling agency.
Here’s my conversation with Carl Bondi in my office.
I think it’s interesting that creditors sometimes tell people drowning in debt that they don’t deal with “for profit” companies (like Total Debt Freedom) that aren’t on their list of “recognized providers”. It’s a lie. Creditors, and their collection agencies rountinely deal with companies like mine, if not we wouldn’t have settled as much debt as we have. This plot is really just an attempt to try and scare you into their credit counselling programs. After all, they can control credit counsellors.
It’s not a coincidence that non-profit credit counselors are on their list. This is why creditors want you on their plan and not our plan
If you have credit card debt, call us today at 866 833 1992 and get a free quote and see how much you can save.
If our program isn’t the right fit, we’ll point you in the right direction. For free.
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