Credit advice may harm, not help

Each year, an estimated 9 million Americans come into contact with credit-counseling agencies. But consumer advocates warn that a small but growing number of them are actually harming debtors - with improper advice, deceptive practices, excessive fees, and abuse of nonprofit status.

The National Consumer Law Center and Consumer Federation of America issued a report last week detailing problems that have hit the industry in the past decade. Among them, credit-card issuers have reduced fees paid to credit counselors for helping to repay a debt. Citibank, for example, now pays 8 percent of money collected, down from 10 percent in 1999.

Credit-card issuers have also been more reluctant to reduce or freeze interest charges when a debtor starts working through a credit-counseling service.

As revenue has declined, most agencies have cut services and raised the fees they charge consumers. Complaints about credit counselors have increased fivefold over the past five years, according to the Better Business Bureau.

More than 1.5 million Americans declared bankruptcy in 2002. New mandates in federal bankruptcy legislation, which would require debtors to receive counseling before filing for bankruptcy, could increase contact between consumers and disreputable agencies, the report says.

It adds that high fees, counselors working on commission, and aggressive ads are some of the "red flags" that people should note before entering into an agreement with a credit counselor.